Contributed By Winston & Strawn London LLP
The UK has long been at the forefront of public-private partnership (PPP) transactions. A PPP is a long-term contract between a private party and a government entity to provide a public asset or service in which the private party bears significant risk and management responsibility and remuneration is linked to performance. There is considerable precedent for this type of financing in the UK.
The IPA and NIC
The government established Infrastructure UK (IUK) in 2010 to co-ordinate and simplify the planning and prioritisation of long-term infrastructure projects, including PPP projects, and to promote private sector investment in infrastructure. In 2011 the Major Projects Authority (MPA) was established to oversee and assure the largest government projects, and in 2016 IUK and MPA merged to form the Infrastructure and Projects Authority (IPA), which is the government's centre of expertise for infrastructure and major projects. The core teams comprising the IPA include experts in infrastructure, project delivery and project finance who work with the relevant government departments and the various industry participants.
The UK National Infrastructure Commission (NIC) was established in October 2015 to provide advice to the government on major, long-term infrastructure challenges in the UK. In particular, the NIC is responsible for undertaking a National Infrastructure Assessment each session of parliament, making recommendations to the government and holding the government to account with respect to the implementation of such recommendations.
The procurement process for PPPs in the UK with a value in excess of the applicable financial threshold set out in the EU Public Sector Procurement Directive 2014/24/EU is governed by the Public Contract Regulations 2015. Formal tender processes (under these regulations) are viewed positively in the market and facilitate the financing of infrastructure projects.
The private finance initiative (PFI), traditionally used for capital-intensive projects, was previously the dominant PPP model in the UK. PFI projects entailed a private sector company, usually through a special purpose vehicle (SPV), financing, building, operating and maintaining a project in return for payment from the relevant public authority for the use of the project. Typically, at the end of a fixed period of time, ownership of the project was transferred to the public authority. In 2012, the government adopted a new approach to PFI known as Private Finance 2 (PF2) and all PPP documents followed the standard wording and guidance set out in the Standardisation of PF2 Contracts. In October 2018, in the wake of the collapse of construction firm Carillion, PFI and PF2 models were abolished as they were considered inflexible and overly complex and a source of significant fiscal risk to the government. Existing contracts under the PFI and PF2 models will be honoured but no new contracts under these models will be entered into. Given the crucial need for private sector investment in UK infrastructure, the market expects a new PPP model to be introduced, but it is not clear at this stage what form this will take.