Local Government Lawyer

SharpeEdge

Nicola SumnerSteve Gummer and Roseanne Serrelli discuss the 'dos and don'ts' of Public-private Partnerships in their new form.Sharpe Edge Icons Deal

Public-private partnerships (PPPs) have long played a central, if controversial, role in UK infrastructure delivery.

For over twenty years, models like the Private Finance Initiative (PFI) and its successor, PF2, underpinned investments across schools, hospitals, justice buildings and transport networks.

Yet by the end of the 2010s, these models were widely discredited. Concerns over inflexibility, opaque structures, poor value for money and high long-term costs led to PF2’s formal discontinuation in 2018, with ministers pledging no return to PFI-style approaches.

However, a renewed conversation is taking shape. The UK Government’s Infrastructure Strategy: A 10-Year Plan, published in June 2025, recognises that while traditional PPPs are out of favour, more innovative, transparent and accountable forms of public-private collaboration are essential.

In particular, the Strategy identifies public estate decarbonisation and community infrastructure as priority areas where private capital and technical expertise can accelerate delivery, provided new models are better designed and context-specific.

A practical case for new PPP models

One of the most practical illustrations of the public funding gap is on NHS rooftops. Many NHS trusts have viable plans to install solar photovoltaic (PV) systems, which could materially reduce both energy costs and carbon emissions.

These projects typically offer payback periods of under ten years. Yet constrained capital budgets and accounting treatment have meant these schemes are regularly shelved, even when they are effectively self-funding.

An alternative solution lies in performance-based infrastructure financing models, such as finance leases or energy-as-a-service arrangements. Under a finance lease, a private sector provider funds the installation, assuming performance and maintenance risk, while the NHS repays the cost over time – often linked to energy savings.

The building remains publicly owned, and capital spending limits are avoided. The result is faster delivery, lower energy bills, and reduced emissions, with minimal fiscal impact.

These approaches are not theoretical. In Berlin, the Energy Saving Partnership used private finance to retrofit over 1,400 public buildings, reducing energy use by more than 25%.

London’s RE:FIT programme took a similar approach, enabling energy efficiency upgrades in hundreds of public buildings, with costs repaid through operational savings. These models are highly relevant to current UK policy goals on decarbonisation, energy security and infrastructure resilience.

Learning from past failures

Any renewed use of PPPs must start with an honest assessment of what went wrong in the past. The PFI model prioritised off-balance sheet treatment and rigid long-term contracts over service adaptability and public benefit.

Complex and opaque contract structures made oversight difficult. Risk transfer was often more illusory than real, with the public sector frequently absorbing failures. In many cases, high private financing costs outweighed efficiency gains.

New PPP frameworks must be simpler, more transparent, and more flexible. Contracts should align with service life-cycles, avoid locking in unnecessary soft services, and ensure that risks are only transferred where the private sector can manage them effectively.

Where public financing is cheaper and more appropriate, it should be preferred. But where private partners bring expertise, capital or performance incentives that public bodies cannot replicate, they should be welcomed under better terms.

PPP-type models should also only be used where there is a genuine revenue stream and not an illusory one. Tax Increment Financing (TIF) is another tool that should be part of the conversation when considering how to fund infrastructure and regeneration linked to public service outcomes.

TIF allows local authorities to borrow against future increases in tax revenues, typically business rates, that result from infrastructure-led development. This can be particularly effective in urban regeneration schemes, new transport hubs, or major mixed-use projects such as the redevelopment of Euston Station, which the government is now considering as a candidate for a TIF-style funding model.

By capturing a portion of the economic uplift that new infrastructure creates, TIF enables upfront investment without adding to departmental capital budgets. Used carefully, with strong local governance and transparent forecasting, TIF can bridge the gap between public investment capacity and long-term economic growth.

It is not a silver bullet, but when combined with PPP or lease-based delivery, it can provide the revenue foundation needed to make essential infrastructure financially viable over time.

Learning from past successes

While PFI is often criticised for rigidity, some of the more sophisticated PPP contracts, particularly in the waste sector, demonstrated that flexibility could be built into long-term agreements where there was foresight and pragmatic design.

Several waste PFI and PPP projects included mechanisms that went beyond the standard SOPC change protocol to address real-world challenges. For instance, the Nottinghamshire Waste project allowed revised project plans to be implemented under the original contract following planning delays, avoiding costly termination.

The Manchester Waste contract included provisions for technology refreshes over the life of the project, mitigating the risk of equipment obsolescence. Suffolk Waste PFI incorporated specific mechanisms to manage changing waste volumes and composition, using substitute waste and top-up waste arrangements to ensure continued viability.

These examples show that, even within the limitations of legacy PPP models, carefully structured flexibility made it possible to respond to unforeseen changes without undermining the broader contractual framework.

With the freedoms afforded local authorities in recent years (in both terms of powers and borrowing), many in the public sector are also becoming creative about the nature of the partnerships and the extent to which the public authority can also leverage commercial opportunities.

True joint ventures through investment and R&D; refinancing of heavily bank geared PFI with public funds and the buying out of projects have all been explored (and delivered) in local authority areas.

The Mutual Investment Model: A blueprint for reform

Wales’s Mutual Investment Model (MIM) offers a credible, post-PFI alternative. Under MIM, the public sector retains a minority equity stake in each project, appoints a public interest director, and embeds community benefit clauses from the outset.

Soft services are procured separately, and ethical employment standards are mandated. Transparency is built into both procurement and reporting processes. MIM demonstrates how public-private partnerships can be rebalanced, where profit is not the only measure of success, and where the state remains an active participant in governance. It is already delivering schools and transport infrastructure, and could be readily adapted for healthcare decarbonisation, net zero retrofit programmes, and local regeneration schemes.

A range of models, not one-size-fits-all

The 2025 Infrastructure Strategy rightly rejects a one-size-fits-all model. Instead, it encourages public authorities to explore a full spectrum of infrastructure delivery mechanisms—finance leases, energy performance contracts, regulated asset base (RAB) models, public grants, and hybrid approaches.

For example, a rooftop solar project might best be delivered through a finance lease. Another might be more suitable for an energy-as-a-service model, where the hospital pays for energy consumption rather than infrastructure ownership. In other contexts, public grants or blended finance solutions may offer the best value.

The key is to assess each case on its merits—considering value for money, speed of delivery, risk allocation, lifecycle flexibility, and social outcomes. Public authorities must become “smart commissioners”, able to assess and compare financing models, delivery methods, and procurement options to find the best fit for each project.

Innovation in Financing and Contract Design

Emerging models like the Regulated Asset Base (RAB) present further opportunities. Already used in energy and water infrastructure, the RAB model allows private investment to flow into essential assets with regulated, long-term returns—attracting low-cost capital from institutional investors like pension funds.

It is being explored for major projects such as Sizewell C and could be adapted to other forms of critical infrastructure. Incremental financing is another innovation, offering milestone-based or usage-based payments rather than rigid long-term charges.

This builds flexibility into contracts, reduces fiscal pressure, and allows for dynamic adjustments over time. Together, these models demonstrate the evolving toolkit available to public bodies seeking to deliver sustainable infrastructure outcomes.

Building confidence through accountability

Ultimately, the sustainability of future PPPs depends on rebuilding public confidence. This requires transparency at every level – published contracts, fair financial structures, clear risk-sharing, and rigorous performance reporting. Profit should be earned, not hidden.

Responsibility must be explicit, and outcomes must be measured. Public service quality and community impact should never be secondary. Governance structures must give the public sector a continuing voice, and contracts must embed social value, supporting local jobs, training opportunities, and environmental standards. Accountability must become a core design principle, not an afterthought.

Conclusion: Smarter partnerships for smarter infrastructure

The UK’s public sector faces immense delivery challenges, from decarbonising thousands of public buildings to upgrading local health infrastructure. Meeting these challenges will require new thinking, new tools, and above all, new partnerships.

Well-designed PPPs –rooted in transparency, flexibility, and public interest – can and should be part of the solution. We are not returning to the old world of PFI. We are moving towards a more pragmatic, outcomes-driven approach to public-private collaboration. The future of UK infrastructure finance is plural, not a single model, but a menu of delivery options tailored to context, backed by technical competence and a commitment to public value.

The return of forms of PPP is the right thing at the right time. They key is its execution in the right way. At SP, we have supported the delivery of some of the UK’s most innovative PPP structures, from finance leases and energy performance contracts to delivery-as-a-service models, direct procurement for customers and regulated asset base schemes.

Our experience tells us that success depends not on ideology, but on intelligent design and execution. The question is no longer whether we should use private finance, but how we do so in a way that serves the public best. There has never been a more important time to be good at harnessing private capital for the public good.

Nicola Sumner is a Partner, Head of Infrastructure, Steve Gummer is a Partner and Roseanne Serrelli is a Partner, Head of Strategic Projects and Innovation at Sharpe Pritchard LLP.


For further insight and resources on local government legal issues from Sharpe Pritchard, please visit the SharpeEdge page by clicking on the banner below.

sharpe edge 600x100

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email enquiries@sharpepritchard.co.uk.

 

Click here to view our archived articles or search below.

OUR RECENT ARTICLES

Sharpe Light Blue Bar

 Click here for our archived articles

ABOUT SHARPE PRITCHARD

Sharpe Light Blue Bar

We are a national firm of public law specialists, serving local authorities, other public sector organisations and registered social landlords, as well as commercial clients and the third sector.

Our team advises on a wide range of public law matters, spanning electoral law, procurement, construction, infrastructure, data protection and information law, planning and dispute resolution, to name a few key specialisms.

All public sector organisations have a route to instruct us through the various frameworks we are appointed to. To find out more about our services, please click here.

Justin Mendelle signature

OUR NEXT EVENT

Sharpe Light Blue Bar 435px

 

SharpeEdge Event Slide

OTHER UPCOMING EVENTS

Sharpe Light Blue Bar 435px

 

Slide backgroundSlide thumbnail
Slide backgroundSlide thumbnail
Slide backgroundSlide thumbnail
Slide backgroundSlide thumbnail
Slide backgroundSlide thumbnail