BIM64170 - Private finance initiative (PFI): contribution of land

As part of the commercial arrangements a number of PFI projects involve the public sector 'purchaser' contributing land, or an initial cash sum, to the private sector 'operator'.

Where land is introduced the arrangement may involve a PFI property, e.g. a hospital, being built on the land contributed. Alternatively the land, or part of it, may be surplus to the purchaser's requirements and it is for the operator to decide what use is to be made of it. For example it may be developed for sale, investment, or sold outright.

Whatever the arrangement the contribution, whether it is land, some other form of money's worth, or money, is intended to reduce the purchaser's 'unitary charge' (the annual service payment).

The purchaser and the operator will generally determine the amount of the unitary charge on the basis of a discounted cash flow model, which is produced by using a set of assumptions negotiated by the parties. The introduction of land, as a contribution towards the project costs, and the timing of the realisation of the value of the land, will have an impact on the cash flow of the operator and, therefore, on the price to be charged to the purchaser.

The guidance on contributions of land is arranged as follows: