Defence and armed forces – guidance

The MOD Private Finance Unit

Details of the focus and scope of MOD's private finance programme

Role of the Private Finance Unit (PFU)

The MOD PFU has overall responsibility for the department’s private finance programme. It provides a central focus for the whole of MOD for Public Private Partnerships (PPP) and the Private Finance Initiative (PFI/PF2) policy and support within the Department and offers corporate assurance about individual PPP and PFI/PF2 projects to the Investment Approvals Committee (IAC) and HM Treasury.

The scope of MOD PFU’s mandate is to support all acquisitions made under the PFI/PF2, any non-information technology based long term (15 years or over) service provision acquisitions using an output based specification which are funded by a material amount of private finance (greater than £50 million capital investment), and PPPs. Acquisition teams are mandated to consult the MOD PFU for all projects which might satisfy these criteria.

The MOD PFU is part of the Commercial Chief of Staff (COS) team located in Abbey Wood, Bristol.

Services

We provide policy, advice and assistance to the acquisition community on the use of private finance by MOD.

Our activities include:

  • acting as the MOD’s centre of excellence on PPP and PFI/PF2 policy, guidance and best practice, including being the single point of contact with HM Treasury, National Audit Office and other government departments on all matters relating to PPP and PFI/PF2
  • supporting and sponsoring private finance training and continuing professional development, through a mixture of skills transfer workshops, training courses and coaching/mentoring to enhance the acquisition skills base
  • acting as functional lead PPP and private finance subject matter assurors for acquisition team leaders, MOD Commercial, IAC and HM Treasury to ensure that projects are properly managed, governed and are viable, desirable and achievable and comply with current policy and legislation
  • providing clear, relevant, accurate, appropriate and timely communications and information/knowledge to internal and external stakeholders on defence PPP and PFI/PF2 and MOD PFU activities

Key facts

  1. We have over 50 signed PFI deals and private sector capital investment of almost £9 billion
  2. NAO has found that the MOD has achieved a good service delivery on a broad and diverse portfolio of PFI projects
  3. MOD signed the largest ever PFI transaction for provision of the Future Strategic Tanker Aircraft to the UK’s Royal Air Force, valued in excess of £10 billion over 27 years

Public Private Partnerships

Public Private Partnerships (PPPs) are arrangements typified by joint working between the public and private sector. In the broadest sense, PPPs can cover all types of collaboration across the interface between the public and private sectors to deliver policies, services and infrastructure. Where delivery of public services involves private sector investment in infrastructure, the most common form of PPP is the PFI.

Private Finance

PFI: The Government’s Private Finance Initiative (PFI) was introduced in 1992 for consideration by the public sector in its procurement of public infrastructure and services. It has now been superseded by PF2.

PF2 was issued by HMT in December 2012 and looks to address the fundamental concerns with PFI expressed by Parliament, the public sector and taxpayers by introducing public sector equity, funding competitions for private sector equity, promoting access to the capital markets for long-term debt finance, encouraging alternative financing sources, providing greater transparency and more efficient delivery. It may be considered for projects that have in excess of £50m capital expenditure. PF2 is an arrangement whereby the public sector contracts to purchase services, usually derived from investment in assets, from the private sector on a long-term basis, often between 15 to 30 years. Under PF2, the private sector puts its own money on the line, and only gets paid if it actually delivers the contracted services to an acceptable standard. If costs overrun, or if the service is not provided, the private sector bears the financial consequences. Compared with more conventional forms of asset procurement, the PFI is structured to provide a real incentive on the contractor to deliver the underlying asset/s on time and to budget and provides clarity on the level of service expected throughout the contract term against a fixed price.

The MOD Private Finance Initiative Project Agreement

Downloadable versions of the agreements are available via the following link MOD PPP/PFI Project agreement version 2 and associated Guidance notes.