Print Page

Bookmark Page

Definitions

PPP Definition

PPPs are a key element in the UK Government's strategy for delivering modern, high quality public infrastructure and services and a more competitive economy. The UK Government develops PPPs with three broad objectives in mind, namely:

• To deliver significantly improved public services, by contributing to increases in the quality and quantity of investment
• To release the full potential of public sector assets to provide value for the tax payer and wider benefits for the economy
• To allow stakeholders such as the users of the service, tax payers and employees to receive a fair share of the benefits of the PPP

PPP brings together, for mutual benefit, a public body and a private company in a long-term joint venture for the delivery of high quality public services. The UK Government recognises that, from experience, the public sector is not always best placed to deliver major investment projects and that the private sector can bring benefits such as:

• A challenge to inefficiency and the development of imaginative approaches to delivering public services
• An incentive to invest in the provision of high-quality assets to optimise long-term maintenance and operating costs
• Better management of the risks associated with completing complex investment projects to time and budget, and providing quality services thereafter, as payment only occurs when the assets are complete and the service is being delivered

Drawing on the best of the public and private sectors, PPPs provide additional resources for investment in public sectors and the efficient management of the investment. PPPs cover a wide range of different types of contractual and collaborative partnerships, including:

• The Private Finance Initiative (PFI)
- HM Treasury definition
• The introduction of private sector ownership into state-owned businesses
• The sale of Government services into wider markets
• The generation of commercial activities from public sector assets through, for example, the Wider Markets Initiative (WMI)

PFI Definition

The PFI is the most successful and prolific form of PPP to date, and is used to deliver services only after rigourous assessment has shown that it will provide better value for money compared to traditional public sector investment.

Investments through PFI contracts currently represent circa 10-15% of total investment in public services in any one year and in total 725 projects had been signed by September 2005.

PFI allows the public sector to contract with the private sector to provide quality services on a long-term basis, typically 25-30 years, so as to take advantage of private sector infrastructure delivery and service management skills, incentivised by having private finance at risk.

The private sector takes on the responsibility for providing a public service against an agreed specification of required outputs prepared by the public sector.

The private sector carries the responsibility and risks for designing, financing, enhancing or constructing, maintaining and operating the infrastructure assets to deliver the public service in accordance with the public sector's output specification.

The public sector typically pays for the project through a series of performance or throughput related payments, which cover service delivery and return on investment. Central Government may provide payment support to the public sector through grants and other financial mechanisms.