AIIP Response to NAO Report - “Lessons Learned: Private finance for Infrastructure”
The NAO’s report on private finance in infrastructure is a broadly welcome contribution to finding a future path for UK PPP, whilst importantly learning from the UK’s extensive experience of the model.
The report’s acknowledgements of the successes that PPP can enable, including the on-time and on-budget delivery of projects, is a recognition of the critical part that private finance can play in delivery of the UK’s critical infrastructure. It is a timely intervention whilst government is considering its 10 year infrastructure plan and the future of social infrastructure through, for instance, the New Hospitals Programme
Recommendations in the report for the establishment of public bodies with clear mandates, and a call for the creation of a credible and consistent pipeline are both conclusions that the AIIP agrees will be fundamental for the success of a future model.
There are a number of areas of clear alignment between the AIIP position and the NAO report:
1. Expiry and Hand-back Risk
The NAO report highlights the potential unpreparedness of public authorities for the expiry of PFI contracts, including poor documentation, unclear asset condition expectations, and the risk of serious service disruption.
“There is a significant risk of poor outcomes at contract expiry if public authorities do not adequately prepare.”
The AIIP has extensively drawn attention to this issue, in the AIIP Report of October 2024 and more recently in our Reset principles paper, arguing that early, structured action is vital to avoid a cliff-edge at expiry.
2. Risk Allocation and Flexibility
The NAO report cautions against overly rigid risk transfer and argues that risk should only be allocated to parties capable of managing it. Inflexible allocation can deter market participation or lead to poor outcomes.
“Risk transfer needs to be clearly defined, realistic and aligned with the capability of the party assuming it.”
The AIIP report noted similar concerns. “Where the payment mechanism is poorly calibrated… this can have negative implications.” The AIIP would encourage future models to maintain a clear understanding of risk, but with greater flexibility and mutual understanding of expectations built in.
3. Public Sector Capability and Central Coordination
The NAO has called for improved commercial capability across public bodies, especially in contract management, and supports stronger central coordination (e.g. via NISTA).
“Public authorities need clear mandates and sufficient commercial capability to oversee and manage long-term infrastructure projects.’’
The AIIP explicitly supports the establishment of bodies with clear mandates and agrees with the need for greater strategic coherence. The recently published AIIP position on the establishment of NISTA noted that ‘it is vital that the government is supported by an organisation that will help to deliver projects’ as a ‘fully empowered and, importantly, coalesced counterparty’
The AIIP report noted the problem of resourcing gaps in local contract management teams, citing SPV Director survey data showing only 26% had confidence in public sector plans and processes.
4. Lifecycle Oversight and Long-Term Management
In the NAO’s view, future infrastructure models must embed contract oversight from start to finish — including supplier resilience, maintenance, and end-of-life planning.
“Commercial strategy must be embedded across project lifecycles.”
The AIIP’s Reset model is positioned as a mid-life intervention, not just a late-stage fix. It emphasises the importance of sustaining performance and governance all the way to expiry.
“Reset should not be used only as a rescue attempt… [but] proactively and pre-emptively to secure and sustain long-term benefits.”
The AIIP has also proposed an “Assured Performance Benchmark” (APB) that would serve as a common output standard through to expiry — reducing expiry survey duplication and smoothing transitions. These are all features that would support with oversight and management for good outcomes.
5. Infrastructure Pipeline and Investor Confidence
A stable, well-communicated infrastructure pipeline is critical to attracting private investment and ensuring market readiness. “Stakeholders told us they want more visibility and confidence in the project pipeline to enable long-term planning and resourcing.” AIIP will be responding to the 10-Year Infrastructure Strategy and will make the case within that certainty in the ambition and the pipeline will enable the smoothing of investment and capacity, avoiding peaks and troughs that drive up cost. AIIP would also emphasise that the Treasury must take a leading role in backing both public and private investment in infrastructure delivery.
Aspects of the NAO Report to consider further
6. Comparing PFI and Non-PFI performance
The NAO Report says that ‘a better evaluation of the costs and benefits of privately financed projects could lead to improvements in the procurement and operation of assets’
The question of value for money and relative performance is a valid one — and there is an argument for revisiting it. What AIIP would say is that there is an abundance of global data to confirm that privately financed and maintained assets tend to perform as well as — if not better than — publicly procured equivalents. Though we would acknowledge that gathering data on a comparable basis has proved to be very challenging.
Because of this data issue, AIIP’s view is that any analysis should not focus solely on the comparative cost of public versus private procurement, but rather on the broader economic consequences of failing to build at all. What is the cost to the economy of not delivering the hospitals we need to maintain a healthy workforce? Or the schools required to educate the next generation and support social mobility? These are considerations that a true cost benefit analysis would consider.
Infrastructure decision-making has to consider long-term value and the needs of the nation to build social infrastructure at pace and at scale.
7. Fiscal illusion
While the UK continues to use Public Sector Net Debt as its official fiscal measure, the emphasis on balance sheet treatment as a rationale for using or avoiding PPPs increasingly feels misguided. Other countries, such as New Zealand, have explicitly committed to not using balance sheet classification as a justification for PPPs, recognising that the benefits of the model can stand on their own merits. The UK has similarly committed to do so in HMT’s Green Book.
The reason often given — that committing public funds to long-term obligations can obscure the true fiscal impact of government-funded PPP projects — is not entirely convincing. Whilst not definitive, available data suggests that PPP assets have, in fact, been maintained to a higher standard than their traditionally procured counterparts.
Arguably, the reverse could also be true: that publicly funded projects, which are subject to the pressures of short-term budgeting and political cycles, are more vulnerable to capital cuts and deferred maintenance. This, in turn, leads to build-ups of backlog maintenance and higher eventual costs. In these cases, it may be traditional procurement that underestimates the long-term costs associated with restoring or upgrading assets that have been poorly maintained.