On 13 December 2012 we reported on the UK Government's review of the Private Finance Initiative ('PFI') and their proposals for a new model for delivering public and private sector partnerships to be known as PF2.  More details can be found here.

The Government has since issued a consultation on the terms of Public Sector Equity Participation on PF2 Projects.  The response to the consultation can be viewed here.

The Standard PF2 Equity Documents

At the start of the consultation draft standard form equity documents were issued.  The final standard form Shareholders Agreement, Articles of Association and a Loan Note Instrument can be viewed here.

Key Outcomes on Public Sector Equity Participation:

  • Whilst the Treasury owned company (HMTCo) will be a minority shareholder at financial close, all or part of its interests may be sold at a later date.
  • A number of concerns and queries were raised by respondents in respect of the proposed post preferred bidder equity funding competition.  The Government acknowledged that further work on this initiative is required prior to implementation.
  • HMTCo will, in addition to its power to appoint a director, have the ability to appoint an observer.  The HMTCo right to appoint an observer will subsist where HMTCo sells its interests in a project.
  • The consultation responses highlighted some concerns in respect of the requirements for the preferred bidder's advisers (and in some cases funder's advisers) to produce letters of reliance and due diligence reports addressed to HMTCo.  The Government has however decided to proceed on this basis.

Other Key Changes to the Equity Documents

A number of other changes have been made to the standard form equity documents following the consultation, perhaps most importantly in respect of Events of Default. 

  • The proposed Event of Default for any material breach by a shareholder of its obligations under the Shareholder Agreement has been refined to apply now only a limited number of obligations.
  • Where a shareholder is in material breach of its obligations under the Shareholders Agreement the directors that it has appointed are disenfranchised.
  • Default mechanisms for non-compliance with tax regulations and offences under the Bribery Act 2010 have been included amongst other matters, to reflect key Government policy objectives. 

Project Specific Tailoring of PF2 Equity Documents

Amendments to the standard form equity documents are permitted where a strong project specific case is made provided compliance with government policy is maintained.  Such changes may include for example, amendments required to reflect the consortium make-up, its preferred scheduling of junior debt and working capital requirements.

Whilst bidders will have the ability to seek informal guidance from the Treasury on amendments, perhaps somewhat surprisingly, no formal derogation process will apply to these documents.


The Priority Schools Building Programme is the first scheme to utilise the new PF2 structure.  It should provide significant insight into whether the UK Government's general aim of creating a more efficient and transparent system can be realised.  No doubt bidders in these early projects will be innovative in working through any new challenges that the PF2 standard form documents present them with.