History has now come full circle with the building of the new British Embassy in Berlin, opened by HM The Queen on 18 July 2000, on the exact site in the Wilhelmstrasse where its predecessor stood. The exciting design by Michael Wilford respects the urban values of Berlin’s past while taking a bold leap into the future. It also takes the business of diplomacy onto a more public stage.

With its striking and innovative design, the new British Embassy in Berlin is a prominent feature of Wilhelmstrasse. But the design is not the only interesting feature of the building. The project is the first embassy to be constructed under the Private Finance Initiative (PFI) and is the first ever PFI accommodation project outside the UK.

The PFI was launched by the British Government in 1992 to promote partnership between the public and private sectors on a commercial basis. The public sector specifies the service or infrastructure needed and private sector companies compete to provide these requirements.

Following an EU tender bid for the new British Embassy Berlin, the Foreign and Commonwealth Office signed a contract with the German consortium Arteos, who will finance, construct and then manage the building for 30 years. The British Government chose Arteos as the contender who offered the best and most economic bid.

The site of the new building belongs to the British Government and will be leased to the PFI Operator for a period of 60 years from the date of occupation. Arteos will own the building and the lease on the site. If, at the end of the initial 30-year service contract, they pull out or fail to win the re-tender process, the building and remaining 30-year lease will be transferred to the winning bidder at the prevailing market value. Residual Value risk has been transferred.

Through the use of the PFI, the Foreign and Commonwealth Office - in a single contract - entered into the equivalent of a fixed price construction contract, coupled with an index-linked operating cost regime where most of the traditional risks have been transferred to the Operator of the facility for a 30-year period.

Arteos as provider of the service accepted a large degree of responsibility in respect of both the construction and operating phases of the project. The main risks transferred during the construction phase related to cost and time.

The contract is paid for by an annual Unitary Payment which relates to fully serviced accommodation – including all energy, utility, running, maintenance and life-cycle replacement costs over 30 years. 80% of the payment will be fixed for the whole of the 30-year term, based on Arteos’ long-term financing arrangements, and reflects their assumption of this risk. 20% will be indexed to reflect the best VFM balance between transferring as much risk as possible to Arteos while maintaining an economic cost to the Foreign and Commonwealth Office. The costs of such services as cleaning and other similar labour intensive activities will be market tested every three years.

The whole of the payment will be subject to an innovative Performance Payment System (PPS) which will offer credits to the Foreign and Commonwealth Office if service and accommodation requirements are not met. The PPS enables the Foreign and Commonwealth Office to put the whole of the Unitary Payment at risk if services are not provided in an adequate manner. The arrangements are supported by comprehensive service-level standards forming part of the contract.

Provision is made for relatively streamlined procedures for expert assessment and disputes resolution aimed at making the contract structure as self-contained as possible, minimising the potential complications of having to have recourse to the courts of either jurisdiction.