9.10 Private finance initiatives

Question 1

What is the private finance initiative (PFI)?

Answer 1

A important and controversial policy designed to provide funds for major capital investments. i.e. private firms are contracted to handle costs, complete and manage public projects.

Question 2

When was PFI introduced in the UK?

Answer 2

1992

Question 3

What is the typical repayment term for a government PFI contract?

Answer 3

30 years

Question 4

Why are PFI contracts controversial?

Answer 4

Due to wasteful spending built into public sector procurement agreements that are part of PFI projects. e.g. increases to NHS hospital car parking charges

Question 5

What are the advantages of PFI?

Answer 5

• public sector does not have to fund large capital outflows at the start of a project
• public obtains valuable operational and management expertise from the private sector
• private sector takes risks of financing, constructing and managing the project
• PFI contracts are usually fixed price contracts
• PFI projects go through a bidding process, allowing healthy competition

Question 6

What are the disadvantages of PFI?

Answer 6

• high annual cost charged to the public sector
• a loss of control of the public sector
• poor value for money
• administration costs associated with advisors and lawyers can be huge