Over 700 PFI contracts currently operate in England across the health, schools, courts, leisure, prisons, transport and waste sectors. Those contracts begin to expire over the course of this decade and guidance has recently been published by the Infrastructure and Projects Authority to advise contracting authorities on the steps they need to take to manage PFI expiry (Preparing for PFI contract expiry – GOV.UK (www.gov.uk)).
What does the guidance say?
The guidance highlights the time and resource requirements involved in effectively managing PFI expiry and securing future service provision at the PFI facilities. Senior leaders (such as directors of finance, estates and strategy) are required, at least seven years before expiry of the PFI contract, to commence planning for PFI expiry in order to achieve value for money and ensure continuity of service provision. Each contracting authority will need to appoint a Senior Responsible Owner who will lead the expiry team and be both the owner of the business case and the primary risk owner. This is vital in order to mitigate any potential risks, such as operational disruption, lack of service continuity, financial loss and reputational damage.
What actions do you need to take?
A critical action is for the contracting authority to survey the condition of the PFI assets. It is imperative to ensure that the facilities are properly maintained and that any defects are identified so that the assets are returned to the contracting authority upon expiry in the expected condition in accordance with the standards set out in the contract.
Consideration will also need to be given as to how services will be provided at the PFI facilities following expiry of the PFI contract. Contracting authorities are advised to consider, at an early stage, their rights under the PFI contract to the provision by Project Co of information and operational knowledge needed – such as TUPE data – in order to design the strategy for future service provision at the PFI facilities. Where any future services will be outsourced, the contracting authority will need to plan for the carrying out of a procurement exercise. The development of future services also presents an opportunity to contracting authorities to consider how new technologies may be used at the facilities, as well as how carbon net zero may be achieved.
Whilst contracting authorities will be concerned about final asset condition, information transfer and future services, the guidance notes that private sector drivers will be different, and that Project Co will instead be focussed on securing financial returns, managing major lifecycle risk and minimising post-contract liabilities. It is therefore important to for contracting authorities to engage early with Project Co in respect of contract expiry to manage expectations and seek to ensure continued relationship management.
Are there other actions that you need to consider?
Even where PFI contracts do not expire for some years to come, it is advisable that contracting authorities ensure that PFI contracts are managed and monitored effectively to ensure a smooth transition through and beyond contract expiry. Contracting authorities should therefore ensure that they understand the contractual requirements and take steps to hold the Project Co accountable in the event of any non-compliance.
For further information, please contact:
Lucy Probert, Hill Dickinson