The nation's mortgage: revitalising PPP to deliver UK infrastructure

A planned £718 billion of investment in UK infrastructure over the next 10 years, of which around 65% or some £466 billion will be delivered through private or mixed financing, is bringing renewed urgency to the debate over public-private partnerships (PPPs), as industry leaders call for the lessons of the Private Finance Initiative era to be embedded in PPP models of the future. 

UK reckoning

PPPs have long been used by governments across the world to deliver critical infrastructure. The models used to date have allowed the public to access critical facilities in the short term, spreading the cost over time, with the private sector absorbing delivery and maintenance risk in exchange for a return over the longer term.

Globally, PPPs continue to be deployed to deliver much needed social and economic infrastructure such as hospitals, schools, roads and railways. In the UK, chronic underinvestment in infrastructure has coincided with the decline in use of PPPs following the demise of the most common form used in the UK over the last 40 years: the Private Finance Initiative (PFI). Although the principle is sound, the UK's execution, at times, has not been.

A 10-year pipeline of projects is now planned to deliver the UK infrastructure strategy and many of these are poised to make use of a PPP or an adjacent structure. But there remains insufficient clarity around which models the public sector will employ and whether the lessons from the past will shape the projects of the future. The industry consensus is that getting this right is no longer a policy discussion: it is an economic imperative.

A proven record

It is easy to forget, amid the noise of political debate (and sometimes less than positive press coverage), that PPP models have enabled the UK to deliver some of its most prestigious public facilities. There is good evidence that PPPs have historically delivered effective risk balancing, high-quality assets and on-time, on-budget delivery.

The UK has long grappled with a persistent infrastructure deficit, both in terms of new development and effective maintenance, compounded by fiscal rules that tightly constrain public capital spending. In that context, private finance, deployed well, is not merely consistent with the public interest: in many cases, it has been the principal means of serving it.

Nonetheless, the industry recognises that historic models have had genuine problems. The most prominent criticisms have included high costs, inflexible contracts, opaque refinancing gains and excessive returns. A catalyst for a significant retreat from the model came when Carillion collapsed in 2018, with its approximately 420 public sector contracts across schools, prisons and hospitals. 

Five lessons 

What followed Carillion's failure was not a replacement toolkit: it was a gap. Fewer projects, fewer participants, fragmented industry models and a market relying increasingly on international rather than domestic participants to lead the few new PPP bids that came to market.

Senior leaders from across investment, lending, construction and operations stakeholders reflected candidly at a recent Osborne Clarke roundtable on what 30 years of PPP experience has taught them. Despite their differing vantage points, five themes that emerged involved overcoming rigidity, managing handback pressures, combating the narrative of a "damaged brand", focusing on collaboration, viewing contracts as tools not dialogue substitutes, and addressing funding challenges.

Rigid by design 

Long-term contracts have in some cases proved too inflexible to adapt to evolving service needs, technology and changing priorities; implementing changes has often been slow and expensive.

When the first PPP contracts were signed, no one foresaw hospitals using robotic surgery, artificial intelligence-assisted diagnostics or the wholesale digitisation of patient records. The pace of technological change alone makes the case for building greater flexibility into long-term infrastructure contracts: the facilities that need managing for the next 25 years will be required to do things that  cannot yet be imagined.

Handback challenge

Over 500 PPP projects are approaching the end of their contract terms. The planning required, whether for re-procurement, decommissioning or direct operation, needs significant attention. When the early rounds of project agreements were signed, handback provisions may not have received the same level of attention as they will do for new projects.

For many public authorities, handback will mean taking direct responsibility for operating and maintaining complex facilities for the first time: inheriting ageing assets and managing facilities contracts often without the institutional knowledge, specialist staff or supply chain relationships that the private sector has spent decades building. Historic budget pressure, particularly for local authorities taking on a large number of these contracts, appears difficult to reconcile with the cost of maintaining equivalent maintenance standards in future. 

Narrative matters

The political and media narrative around PFI has had consequences far beyond reputation: it has actively deterred private investment and reduced market participation. Future PPP models must honestly address the underlying tensions around transparency, returns and risk allocation.

The successor model will need to be designed and communicated differently from the start, as well as demonstrate clear evidence of public value.  Without public and political confidence, even the best-structured deals will struggle to get off the ground. 

People first

The concept of collaboration appears frequently in PPP documentation, but genuine effective partnership requires individuals to be both empowered and trained to deliver it. Long-term partnerships delivering and operating complex projects demand deep expertise and continuity of knowledge on all sides. Investing in people consistently across both the public and private sectors will be fundamental to making future models work. That remains true regardless of advances in technology. Some new models such as the Mutual Investment Model in Wales are looking to embed collaboration at their heart, but it is early into that journey and public sentiment has not yet shifted.

Contracts as tools

Contracts were never designed to fill budget gaps or replace genuine engagement between parties. Overly complex or rigid payment mechanisms can generate disputes and adversarial behaviour from which neither the parties nor the public benefit. 

Funding realities

Funding remains a significant challenge. The cost of debt is high, and private funders are often reluctant to take risk on some of the key uncertainties the market is currently facing. While all stakeholders would prefer a simpler, standardised approach, the current environment demands bespoke solutions.

Periodic reset mechanisms are one of the most common structures currently deployed. For projects with long construction periods, traditional fixed-price structures are increasingly unworkable in an environment of cost inflation and geopolitical supply chain disruption. Project structures that incorporate reset points during construction or across the lifecycle allowing budgets, debt profiles and equity returns to be re-evaluated at agreed intervals may provide a more realistic and resilient framework for all parties.

De-risked funding structures are also commonly deployed. Hybrid income strip and debt finance deals are also emerging to bring debt pricing down. These combine project finance-style documentation with enhanced funder protections. The National Wealth Fund is also playing an increasingly catalytic role. Its £8.4 billion deployed to date has already unlocked £17 billion in private finance and a plan published in January targets mobilisation of up to £100 billion by 2030.

The Mansion House Accord signed in May last year adds further firepower, with up to £50 billion of pension capital expected to flow into productive finance, including UK infrastructure. As public and quasi-public funding have a different approach to risks that traditional markets cannot address, a combined approach to lending could unlock previously unviable deals.

Next-generation priorities

Senior industry leaders also identified four structural priorities for future models alongside the five main themes highlighted at the Osborne Clarke roundtable discussion.

• Standardisation. The industry would like to see standardised contracts with consistent core terms, particularly around payment mechanisms, termination and risk allocation, while retaining targeted flexibility for project-specific needs. Standardisation builds market confidence and much needed participant experience, during all stages of delivery and operation and will enable the private sector to realise the potential of the UK pipeline.
• Real partnership. This includes inside the special purpose vehicle (SPV). Public sector board representation within the SPV, alongside a meaningful equity stake, could fundamentally change the collaborative dynamic and better align interests across the life of the project.
• A more detailed pipeline. Private sector confidence depends on a clear, stable and credibly sequenced pipeline of projects, which requires additional detail beyond a list of opportunities.
• The cultural shift. Every structure ultimately depends on whether the people involved are genuinely committed to a shared outcome. That is cultural, not contractual - it cannot be legislated, but it absolutely can be led.

Osborne Clarke comment

After a period of stagnation, the pieces are beginning to move. But recent history shows that good intentions and available capital are not enough; lasting success will require sustained political commitment, genuine market partnership and the courage to learn from what came before.