Over the next ten years, approximately 200 PFI contracts will expire with an asset value in the region of £10bn posing some complex challenges in relation to the return of infrastructure back to the public sector and its ongoing operation and maintenance.
PFI contracts provide critical public services in the sectors of education, health and social care, housing, waste and defence. To ensure the delivery of these vital public services and protect the public purse, these contracts need to be managed effectively throughout their life cycle.
In our experience, supporting a number of local government clients, 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. Echoing this, the National Audit Office (NAO) wrote in its annual report that it had: 'identified opportunities to improve preparations and encouraged departments to take early action.'
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 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.
Andrew Hirst is partner at Womble Bond Dickinson
