17 February 2014

PF2 - One year on

PF2 - One year on image

Just over a year ago, the Government's revamped PFI model – PF2 – was born. In this article, we revisit the changes introduced by PF2 and look at what progress has been made over the last year.

Key changes

PF2 introduced a number of measures, many of which were broadly in line with the responses that theindustry fed into the call for evidence. Here's a reminder:

1. Public sector equity

A significant change was the concept of direct equity investment by a central government unit (CGU), as well as the introduction of third party equity at a later stage of the procurement process.

The rationale for this was that it would help to create a long term partnership, maximise value for money for the public sector, improve transparency and allow HMT to take a 'portfolio' approach to public sector investment through CGU. This is similar to the LEP model under BSF whereby local authorities invested directly alongside central Government.

2. Accelerating delivery

For all of its successes, a fundamental flaw remained – projects took long to procure. HMT hope to have addressed this concern. IUK and central procurement units have been in recruitment mode over the last year and there is more emphasis on streamlining procurements to ensure the tender phase (to appointment of preferred bidder) takes no longer than 18 months.

Local authorities considering PF2 should bear in mind that the new, streamlined/centralised procurement approach is likely to affect how they procure their projects. Handing greater control to HMT may be a bitter pill to swallow for some.

3. More flexible service provision

Soft FM is no longer a key feature of a project, but procuring authorities are expected to give thought to including provisions to allow some flexibility around minor maintenance obligations and elective services.

4. Lifecycle

To counter the perception that bidders make windfall gains out of the lifecycle model, a new lifecycle approach came to bear. Now, the profiled lifecycle spend is reviewed against the actual lifecycle spend every five years, giving the procuring authority greater transparency of costsand, perhaps more importantly, ashare in the benefit of any lifecycle surplus.

5. Greater transparency

PF2 provides the Government with much more detailed project specific information. The new provisions will make contractors more accountable and provide more information to Authorities than ever before.

Though much of this information could already be obtained by CGU having a seat at the table at board level via its equity stake (each shareholder is entitled to appoint a director for every 15% of shares it holds in the SPV), we suspect bidders will reluctantly accept these changes as part as the rules of the game.

PF2 in practice

Anyone who was hoping that PF2 would be the tool to revive the fortunes of the UK infrastructure sector will be sorely disappointed.

The first project mandated to adhere to PF2 – the Priority Schools Building Programme (PSBP) – was launched last summer. After much anticipation, the scale of PSBP was dramatically reduced even before it had got going - just 46 schools will be procured.PSBP is being procured by centrally by the Education Funding Agency – might this reduce the scope for schools to tailor design to their individual needs and result in a 'one size fits all' approach?

Lack of a pipeline

Beyond PSBP, which now only comprises five batches of schools, there are just a handful of projects in the pipeline.

Little comfort can be found in the latest iteration of the National Infrastructure Plan. Much of the future UK infrastructure need is driven by technology and economic need. As PF2, and PFI before it, is best suited to availability based accommodation based projects (with no demand risk), the risk is that the prospect of a proper pipeline, in reality, may only be a pipe dream.


Despite the successful delivery of the vast majority of PFI projects over the years, it has been difficult to shake off the negativity that has surrounded the industry in light of political criticism and public perceptions.

It was hoped that the launch of PF2 would bring an end to such criticism but without a pipeline of projects that demonstrate how PF2 fixed PFI, that bad press may hang round for a while longer.

Ian Pumfrey, projects and Infrastructure practice, law firm Stephenson Harwood LLP.

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