Over the next decade, an estimated 200 Private Finance Initiative (PFI) contracts worth £10bn in total will expire, potentially leaving key infrastructure unprotected
Senior leaders must turn their focus to potential PFI contract expiry, a public sector contracts expert has warned.
Andrew Hirst, partner at Womble Bond Dickinson, has warned that the ongoing operation and maintenance of key infrastructure could suffer in being returned back to the public sector.
What is a PFI contract?
A Private Finance Initiative was a method of procurement used by the UK government, in use since the early 1990’s.
Private sector investment is used to deliver public sector services or infrastructure, according to parameters set out by the public sector. Private sector debt and equity underwritten by the public were used as project finance to deliver the works.
The use of PFI contracts by the government was discontinued in 2018, however many contracts pre-dating that decision are approaching their conclusion.
Queries about the transition from these contracts have been raised, with the National Audit Office (NAO) responding that that it had: “identified opportunities to improve preparations and encouraged departments to take early action.”
Over the next ten years, approximately 200 PFI contracts providing critical public services in the sectors of education, health and social care, housing, waste and defence will expire with an asset value in the region of £10bn.
A more comprehensive view of the handback process is needed
To ensure the delivery of these vital public services and protect the public purse, Hirst argues, these contracts need to be managed effectively throughout their life cycle.
“The process and complexity for transition is being vastly underestimated, even authorities who believe they are approaching contract expiry early are likely to wish they had started sooner,” said Hirst. “Unless the handback process is properly managed authorities could find the infrastructure they receive back is in a much worse condition than expected.
“In an ideal world, buildings would come back in the condition required by the project agreement. However, that isn’t always likely to be the case partly because the handback processes and standards specified by early agreements are often unclear or underdeveloped.
“It’s therefore crucial that the transition from the existing PFI contracts to any new arrangements is properly managed to ensure continuity of services and the facilities are handed over by contractors in an appropriate condition.”
The expiration of PFI contracts presents an opportunity to drive sustainability and cost efficiencies
Andrew added: “The management of the expiry of PFI contracts is essential for key infrastructure, but it also allows authorities to address legacy issues within the contract. We’ve worked with a number of clients to review PFI contracts in anticipation of them expiring. These contracts also often provide opportunities to drive sustainability and cost efficiencies, two topics high on the agenda for both public and private sectors. However, it is just important to act sooner, rather than later.”
