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What is a Private Finance Initiative?

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  • Written By: Luke Arthur
  • Edited By: Heather Bailey
  • Last Modified Date: 13 September 2016
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A private finance initiative is an agreement between a private company and a government to create a public infrastructure project. With this type of arrangement, a private company is in charge of creating public property and maintaining it. Sometimes, public employees will come under private management and will still technically be working for the government. This system is designed to take some of the burden of these types of projects off of the government and put it onto the private sector.

The private finance initiative is an arrangement that started in Australia and the United Kingdom. Since then, it has developed into a more common way to build public property. It is now used in many different countries and for many different types of infrastructure projects.

With a private finance initiative, a project that would traditionally be reserved for the government is issued to the private sector. In many cases, private companies can bid on these projects. The company that wins the bid will get to enter into a contract to construct the infrastructure project. The company will then construct the property and will be in charge of maintaining it in most cases. This allows the private company to make an ongoing profit from this project.

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In some cases, employees of the government will be transferred to the private sector to help maintain the property. The process of transferring public employees to the private sector is known as TUPE, or Transfer of Undertakings (Protection of Employment). These individuals share some aspects of being public and private employees at the same time.

One of the primary advantages of using a private finance initiative is that it takes the burden of the large project off of the government and puts it onto the private sector. In many cases, the government does not want to deal with such a large project but it does want to ensure it gets done. By using a private finance initiative, this is possible. The government can bid out the project to private companies and allow them to handle it from beginning to end. The government will also be able to oversee the project to make sure everything works out according to plan.

Another advantage of a private finance initiative is that it cuts back on tax dollars being used for this type of project. The private company will be responsible for coming up with the majority of the funding. This allows the government to spend tax dollars on other issues.

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