Warnings issued over “adversarial approach to contract management” ahead of PFI expiry

Confrontational and adversarial relationships between public bodies and those that manage facilities under the private finance initiative (PFI) will damage the return to the public sector of some 150 assets over this Parliament and rack up large legal costs.

That warning has come from the Association of Infrastructure Investors in Public Private (AIIPP) Partnerships in a report on The Private Finance Initiative Model and the Social Infrastructure Challenge, arising from a members’ survey.

PFI was designed as way to attract private investment into the provision of public infrastructure and facilities, with the asset concerned eventually handed back to the public sector.

It was introduced by the Major government in the early 1990s then widely expanded by Labour during the 2000s.

The AIIPP said there were more than 600 extant PFI assets and while most operated well “mistrust between the parties to some PFI contracts has emerged in recent years, with a perceived lack of assured performance.

“This has occurred at a similar time to public sector financial and resourcing pressures. Many of our survey respondents considered that the public sector contract management teams managing the PFI projects they are working on lack adequate resourcing.”

Such pressures had led to “a more adversarial approach to contract management” leading to over-use of complex payment mechanisms built into contracts to generate financial deductions from payments to suppliers, “rather than prioritising the resolution of underlying issues to the benefit of the PFI assets and their users”.

The AIIPP said the result was “an increasing number of expensive disputes”, in particular in healthcare.

More than half of respondents expected this to worsen over the next three years.

This trend saw each stakeholder in a dispute having to pay for consultants and legal advice, and meant increases in risk pricing by contractors servicing PFI contracts for the delivery of future required works.

“Adversarial contract management also has a human cost,” AIIPP said. “The working environment for personnel has become increasingly confrontational, making it difficult to attract and retain key personnel.”

Some 150 assets worth £6bn in all are due to be handed back to the public sector in the next five years, and “each expiry will be a complex exercise in its own right, requiring planning and management in tandem with current day-to-day operations”.

Keeping assets working during this process required a seamlessly coordinated transition as any failure would place service continuity at risk.

The report said: “The need for action now is precisely because this level of required collaboration is threatened by disputes and poor relationships, which are likely to increase without intervention.”

Mark Smulian