Appendix 7: Experience in the United Kingdom

Achieving public sector outcomes with private sector partners.


In the United Kingdom (UK) the term public private partnership is used differently from Australia. PPP in the UK is much broader and refers to an ownership structure.62 According to the Treasury:

Public Private Partnerships bring public and private sectors together in long-term partnership for mutual benefit. The PPP label covers a wide range of different types of partnership… 63

In addition to the Private Finance Initiative (PFI) these schemes include the sale of a majority or minority stake in an enterprise which the government previously owned; joint ventures, franchises, concessions; and other partnership arrangements where private sector expertise and finance are used to exploit the commercial potential of government assets.

The PFI was launched by a Conservative Government in 1992, and adopted by the incoming Labour Government in 1997. It is essentially a procurement tool. In the Treasury definition:

…the public sector contracts to purchase quality services, with defined outputs, on a long-term basis from the private sector … including maintaining or constructing the necessary infrastructure.64

PFI corresponds in general terms to the way the term PPP is used in Australia.

Both major political parties support the PFI and PPP (or PPP/PFI as the approaches are often referred to in the UK). The PFI has a “small but important role in the delivery of the Government’s investment plans for public services”.65 It constitutes just over 10% of total public sector investment in infrastructure, and covers almost every aspect of public services – including hospitals, prisons, transport infrastructure, and schools. However, the general view – and certainly that of the Treasury – is that PFI is “inappropriate for frontline services”, such as clinical health services and education.66

The support arrangements for PPP/PFI have improved considerably, and there have been regular reviews. After expected benefits from early PFIs were not achieved, a dedicated task force was established in the Treasury in 1997. It produced standard contract conditions in 1999.

The task force disbanded in 2000, with its support responsibilities going partly to the Office of Government Commerce (OGC), and partly to a new organisation, Partnerships UK. This organisation was itself a PPP – a joint venture company with a majority stake held by the private sector “…managed on commercial lines but with a public interest mission”.67

The aim of Partnerships UK is to “support and accelerate the delivery of infrastructure renewal, high quality public services and the efficient use of public assets through better and stronger partnerships between the public and private sectors”. It is a central resource of professionals drawn from the public and private sectors with PPP/PFI procurement expertise, and it works solely on behalf of the public sector, providing an improved client capability. In addition to providing advice, it works as a PPP/PFI developer, such as through entering into agreements with the public sector to jointly procure PFI projects.

In April 2003, PPPs were transferred from the OGC back to the Treasury – the lesson was that control from the centre of government is necessary if PPPs were to be implemented widely.68

A local government agency, 4ps (public private partnerships programme), has also been established to provide advice, guidance, and skills enhancement to local authorities on procurement, PPPs, and PFIs.

Current position

The PPP/PFI programme has achieved the “small but significant role in the delivery of public sector investment plans” quoted earlier.69 The Treasury expects it to continue to be “limited in scope”. Over the period 1998-99 to 2003-04, PFI investment has remained relatively constant at between 10% and 13.5% of total public sector investment in infrastructure. It has involved over 600 deals incorporating future payments of over £100,000 million.

Recently, Partnerships for Health (PfH), a joint venture between the Department of Health and Partnerships UK, and Partnerships for Schools (PfS), a joint venture between the Department of Education and Skills and Partnerships UK, have been established. Part of the remit of these joint ventures is to devise a standardised procurement approach for the health and education sectors respectively, and to create a sustainable, predictable flow of transactions (including bundling of smaller projects) to enable the private sector to plan future capacity to bid for and implement such schemes.

Concerns have been raised about the variable quality of advice provided to public entities by external consultants, which can have a direct effect on the length of time and cost of implementing PPP/PFI projects.70 A scheme has recently been introduced for accreditation of advisers to the public sector, based on their demonstrated expertise and performance in PFI projects in fields such as law, finance, and commercial structuring.

The PFI has been less prominent in information technology projects, where the mainstream PFI focus on defined outputs may conflict with the greater need for project flexibility in a fast-moving area.

New areas for PFI investment are being considered, such as:

…moving in the prisons sector from the construction and management of new build prisons to management of the prisons estate, urban regeneration, waste management and social housing.71

Reasons for choosing this procurement approach

At a national level, PPPs and the PFI are seen as a significant way of achieving:

…a key priority for this Government … to increase investment in Britain’s public services after many years in which the public sector asset stock was allowed to deteriorate.72

The way the PFI approach draws on private sector capital means that departments do not need to find all the money for new capital assets at the outset of their construction. This can make PFI attractive to departments and enable them “to undertake projects which they would be unable to finance conventionally”.73

Future maintenance is a particular priority:

In the past, capital has often been invested without a clear commitment to adequate future spending on maintenance, leading to poorly maintained assets, high running costs, inefficient service provision and premature replacement. In contrast, PFI invests in the future because it ensures that assets are maintained properly and can revert to the public sector at the end of the contractual period in good condition.74

There have been concerns about “the risk that departmental priorities may be distorted in favour of those projects which are capable of being run as PFI projects”75 – for example, the risk that PFI schemes are favoured as a procurement process that keeps down what is seen as public expenditure by being “off-balance sheet”, or because they qualify for PFI credits (available to local government).

However, the Treasury is firmly of the view that the decision to undertake PFI investment must be taken on value-for-money grounds alone, and whether it is included in the balance sheet is not relevant to the choice of procurement route. It maintains a commitment to ensuring that there is no inherent bias in favour of one option over another.76 The National Audit Office supports this view.77

Value-for-money considerations that have been quoted include a focus on customer requirements, incentives for new and innovative approaches, and business and management expertise. These benefits derive from the way the private sector market exerts a powerful discipline on private sector management and employees to maximise efficiency and take full advantage of business opportunities.78

However, this needs to be balanced against a review by the Scottish Parliament’s Finance Committee that found some evidence that public sector project management skills had matured enormously over the previous 10 years, and that generally none of the potential value-for-money benefits were uniquely available from a PFI, since other procurement routes could potentially offer those benefits.79

The Audit Commission has also found, in relation to a review of schools that had been traditionally funded against PFI schools, that not all the value-for-money benefits cited by the Government are yet evident, apart from the fact that the PFI achieved long-term committed funding for maintenance over the life of the schools.80

The Association of Chartered Certified Accountants has also questioned the value of the public sector comparator, maintaining that it quickly becomes out of date, making it impossible to compare the actual costs of PFI, and consequently value for money, against the original public sector comparator.81

Finally, the track record in relation to PFIs in the UK is also quoted as a reason for opting for this approach to contracting. Research commissioned by the Treasury concludes that the PFI is delivering savings of 17% over traditional forms of procurement, and that PFI projects are being delivered on time and on budget, significantly outperforming non-PFI projects on both grounds.82

This research needs to be qualified by findings of the Treasury in relation to smaller projects (capital values below £20 million), where it has found that procurement times for small projects were broadly similar to that of larger projects, “meaning that times were disproportionately long” and costs “disproportionately high”.83


Because of the long-term nature of PFI projects and the complexity of the arrangements, it has proved very difficult yet in the UK to arrive at uncontroversial judgements on the extent to which PFI has achieved the benefits claimed for it. However, as the Audit Commission commented on its review of schools:

There is important learning from these early PFI schemes … learning from experience should strengthen the skills of PFI procurers and improve providers’ understanding of client needs, leading to faster delivery and lower costs…

In other words, PFI needs to be allowed “to come of age and prove its potential to … [improve] value for money”.84

The Treasury also acknowledges that further research will continue to be needed as projects have longer periods of operation. It identifies that, in the early performance of the PFI, expected benefits did not eventuate, and its review in 2000 brought a new focus to “learning the lessons of the past”.85

62: PFI: meeting the investment challenge, HM Treasury, July 2003.

63: Public Private Partnerships: The Government’s Approach, HM Treasury, 2000.

64: Ibid.

65: PFI: meeting the investment challenge, HM Treasury, July 2003.

66: Geoffrey Spence, Head of the Private Finance Unit, HM Treasury, 2004 National Audit Office PFI/PPP Conference.

67: Public Private Partnerships: The Government’s Approach, HM Treasury, 2000.

68: ‘PPPs: Nature, Development and Unanswered Questions’, Jane Broadbent and Richard Laughlin, Australian Accounting Review, Vol. 14, No. 2, 2004.

69: PFI: meeting the investment challenge, HM Treasury, July 2003.

70: Ibid.

71: Ibid.

72: Public Private Partnerships: The Government’s Approach, HM Treasury, 2000.

73: Examining the value for money of deals under the Private Finance Initiative, UK National Audit Office, August 1999.

74: Public Private Partnerships: The Government’s Approach, HM Treasury, 2000.

75: Examining the value for money of deals under the Private Finance Initiative, UK National Audit Office, August 1999.

76: PFI: meeting the investment challenge, HM Treasury, July 2003.

77: Sir John Bourne, Comptroller and Auditor General, National Audit Office, 2004 National Audit Office PFI/PPP Conference.

78: Public Private Partnerships: The Government’s Approach, HM Treasury, 2000.

79: Report on Public Private Partnerships, Scottish Parliament Finance Committee, 5th Report, 2002, Volume 1.

80: Summary, PFI in Schools, Audit Commission, 30 January 2003.

81: Evaluating the operation of PFI in roads and hospitals, Edwards, Shaoul, Stafford, and Arblaster, ACCA Research Report No. 84, 2004.

82: PFI: meeting the investment challenge, HM Treasury, July 2003.

83: Ibid.

84: Summary, PFI in Schools, Audit Commission, 30 January 2003.

85: Public Private Partnerships: The Government’s Approach, UK Treasury, 2000.

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