February 2004/11
Good practice
Guide

Practical guide to PFI for higher education institutions

Revised February 2004

This guide is intended for people in higher education institutions who are involved in procuring projects using the Private Finance Initiative (PFI). PFI is a method of procurement which seeks to achieve best value for money by focusing on the delivery of a service, rather than the acquisition of an asset.

Table of contents and executive summary (read on-line)

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Table of contents

Executive summary
Introduction
Educational institutions and PFI

Scope for PFI within the higher education sector

Stage 1 Establishing the business need
Stage 2 Appraising the options - choosing a procurement route
Stage 3 The business case and the reference project - assessing value for money
Stage 4 Creating the project team - selecting advisers
Stage 5 Deciding tactics
Stage 6 The OJEU notice - inviting expressions of interest
Stage 7 Pre-qualification
Stage 8 Short-listing
Stage 9 Refining the original appraisal
Stage 10 The invitation to negotiate
Stage 11 Evaluation of bids
Stage 12 Selection of a preferred bidder, and negotiation to financial close
Stage 13 Awarding the contract
Stage 14 The contract management phase

Lessons learnt

Annex A Other published guidance
Annex B Standard paragraphs for inclusion in advertisements of PFI projects in the Official Journal of the European Union (OJEU)
Glossary

Note

This document was previously published as HEFCE 98/69. This version has been revised to reflect the development of PFI in the higher education sector. Its structure is based on the Treasury Taskforce 'Step by step guide to the PFI procurement process' - revised November 1999.

The PFI material developed by the Treasury Taskforce (1997-2000) is still valid and is available on the Office of Government Commerce PFI Network web-site at http://pfi.ogc.gov.uk/

Executive summary

Purpose

1. This guide is intended for people in higher education institutions who are involved in procuring projects using the Private Finance Initiative (PFI). PFI is a method of procurement which seeks to achieve best value for money by focusing on the delivery of a service, rather than the acquisition of an asset.

Key points

2. The first step in any procurement process must be to establish the viability of the project. The next stages are to establish whether the institution's legal position is compatible with PFI; whether the project is an appropriate subject for procurement by this method; and whether there will be sufficient interest in the private sector to justify an invitation to bidders.

3. A successful PFI procurement will lead the institution into a long-term contract with a commercial partner, requiring a high level of commitment on both sides. The contract will be worth much more than the value of the associated assets, and the procurement will place commensurate demands on management resources. It will also demand specialist expertise to ensure that the institution's interests are properly protected in the agreement. Unless institutions have sufficient experience in PFI, they will need to appoint outside advisers to assist them.

4. A particular feature of PFI procurement is the negotiations that precede contract award. These must be conducted so that they comply with EU regulations, and lead to a deal that is the best that the institution can achieve. Much will depend on agreeing an appropriate allocation of the risks associated with the project, and a pricing mechanism that provides the right incentives for the commercial partner.

5. Special considerations stem from the long-term nature of the relationship between the institution and its commercial partner. These must be recognised and addressed during the procurement process and before the contract is signed, to avoid difficulties in future years.

Action required

6. This report is for information and guidance.