Jurisdiction(s):
United Kingdom

Key definition

Direct Agreement definition

What does Direct Agreement mean? A direct agreement is a contract used in project finance, PPP/PFI and construction to give a funder or public authority a direct relationship with a contractor, key sub-contractor or consultant (the promisor). It is a descriptive market term, not defined by statute or case law, and its use is broadly consistent across England and Wales, Scotland, Northern Ireland and Ireland. Typically executed as a deed in England and Wales, Northern Ireland and Ireland (and as a formally executed written agreement under Scots law), it grants the beneficiary (for example the Authority or the lenders) direct rights and remedies...

UK PFI/PF2 direct agreements: step-in rights, HM Treasury standard terms, funder/authority priorities, novation and collateral warranties

Published by a LexisNexis Construction expert

Practice notes

This Practice Note explores the purpose of a Direct Agreement in the specific setting of a PFI or PF2 project. It outlines the types of direct agreement commonly provided and explains how such an agreement operates, including the mechanics of step-in rights. It also clarifies the distinction between direct agreements and collateral warranties within PFI and PF2 arrangements.

In the 2018 Budget (delivered on 29 October 2018), the government announced it would cease using PF2 for new projects (see News Analysis: Budget 2018—what does it mean for infrastructure and housebuilding?). This approach was confirmed in the National Infrastructure Strategy in 2020. Existing PFI and PF2 projects will nevertheless continue and, given their usual lifespan, are likely to run for many years.

What are direct agreements?

A direct agreement is a relatively brief tripartite contract. Its primary aim is to enable the Beneficiary under that agreement to step into Project Co’s role—either directly or via a nominated substitute—where Project Co has defaulted under the principal project contract to which the direct agreement relates...

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Web page updated on 22/05/2026

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