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,...

Terminating UK PFI/PF2 Project Agreements: Grounds, Compensation, Funder Step-In Rights, Risks and Practical Alternatives

Published by a LexisNexis Construction expert

Practice notes

This Practice Note explains how a PFI or PF2 project can be terminated.

It outlines the ways termination may occur, and examines the aftermath, the risks tied to bringing a project to an end, and the practicalities that parties should factor in. In the 2018 Budget (delivered on 29 October 2018), the government announced it would stop using PF2 for new projects (see News Analysis: Budget 2018—what does it mean for infrastructure and housebuilding?). Nevertheless, existing PFI and PF2 arrangements will carry on and, given the usual duration of these schemes, are expected to do so for many years.

Both public and private sector participants have traditionally viewed ending a PFI as a ‘nuclear’ course, laden with risk and potential cost exposure. Yet pressure on public sector finances is considerable, and some authorities may regard terminating expensive PFI contracts as a credible option. Although termination entails dangers, the prospective benefits—leaving a politically unpopular, costly agreement and gaining greater control over service Delivery—can be compelling.

Specific drivers that may lead authorities to consider termination include:

a perceived lack of value for money in the Project Agreement
cost/budgetary

...

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Web page updated on 22/05/2026

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