Introduction to PFI and PF2
Introduction to PFI and PF2

The following Construction guidance note provides comprehensive and up to date legal information covering:

  • Introduction to PFI and PF2
  • What is PFI?
  • Key features of PFI
  • Standardisation of documentation
  • Payment for the project
  • What is PF2?

This Practice Note provides a broad introduction to the Private Finance Initiative (PFI). It looks at what PFI is, the structure of a typical PFI project and its key features. It also considers PFI’s successor, ‘PF2’.

In the 2018 Budget (delivered on 29 October 2018), it was announced that the government will no longer use PF2 on new projects (see News Analysis: Budget 2018—what does it mean for infrastructure and housebuilding?). However, existing PFI and PF2 projects will continue to run and, given the typical lifespan of such projects, this is likely to be for many years.

What is PFI?

PFI is a method of procuring the design, build and operation of public services and public sector infrastructure projects such as hospitals, schools, leisure facilities, social housing, waste management, emergency services, defence, roads and highways, social care and prisons.

PFI was introduced in 1992 by the Conservative government and enthusiastically embraced by their Labour successors. It was seen as a way of taking public projects off the country's balance sheet and working with the private sector to supply public projects with significant up-front capital costs that would have unduly strained the public finances if procured under a more conventional model. Rather than the public sector making a single large capital payment the project is funded by private sector equity and debt funding