Public-Private Partnership Health Check: Managing partnerships during their lifetime

This briefing examines how public authorities can manage and modify existing public-private partnerships (PPPs) to improve their economic, environmental, and social sustainability. Using the United Kingdom's Private Finance Initiative (PFI) and its transition to Private Finance 2 (PF2) as a primary case study, the document provides a framework for 'health checks' to assess value-for-money, life-cycle environmental impacts, and social returns during the lifetime of long-term contracts.

• The United Kingdom introduced Private Finance 2 (PF2) in December 2012 to address criticisms of the original Private Finance Initiative (PFI). Key reforms include the government taking a minority equity stake in many projects, limiting PFI procurement to a maximum of 18 months, removing soft facilities management services (such as catering and cleaning) to be tendered separately, and requiring private investors to publish actual and forecasted equity returns.
• Economic sustainability in PPPs requires a comprehensive Value-for-Money (VfM) analysis that extends beyond direct costs to include PFI credits, guarantees, and end-user charges like tolls. To mitigate future price volatility and improve sustainability, the briefing suggests 'invest to save' strategies—trading capital for operational expenditure through energy-efficient design—and using 'gain share' provisions where both the public sector and contractor benefit from energy savings above a certain threshold.
• Investor returns in PPPs have sometimes been excessively high; for example, shareholders in the first 12 PFI-financed acute hospitals earned post-tax returns exceeding 58 per cent in 2005, compared to a typical rate of 8–15 per cent. As an alternative, the Scottish Non-Profit Distributing (NPD) model caps private sector returns and eliminates dividend-bearing equity to prevent windfall gains.
• Environmental sustainability should be measured using Life-cycle assessment (LCA), which is described as the 'gold standard' because it tracks impacts from raw material extraction through end-of-life processes. The document emphasizes that environmental ownership should be assigned to the party best positioned to manage it; for instance, in a hospital PPP, the construction contractor might handle material recovery, while the public sector client manages the purchase of energy-efficient IT equipment.
• Social sustainability in PPPs involves ensuring ethical working conditions, paying living wages, and maximizing social returns. In the UK, the Public Services (Social Value) Act 2012 mandates that public authorities consider economic, social, and environmental well-being in public services contracts, which can be achieved by employing social enterprises or creating apprenticeships for disadvantaged workers.
• Modifying existing PPP contracts is challenging due to the lack of competition during the operational phase and legal constraints. In the European Union, the European Court of Justice has ruled that some modifications require a new competition. However, the briefing suggests that windfall gains from refinancing can be redirected toward environmental or social enhancements, such as energy-saving retrofits or enhancing workers' pension funds.

APA

Semple, A., & Turley, L. (2013). Public-Private Partnership Health Check: Managing partnerships during their lifetime. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/ppp_health_check.pdf

Chicago

Semple, Abby, and Laura Turley. Public-Private Partnership Health Check: Managing partnerships during their lifetime. International Institute for Sustainable Development, 2013. https://www.iisd.org/system/files/publications/ppp_health_check.pdf.

Wikipedia

{{cite report |last1=Semple |first1=Abby |last2=Turley |first2=Laura |title=Public-Private Partnership Health Check: Managing partnerships during their lifetime |publisher=International Institute for Sustainable Development |date=February 2013 |url=https://www.iisd.org/system/files/publications/ppp_health_check.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{semple2013publicprivate, author = {Semple, Abby and Turley, Laura}, title = {{Public-Private Partnership Health Check: Managing partnerships during their lifetime}}, institution = {International Institute for Sustainable Development}, year = {2013}, month = feb, url = {https://www.iisd.org/system/files/publications/ppp_health_check.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }