Understanding the Public Services Industy

Public Services Industry Review
4. Use of the PFI model
4.13 One of the major innovations in public service delivery over the last twenty years has
been the Private Finance Initiative (PFI). Under the PFI model a public sector body
procures a multi-year bundle of services rather than an asset from a private contractor.
The PFI supplier is responsible for provision of any assets required to deliver the
service and also for raising the necessary finance. They are compensated for this
through an annual service charge levied on the public sector body, and/or fees paid by
users of the service 34 . For most PFI projects this allows the public sector to substitute
a stream of annual payments over the life of the project for a large up-front capital
expenditure. It does not mean that the government avoids paying in full for the service,
only that the timing of its expenditures has changed (Box 4.3).
34 An example of the latter would be a toll bridge.
40