PFI/PPP Glossary

ADSCR Annual DSCR. (See DSCR.)

BAFO Best and Final Offer (bid terminology). Shortlisted bidders refine their ITN bid submissions.

DBFO Design, Build, Finance and Operate. A contract whereby one company undertakes a contract to perform these things for the length of the concession, often 25 or 30 years.

Debt Service The amount of debt interest and the principal repayments.

Design and Build Contract A contract where a supplier is responsible for designing and constructing an asset.

Discount Rate The interest rate used in calculating the net present value (NPV) of expected future cash flows.

DSCR Debt Service Cover Ratio. The ratio of cash available for debt service to the actual debt service.

Equity (share/pure) The ownership interest in the SPC in the form of shareholder funds invested by the private sector company(ies), typically 5-10% of the total funding required. Interest is not earned on share equity (as opposed to subordinated debt).

Facilities Management Management of services relating to the operation of a building. Typically includes such activities as maintenance, security, catering, and external and internal cleaning.

Financial Close (FC) The point at which all contracts are signed by all parties involved in a project.

FITN Final ITN. (See ITN.)

GAAP Generally Accepted Accounting Principles.

IAS International Accounting Standards, for reporting of accounts to enable common standards between countries. The European Union requires all companies listed on a stock exchange in an EU country to comply with IAS.

ICT Information and Communication Technology.

IFRS International Finance Reporting Standards.

ISOP Invitation to Submit Outline Proposal (bid terminology).

ITN Invitation to Negotiate (bid terminology). Discussions and negotiations with co-sponsors, contractors, banks and advisors to prepare a cohesive and deliverable technical, commercial and financing solution.

LAFO Last and Final Offer (bid terminology).

LLCR Loan Life Cover Ratio, the ratio of the NPV of cash available for debt service during the term of the senior debt to the outstanding balance of the senior debt.

Loan Stock (or Subordinated Debt) (Also termed equity, different from share/pure equity.) A loan from shareholders to the SPC. Interest is earned on the loan and paid to the shareholders.

M&E Mechanical and Engineering work.

Net Present Value (NPV) The discounted value of a series of future costs, benefits or payments, ie. the value of future cash flows in today’s money.

OJEU (Official Journal of the European Union) Publication in which new projects are announced.

PIN (Prior Information Notice) Initial project announcement. (Project announcement also/alternatively made by publishing in OJEU.)

PITN Preliminary ITN. (See ITN.)

PQQ Pre-Qualification Questionnaire. Initial qualification round for permission to bid for the contract (bid terminology). Consortium provides the client with an overview of the sponsors’ and contractors’ experience and contact details.

Preferred Bidder (PB) A bidder selected from the shortlist to carry out exclusive negotiations with the public sector authority.

Private Finance Initiative (PFI) A policy introduced by the Government in 1992 to harness private sector management and expertise in the delivery of public services, while reducing the impact on public borrowing of providing these services.

Refinancing The process by which the terms of the finance put in place at the outset of a PFI contract are later changed through negotiation with the senior lenders, to create refinancing benefits for the shareholders and public sector authority, eg. improved interest rates and repayment terms.

Risk transfer The passing of risk under contract from one party to another.

Special Purpose Company (SPC) or Vehicle (SPV) A company especially established to carry out the contract, owned by its shareholders, the providers of equity finance for the scheme.

Senior Debt The major funding component (typically 90% of the funds required for construction, etc.) provided by banks or bonds. It has priority of repayment over other funding sources.

Subordinated Debt (or Sub-Debt) See Loan Stock. Can also be a form of debt that has lower priority for repayment than the senior debt – alternatively, called junior debt. (NB: Junior debt is not the same as loan stock, but loan stock may be called subordinated debt.)

UK GAAP The overall body of regulation establishing how company accounts must be prepared in the United Kingdom. This includes not only accounting standards, but also UK company law.

Unitary Payment (Monthly Fee) The periodic payment, usually monthly, that the public sector agrees to pay for the provision of services by the concession holder (SPC).

Value For Money An economic assessment by the public sector as to whether a project represents value for money; the optimum combination of cost and quality to provide the required service.