Research and Analytics

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CIPFA Private Finance Initiatives / Public Private Partnerships


February 2006
Introduction

This publication provides details of Private Finance Initiatives (PFI) and Public Private Partnerships (PPP) across all sectors of Local Government. It includes information on project costs and financing, budgeted and actual times of work undertaken and detailed descriptions of any outputs, expectations and problems encountered.

Background

Since 1997, PFI has increasingly provided a source of funds for local authorities, to build new facilities and refurbish existing assets.

PPP is the umbrella name given to a range of initiatives involving the private sector in the operation of public services. PFI is the most frequently used of these initiatives where large investment in public projects is required.

It is government policy to encourage the use of private finance instead of borrowing directly. The use of private sources of finance within the public sector is not new, but prior to 1992 it was positively discouraged by successive governments. In his 1992 Autumn Statement, the Chancellor of the Exchequer announced a radical change in policy aimed at increasing the scope for the private financing of public projects.

The government was now prepared to recognise that some of their criteria for approving the use of private finance (mainly within the nationalised industries) were unfair, and that the test that really mattered was whether a privately financed scheme could operate profitably. Moreover, a more flexible approach was to be allowed to encourage joint ventures between the public and private sectors. Private finance was allowable where a sensible transfer of risk to the private sector took place.

The incoming Labour government in May 1997 enthusiastically embraced the concept of private finance to fund public services and has gradually established a support system to enable the wider public sector to engage with the PFI.

More in-depth coverage of PFIs and PPPs can be found in the Institute’s Technical Information Services information stream, 'Capital' found at www.tisonline.net and the government’s website www.local.dtlr.gov.uk/pfi and local government procurement expert www.4ps.co.uk.

Overall Picture

Of the 320 responses to the survey, 102 Authorities had entered into PFI/PPP projects, covering between them a total of 184 projects. A sector, department, regional and date of approval breakdown of these projects is shown in tables 1 to 4. The sector breakdown in table 1 shows that by far the highest proportion of projects fall into the category of education, which covers 42% of those reported. Transport and street lighting is the next highest at 11%.

The average value of waste management projects remains the highest at £230m per project. This figure is more than double all other sector averages aside from the police service. Fire service projects have the lowest average value at £30m. Further details on the types of projects in these sectors are provided in Section 1 (pages 10 to 26).

Projects by Sector
Figure 1 illustrates the number of projects by sector, further emphasising the use of PFI/PPP in education as compared to other service areas.

Number of projects by Sector
Table 2 and figure 2 illustrate the number of projects broken down by Government sponsoring department. Not unexpectedly, when considering the sector split, DfES accounts for the highest number followed by Scottish Executive and ODPM. Again, as per the sector split, DEFRA has the highest project average value at £324m.

Projects by Sponsoring Department
Number of projects by Sponsoring Department
The regional breakdown shown in Table 3 indicates a wide spread of projects across the UK. Interestingly, projects within the South East, excluding London, have by far the highest average value at £245m.

Projects by Region
Figure 3 further illustrates the number of projects by region, with a high number in Scotland and the North West.

Number of projects by Region
The year of approval analysis shown in table 4 indicates that the number of PFI/PPP projects appears to be on the decline since the peak of 2002 and 2003.

Projects by Year
Timings

Tables 5 and 6 summarise the average budgeted and actual timings between each stage of a PFI/PPP project. The actual length of time taken between Project Review Group (PRG) / Scottish Executive approval and contract signature is on average slightly longer than the budgeted time. The time between both contract signature and the start of service provision and the start and end date of core capital, however, was on average less than budgeted.

Average Budgeted Times
Average Actual Times
Costings

Table 7 summaries the average PFI/PPP project costs. The average project cost is £109.6 million, of which 45% are capital costs and 55% revenue. This split differs across sectors with the highest capital proportion for housing (82%) and the lowest for waste management (19%).

Average Project Costs
Table 8 illustrates the average project financing costs. Approximately half came from Government Grants with the majority of the remainder coming from Local Authority revenue sources, which suggests that Government Grants form the most significant element of Capital financing.

Average Sources of Finance
Value for Money is used to express the financial benefit in percentage terms of the contract when compared to the public sector cost for the scheme as used by the sponsoring department. On average, projects have proved to be a 9.5% more beneficial solution than the in-house alternative.

Table 9 shows that procurement costs averaged over £1 million for all services, with waste management, transport and street lighting and education projects incurring higher than this amount.

Procurement Costs
Staffing

Table 10 shows that staffing levels for PFI/PPP projects averaged 6.7 FTEs, comprising 60% in-house staff and 40% external consultants. On average, almost 65 staff or FTEs transferred to the Private Sector as a result of each project.

Average Staff Levels
Satisfaction and Consideration

Table 11 summarises post-project opinions. For more detailed views, please refer to the relevant columns in the main tables. A very high proportion (97.5%) of authorities would still have undertaken their project(s) in hindsight. Table 12 illustrates how many Local Authorities have considered undertaking PFI/PPP projects but ultimately not gone ahead.

Project Satisfaction
Project Consideration

February 2006

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