Under a PFI structure, the private sector is responsible for the initial costs of the project. After its completion the project is then leased to the public partner, by which they make annual payments, with interest, to the private company to recuperate their investments. These contracts are structured to span over the lifetime of a project and can last 30+ years (National Audit Office, 2018). In 2012, the Chancellor George Osborne’s infrastructure policy essentially rebranded PFI as ‘PF2’ ensuring parliament the “taxpayer would no longer lose out”. However, after six years, 68% of the population of England and 76% of the population of Scotland say PFIs should be banned (Jubilee Debt Campaign, 2017) and costing tax payers an estimated £148m, Hammond has announced that PFI has failed the taxpayer (BBC, 2018). The PFI model’s implementation has been falling since 2008 and reached an all-time low in 2014 (Jubilee Debt Campaign, 2017).

Hammond alluded a key focus moving forward will revolve around risk transfer from the public to the private sector but failed to touch on value or a balanced approach to holding risk. The Office for Budget Responsibility noted the PFI structure posed significant financial risk to the public sector without adequately reciprocating that risk to the private sector. Given, in order to ensure the private partner operates efficiently and delivers a successful project, it is necessary to transfer risk (The Office for Budget Responsibility, 2018). However, risk is a broad spectrum and should be carried by the contractual party which is best suited to manage it and not blindly offloaded to the private sector.

Typical PFI risks include:

• Regulatory and legislative;
• Planning, design and construction;
• Unexpected project delays;
• Insurance and workforce risks
• Ultimate responsibility and costs associated with operating and maintaining the asset;
• Direct exposure to financial risk;
• Unexpected interest rate fluctuations; and
• Debt structure and demand risk.

Failure to fully understand the risks the public sector is transferring to private companies is a key reason for PFI and PF2’s failure. This was primarily driven by a failure to understand the differences in quality provided by rival bidders because procurement decisions were driven by price, subsequently resulting in lower quality end-products. The UK’s National Audit Office has identified a need for more than £300bn in social and economic infrastructure by 2020/21 (National Audit Office, 2018). With these mammoth demands, it’s financially infeasible of the public sector to exclude the private sector.

PFI and PF2 critics have noted since the introduction of PFI in 1992, and the re-introduction as PF2 in 2012, the Treasury is unable to produce evidence to support its claims the PFI is worthwhile – apart from the fact it removes debt from the balance sheet. Hammond said the existing 700 active PFI and PF2 contracts will be honored, but there will be no new deals under the PFI and PF2 structure (Guardian, 2018). However, Public Private Partnerships (P3) projects include both qualitative and quantitative aspects, which is something that appeared to be overlooked in the PFI procurement strategy. Typically, P3 projects work towards an optimal combination of quantity, quality, features and price across the entire life of the project. As such, P3 projects should not be focused solely on price and should strive to comprehensively encapsulate the interests of the users (i.e. the public) as both taxpayers and beneficiaries of the project’s services. Therefore, in order to deliver value for money, quality versus cost should be a principle driving force, rather than excluding quality and focusing solely on the price.