Private Finance Initiative (PFI)

• Developed in the UK, PFI is a method developed to provide private company financial support for public-private partnerships (PPPs) between the two parties. This model has now been adapted in many countries (including Europe, Australia and Canada) seeking alternative delivery methods for key public entity or agency infrastructure.
  
  
• PFI projects transfer the delivery risk from the public entity or agency to the private company, with a clear link to the public entity's or agency's payment for an asset to its ongoing usage, availability, and condition or facility maintenance services over its lifetime. Under the PFI method, the private company will finance the creation of an asset and accept financial and technical responsibility for construction and its subsequent operation and maintenance. The public entity or agency pays for the capital asset and facility management services over an extended period, typically 30 years.
  
  
• PFI projects deliver operational services for the public entity or agency and the private company receives payment. Capital investments are made by the private company and the public entity or agency provides services agreed upon in a contractual obligation. In most cases, the private company forms a project company to use in the contract with the public entity or agency. The project company will enter other principal subcontracts. One is usually with a construction company and the other is a facilities manager to build and maintain the project asset. They fund construction through an equity/subordinated debt from lenders and also long-term debt raised from the banking or the bond markets. The project company is compensated when the asset is available for use by payments, indexed to inflation, over the 30-year period to cover service of capital and all operating, maintenance and ancillary service costs.
  
  
• At the end of the contract period the properties revert to public ownership free of charge. Because of the life cycle investment carried out by the private company, the properties are relinquished to the public entity or agency in “good as new” condition. The private company provides guarantees for all elements of the buildings for extended periods, typically ten years for mechanical and electrical systems and another 30 years for the structural aspects of the building or assets.
  
  
• Both the public entity or agency and private company have an interest in attracting cost-effective financing. Financing through long-term bank debt or bonds is often less expensive than the equity alternative, however, the risk transfer is much greater on PFI projects, thereby providing value for money for the public entity or agency over a long-term contract period. As the income from PFI projects is received from the public entity or agency, the optimal financing method is to use the income to raise private sector debt funding. Project financing, based upon the project's cash flow, is also known as non-recourse financing.
  
  
• Structuring a PFI project involves a contractual structure that insulates the repayments to debt providers from project risks, while providing the optimal amount of true risk capital in the form of equity shareholder funding.
  
  

Few companies have the experience or the financial capability to undertake the next generation of PPP projects. Balfour Beatty Investments has both.

Superior PPP programs require deep experience, proven ability, and unwavering commitment, and that's precisely what Balfour Beatty Investments brings to our clients/partners through our innovative operating companies: Balfour Beatty Investments in the U.S. and Canada, Balfour Beatty Campus Solutions, and Balfour Beatty Communities.