Frequently Asked Questions

What is PFI?

Private Finance Initiative (PFI) is the means by which public sector services are delivered by the private sector. The up-front capital investment is made by the private sector to put in place an efficient service; the private sector then delivers the service over a long period, typically 25 to 30 years (known as a concession period), and gets paid according to the level of service delivered. The payment is, therefore, directly linked to service performance and not to how much work is done on the ground. The Private Finance Initiative was introduced to the UK by central government in the early 1990’s and to date well over £60bn worth of projects have been commissioned. PFI is now used to deliver services in the NHS, Prisons, Waste Management, London Underground, Road Construction, Public Sector Office Services and, more recently, Highway Maintenance.

Who is paying for the Isle of Wight Highways PFI?

The Department for Transport (DfT) has approved a PFI Credit of £364m for the Isle of Wight Council to rehabilitate the Island’s roads, footways, street lighting and most other aspects that are related to the highway. This money is a grant and is new money for the council, available to be drawn over the 25 year life of the project. The Council will also make contributions from its own resources towards the PFI service payments. The Council does not have to pay back this money to the Department for Transport.

Why are we then not getting on with repairing our roads now?

The DfT grant is subject to certain conditions – we have to prove that this unprecedented level of investment on Island roads actually makes sense. This means we had to provide to the DfT a “Business Case” that sets out what our highway asset is made up of, what condition it is in, how can we upgrade this without disrupting too much of Island life and the economy, and what are the benefits of making this investment. Now that this case has been accepted by DfT (and HM Treasury), we have started the procurement process following the procedures set under the European regulations for “complex project procurement”. There are a number of stages involved in this; we have to define what performance standards we expect to get in each and every component of the highway and associated areas, and link them to payments. We also have to set out the condition in which we expect to get the highway back to us. The legal roles and responsibilities during the 25 year period have to be defined and we need to think of, and build in, incentives and disincentives. More than anything else, we need to make sure the Highways PFI contract offers Value for Money, which means that we need to be able to prove that the service provider can deliver the services more efficiently and cost effectively than the public sector does. This procurement process can take anything up to two and a half years. In the meantime, the Council is continuing to invest in the Island’s road maintenance as normal until the PFI contractor is ready to take over.

How are we going to select one contractor to do this massive piece of work?

The PFI Provider is usually made up of a number of companies who form a Special Purpose Vehicle (SPV) among themselves and act as one company for the purposes of delivering services to the Isle of Wight. Typically contractors, designers, bankers and lawyers join together to put forward bids. We discuss the solutions they propose and based on how good they are we narrow the number of proposals down to three or four, before we get to the "Call for Final Tenders” stage. At this point we get potential providers proposals for the service they are offering, with a price for the service. We will then evaluate to see which solution offers the best Value for Money. This Preferred Bidder will then enter into a contract with the council to provide the agreed services.