PFI, or the Private Finance Initiative, was originally introduced in 1992 as a way of financing the much-needed regeneration of a tired public building estate. The scheme was accelerated from 1997 onwards, and was used to build many schools, hospitals, prisons and other public infrastructure buildings and facilities.
Under the terms of a PFI contract, a group of investors (funders) forms part of a so-called Special Purpose Vehicle (SPV) to fund the building, typically along with a main contractor (builder) and FM (facilities management) contractor.
Generally, at handover, the builder is paid, leaving the FM provider and SPV in place – the former to run the building and the latter to recoup their investment and make a profit through charging the owner an annual fee over an agreed period – typically 25 to 30 years (very much like a mortgage).
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