An initiative introduced by the government in 1992 to encourage private sector businesses to tender to local and central government authorities for the provision of public infrastructure and services.

PFI is a procurement method where the private sector finances, builds and operates infrastructure and provides long term services and facilities management through long term contractual arrangements (sometimes referred to as concession agreements).

Under PFI, the authority typically enters into a 25-year contract with a special purpose company (ProjectCo), the private sector entity. Once construction is complete and ProjectCo starts providing services, the authority makes payments to ProjectCo on a performance basis with deductions accruing for performance falling below agreed levels. At the end of the concession, ownership of the asset will often transfer to the authority, although different solutions can be adopted, depending on the nature of the project.

The government retired PFI and PF2 (a revised form of PFI introduced in 2012) for new schemes in 2018 because of their fiscal risk, inflexibility and complexity. Its National Infrastructure Strategy, published in November 2020, confirmed that it would not reintroduce the PFI or PF2 models to procure and finance future projects.

The government still makes payments of nearly £10 billion a year on existing PFI, PF2 and other associated contracts entered into by previous administrations and is currently funding a programme of work to review PFI contracts, to ensure they are well managed. This includes providing support for authorities taking back PFI assets as contracts expire and delivering extensive contract management training across the public sector.