Public-private partnership (PPP)
A PPP contract has a private consortium design, build, finance and maintain a public facility for a periodic payment. PFI, the devolved models and SME access.
Updated on September 5, 2026
A public-private partnership (PPP) is a long-term public contract under which a private consortium designs, builds or refurbishes a public facility, finances all or part of it, and then maintains or operates it for twenty-five years or more. The authority pays for it through periodic payments spread over the life of the contract rather than up front. In the United Kingdom this family of contracts was known as the Private Finance Initiative (PFI) and, from 2012, PF2.
How it works
At the 2018 Budget the UK government announced that it would use neither PFI nor PF2 for any new project (verified 2026-09-05), on the grounds that the model was inflexible and a fiscal risk; existing contracts are being honoured to their end dates. Capital investment is devolved, so PPPs did not disappear from the islands. Wales procures under its Mutual Investment Model, used for the Velindre Cancer Centre, the dualling of the A465 and Band B of the 21st Century Schools Programme. Scotland continues to use the hub programme and the non-profit-distributing model overseen by the Scottish Futures Trust. In Ireland, the National Development Finance Agency procures and delivers PPP bundles for schools, roads and other public buildings on behalf of government departments.
There is no special PPP procedure. Under the Procurement Act 2023, which applies in England, Wales and Northern Ireland, a PPP is simply a public contract, or a concession contract if users pay, and is awarded above the works threshold of £5,193,000 including VAT through the competitive flexible procedure, almost always with several rounds of dialogue. Scotland applies its own 2015 regulations and Ireland the regulations transposing the EU directives, with the same practical result.
The winning bidder is normally a special purpose vehicle owned by a contractor, an infrastructure investor and lenders. It raises the debt and equity, delivers the asset, and receives an availability payment from the day the facility is usable, reduced when parts of it are unavailable or performance standards are missed. Unlike a concession, the partner does not carry demand risk: it is paid by the authority, not by users.
What it means for a bidder
PPPs cover large assets: hospitals, schools, roads, street lighting, prisons and digital networks. An SME will not be the partner. The way in is subcontracting to the construction contractor or to the facilities management company, or joining a consortium as a specialist member.
Contracting authorities must have regard to the barriers that small firms face, and bidding consortia are scored on their supply chain, local employment and social value commitments. Those commitments are fixed before final tenders are submitted, so approach the shortlisted consortia early, while their pricing is still open. Maintenance packages matter as much as construction: they run for decades and are re-let far less often.
Example
A Welsh health board procures a new treatment centre under a twenty-five-year Mutual Investment Model contract worth about £180,000,000, awarded after a competitive flexible procedure with two dialogue rounds. The winning consortium commits to placing a defined share of the works and of the lifetime maintenance with local SMEs. A heating and ventilation firm with thirty-five staff wins the mechanical maintenance for the whole contract period.
Frequently asked questions
What is the difference between a PPP and a concession?
In a PPP the authority pays availability payments and keeps demand risk. In a concession the operator is paid by users and bears the risk that they do not come.
Does the UK still sign PFI deals?
Central government does not sign new PFI or PF2 contracts. Wales, Scotland and Ireland run their own equivalent models, and existing PFI contracts remain in force for years to come.
Can an SME be the main partner?
In theory yes, in practice almost never, because of the capital and the guarantees required. The realistic route is subcontracting or consortium membership.