Conservative Party policy on PFI

• All public sector contractual payments to private sector promoters would be taken into account when assessing the sustainability of the public finances. A Conservative Government would follow the recommendation of the Financial Reporting Accounting Board, and bring existing PFI liabilities on to the government balance sheet.

• All state contracts with private sector promoters would include what the Conservative Party call "a few simple and clear outcomes", and the private sector promoters would pay liquidated damages if those outcomes are not delivered. The Conservative Party state that if they were in power they would ensure that these damages are appropriately insured, so that they could recover payment even in the event of the promoter becoming insolvent. If outcomes cannot be clearly defined at the start of the contract, or if the contractor is unable to give sufficient assurance that damages can be paid, then the project would be either abandoned or take place in the public sector.

• Where a government subsidy is justified in order to make a project economically viable, the Conservative Party say that, if in power, they would make this subsidy transparent. In some circumstances, such as large railway projects, the private sector economic return of a project may be insufficient to allow the project to proceed without a government subsidy. If the wider social and economic benefits of the project justify the subsidy, then, under a Conservative Government, the subsidy would be made explicit by financing it through government spending. This would allow the project, the Conservative Party believes, to benefit from the government's ability to finance spending at a cheaper rate. But where a government subsidy is contemplated, the costs and benefits of the project would be assessed against the costs and benefits of alternative projects.

• The Conservative Party believes that the private sector should bear the risk. A Conservative Government would engage private sector providers "if and only if we can effectively transfer all those risks which are reasonably within the control of the providers". If no private sector provider is willing to bear the vast bulk of the risk, then the project would either be abandoned or take place in the public sector.

• A Conservative Government would not seek to "micromanage the performance of a contract", and would instead rely on seeking liquidated damages in the event of non-performance. The taxpayer would not be "locked into deals that represent poor value-for-money, as all contracts will be negotiated so as to allow the government to terminate the contract and seek liquidated damages in the event that the private promoter fails to deliver".

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