PF2—the difficult second album

PF2—the difficult second album

Will changes contained in the second private finance initiative (PF2) silence the critics of PF1? Rachel Chaplin, professional support lawyer, and Robert Franklin, legal director at Clyde & Co, look at the evolving landscape of infrastructure financing.

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Click here for the Private finance 2 Report

The introduction of a ‘control total’ to limit payments under the PFI and PF2 contracts to £70bn over the five years from 2015–16, would not remove the budgetary incentive for individual departments to choose PF2 over traditional procurements, concludes a report from the House of Commons Treasury Committee on how PF2 is working. The Committee expresses concern, among its other conclusions, that the introduction of control total will fail to address the budgetary incentives to use private finance.

What are the key challenges that have beset PFI?

Rachel Chaplin (RC): One of the key challenges for PFI in the UK has been demonstrating that it has fulfilled its original aim of achieving better value for money for taxpayers in delivering infrastructure assets on time and within budget, and maintaining those assets cost-effectively on a long-term basis. In spite of the newspaper headlines decrying the billions spent on PFI as a waste of money, there are well-managed contracts achieving value as originally intended.

Robert Franklin (RF): Supporters of the private finance model would argue that it embodies principles which are sound, but acknowledge that there have been issues when it comes to execution. These have included:

  • inappropriate risk allocation
  • lack of data or inadequate data collection
  • lack of flexibility, and
  • length of procurement process—although the latter two are to some extent constraints inherent within the model

RC: The Treasury Committee has opined in a previous report that PFI has led to ‘sub-optimal value for money’ (Report: Private Finance Initiative) in some cases,

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About the author:

Meet Kate:

1. Banking & finance lawyer with experience in syndicated lending and project finance in London, Paris and Sydney

2. Likes yoga, DIY (although the output doesn’t generally reflect the input) and sunny climes

3. Thinks the law is very unlike how LA Law made it look

Kate is a solicitor specialising in banking and finance with particular emphasis on syndicated lending and project finance. She has acted for both borrowers and lenders on a wide range of finance transactions, often involving multiple jurisdictions.

Kate trained and qualified in the Debt and Derivative Securities team at Allen & Overy LLP. She later joined the Banking and Finance team at Freehills (now Herbert Smith Freehills) in Sydney. Most recently, she was in the Projects and Infrastructure team at Norton Rose LLP before joining LexisNexis. Kate is dual-qualified in England and Wales and New South Wales, Australia.