Private capital finances a major road. A private company builds it, operates it and maintains it over the long term. Government establishes the rules and ultimately motorists or the public purse provide the revenue from which investors receive their return.
We called something remarkably similar Design, Build, Finance and Operate – DBFO – in the 1990s.
So is the Government simply reinventing DBFO?
Not quite. But there are enough similarities that the lessons of the past should be compulsory reading before we embrace the opportunities of the future.
The Bill, introduced to Parliament in September, creates a framework through which private investment can finance the construction, operation, maintenance and improvement of strategic roads in England. The mechanism is a Regulated Asset Base (RAB) model, overseen by the Office of Rail and Road, with licensed companies able to recover investment and an allowed return through user charges. Government says it will complement rather than replace existing delivery models and expects it to apply only to a limited number of major schemes.
The obvious first candidate is the Lower Thames Crossing. Government has already selected RAB as its preferred financing model, with private capital expected to play a central role and the costs ultimately recovered primarily from users.
Haven’t we been here before?
Very much so.
The Highways Agency launched its DBFO programme under the Conservative Government in the mid-1990s. The first four contracts were awarded in early 1996. Private consortia financed and built improvements and then operated and maintained sections of the network, generally for 30 years. Instead of drivers paying directly, government initially paid operators through shadow tolls, linked to traffic using the road.
The incoming Blair Government didn’t abandon the concept. Private finance became a significant part of Labour’s infrastructure model, and the Highways Agency ultimately entered into 11 highways PFI/DBFO contracts between 1996 and 2009. Remarkably, those contracts came to cover around 1,097 route kilometres – roughly 16% of today’s Strategic Road Network. Office of Rail and Road
The M25 provides perhaps the most recognisable later example. In 2009, the Highways Agency signed a 30-year DBFO contract for widening, operation and maintenance of the motorway and associated routes.
There is therefore considerable irony in the timing. Just as some of those original 1990s DBFO roads are being handed back to National Highways – including the A69, A1(M), A50 and A30/A35 – legislation is creating a new generation of privately financed strategic roads. Office of Rail and Road
The opportunity could be enormous
That doesn’t necessarily make it a bad idea.
Britain has a persistent infrastructure problem: projects that potentially unlock housing, employment, logistics capacity and regional growth compete against finite public capital budgets.
Private finance creates another route.
If structured correctly, RAB could bring pension funds, infrastructure funds and other long-term institutional investors into highways, allowing strategically important projects to proceed without every pound of construction cost appearing as an immediate call on conventional government capital expenditure.
That potentially means more schemes progressing simultaneously, greater certainty for the supply chain and, crucially, a long-term pipeline against which contractors can invest in people, plant, technology and skills.
The economic opportunity goes considerably beyond construction.
A new strategic connection can unlock development land, improve access to ports and logistics hubs, reduce unreliable journey times and expand labour markets. The Lower Thames Crossing is being justified partly on precisely those grounds: improved connectivity, resilience and access to major ports.
For the highways industry, this could consequently represent one of the most important changes to infrastructure financing in a generation.
But DBFO teaches us an important lesson
Private finance does not magically make infrastructure cheaper.
It changes when and by whom it is paid for.
That distinction matters.
Government can normally borrow more cheaply than private companies. Private investors therefore have to justify their higher financing costs through genuine risk transfer, better delivery, whole-life asset management and operational efficiency.
When that works, there is a compelling argument for the model.
When it doesn’t, taxpayers or road users can spend decades paying an expensive financing premium.
The M25 demonstrates the danger. The National Audit Office concluded that the 2009 PFI procurement could have delivered materially better value. Delays meant the contract reached financial close during the credit crisis, increasing its estimated net present cost by £660 million – 24% – to £3.4 billion.
That is the lesson the new model cannot afford to forget.
There is another fundamental difference this time. DBFO’s shadow tolls were largely invisible to motorists. Under RAB, actual user charging can provide the revenue stream.
That makes affordability, toll escalation, traffic forecasting and diversion onto surrounding local roads enormously important. Investors need predictable revenues, but motorists cannot simply become the mechanism through which every construction overrun or forecasting error is recovered.
DBFO 2.0? Perhaps – but potentially a better version
The principles are undeniably familiar: private capital, long-term concessions, construction and operational responsibility bundled together and investment repaid over decades.
But RAB introduces something DBFO lacked in the same form: formal economic regulation by the ORR, licensed operators and an explicit framework governing returns and user interests. GOV.UK
That could prove to be the crucial evolution.
The Government should therefore resist pretending this is an entirely new concept. Instead, it should acknowledge that Britain already has 30 years of evidence showing what worked – and what didn’t.
The opportunity is substantial. Properly structured private capital could accelerate infrastructure, unlock projects currently constrained by public finances and create a sustained highways investment pipeline capable of supporting economic growth.
But the test isn’t whether we can persuade investors to finance Britain’s roads.
We already proved we could do that in the 1990s.
The test is whether, thirty years later, we have learned enough to do it better.