Capita blog: Ensuring financial stability throughout the lifecycle of a PFI contract

As the UK commits billions to PFI contracts, understanding the lifecycle of these agreements – especially as many near expiry – is crucial for local councils and the public sector to ensure financial stability and service quality.  

The UK is set to invest significantly in Private Finance Initiative (PFI) contracts, with more than £9bn allocated this year alone (source: gov.uk), and a staggering £48bn over the next five years. This trend is set to continue until the peak of contract expirations around 2030, marking a significant phase of asset transfer – worth £14bn in original capital value – back to public ownership.

At present, public buildings, including hospitals, schools, academies, and emergency services facilities, are maintained through PFI contracts worth more than £60bn. Typically, these contracts last for 25 years and ensure that the building’s safety, compliance, and condition are consistently upheld.

The escalating costs of PFI contracts

However, with numerous PFI contracts approaching their expiry, the public sector, including schools and local authorities, are facing mounting financial pressures. These pressures are particularly acute in major contracts for entities such as the NHS, where imminent expirations could add millions to operational costs. According to gov.uk data, the County Councils Network (CCN) will spend approximately £3.2bn on PFI in the next five years, with assets worth £636m transferring back to public ownership. Schools are not far behind, with an expected expenditure of £1.13bn on PFI contracts over the same period, leading up to a transfer of assets valued at £129m by 2030.

Strategic planning and collaboration

Despite the existing guidance on managing PFI contract expirations, there is a critical need for early and collaborative planning. This approach should be implemented during the operational phase and viewed from a system-level perspective, similar to practices seen in Integrated Care Boards (ICB). Such strategic foresight offers significant opportunities for cross-sector collaboration, which is essential for preventing value leakage from contracts. As an example, one Integrated Care System (ICS) was found to be spending over £160m annually across various NHS and local authority PFI contracts – a monumental amount given the pressures that the healthcare sector is already under.

Identifying and overcoming challenges

It’s clear there are challenges across the public estate, with the latest figures from gov.uk showing that around 38% of maintained schools are beyond their initial design life. Additionally, the NHS faces a backlog maintenance cost of £11.6bn, up 13% from the previous year.

A primary concern is ensuring a seamless transition that maintains service quality, with a particular focus on the meticulous transfer of asset data. The public sector must retain and integrate the knowledge and skills developed during the PFI into public estate management systems. Trusts and Boards have to navigate these complexities to ensure that the transferred assets and services are safe and effective from day one.

Recognising opportunities

While PFI contracts can sometimes seem burdensome, they also present many unique opportunities. Addressing the complexities of these contracts offers the chance to streamline operations and optimise resources and enhance the quality of services available to the local community. By effectively navigating the intricacies of PFI contracts, local councils can foster long-term financial stability and shift the focus back to delivering the high-quality services that their communities deserve.

Phil Bishop

Place Director, Local Public Service, Capita

Want to find out more? Contact the author phillip.bishop@capita.com to learn more.