PF2 – a new brave world of PF2 projects

The Government has made it clear (in its Autumn statement, January Green Paper and Spring Budget) that the UK is about to raise its game when it comes to domestic infrastructure. The Government targets infrastructure growth of almost 60 per cent over the next four years – much of which will be delivered through PF2; the revamped sister of PFI.

The Government has confirmed that it will set a pipeline of new PF2 projects very soon (“early 2017”). It is understood that schemes covering healthcare, transport, new prisons and new defence accommodation are all in the pipeline to be developed under the PF2 model. And to back up the pledge of infrastructure growth, it has committed to £40 billion Treasury-backed guarantees which will help the industry raise finance for infrastructure projects.

PFI was introduced in order to engage the private sector in the design, build, finance and operation of public infrastructure. The aim was to deliver good quality and well maintained assets without the initial outlay of capital expense. It has been used across a broad range of sectors and has become the market norm for project finance in the UK. Despite its widespread use, PFI has recently come under some heavy criticism. When approached by clients concerned about operational PFIs, the two most common issues we hear about are:

• Quality of service 
• Affordability

While those issues can sometimes be addressed by better operation and performance management of the PFI contract, PF2 seeks to address many of the perceived weaknesses of PFI upfront by introducing new provisions, including: 

• Strengthening the “partnership feel” through authority equity participation. 
• Ensuring a more accelerated procurement phase. 
• Introducing a more flexible service provision through, for example, retention by the public sector of certain services, typically soft FM such as cleaning and catering. There is also additional flexibility to add or remove services once a contract is up and running. 
• Greater transparency - the PF2 standard contract gives the procuring authority greater visibility and control over the contract operations. 
• The procuring authority takes on some additional risk (which it is better placed to managed for example in relation to change in law) to maximise value for money.

As ever, the proof of the pudding is in the eating but one thing is very likely: we should see a large wave of new PPP projects delivered through the “new” (2012) PF2 model.