Jurisdiction(s):
United Kingdom

Key definition

PFI definition

What does PFI mean? PFI (private finance initiative) describes, in practice, a long‑term public–private partnership under which a private sector special purpose vehicle (SPV) finances and operates, and usually designs and constructs, public sector assets or services. The public authority pays a performance‑linked unitary charge over the term. PFI is not a statutory definition but a policy and market label; the legal framework is found in the project agreement and related documents, HM Treasury guidance (including SoPC4), and public procurement law. Key features include limited‑recourse project finance, transfer of design, construction, lifecycle and maintenance risk to the private sector, availability‑based payment and deductions,...

UK PFI and PF2: project structure, standardisation (SoPC4/SoPFC2), funding and unitary charge, PF2 equity participation, post-2018 position, and key contractual and dispute issues

Published by a LexisNexis Construction expert

Practice notes

This Practice Note offers a high-level overview of the private finance initiative (pfi), outlining what PFI entails, how a standard PFI project is put together, and its core features. It also covers PFI’s successor, ‘pf2’. In the 2018 Budget, delivered on 29 October 2018, the government stated that PF2 will not be used for new projects. Even so, existing PFI and PF2 schemes will continue, and, given the usual lifespan of these arrangements, they are likely to run for many years.

What is PFI?

PFI is a way to procure the design, construction and operation of public services and public sector infrastructure such as hospitals, schools, leisure facilities, social housing, waste management, emergency services, defence, roads and highways, social care and prisons. Introduced in 1992 by the Conservative government and later keenly adopted by their Labour successors, it was regarded as a mechanism for moving public projects off the national balance sheet while partnering with the private sector to deliver schemes with substantial up-front capital costs that, under a more conventional approach, would have placed undue strain on the public finances...

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Web page updated on 22/05/2026

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