London boroughs “unprepared” for PFI expiry amid concerns over resources: report

Many London boroughs are not prepared for the expiry of private finance initiative (PFI) contracts and are hampered by lack of resources in addressing this.

That conclusion has come from a report by law firm Devonshires for the Future of London think tank and construction consultancy Airey Miller.

It found in many cases boroughs lacked project management capacity and clear contract ownership.

This could lead to a major disruption in public services as over the next decade, PFI contracts will expire across at least 20 London boroughs, accounting for three-quarters of all PFI contracts in the capital.

Nicola Mathers, chief executive of Future of London, said: “This is the first review of the implications of PFI contract expiry on London local authorities. We talked to most of the boroughs affected and it's clear that many feel under-prepared and under-resourced.” 

Some £6bn of payments remain due from boroughs to private sector operators for assets and services including schools, housing, care facilities and street lighting.

Senior local government figures reported resourcing pressures including increased costs of service delivery after government PFI credits stop, lack of management capacity to lead expiry preparations and that PFI reserves had not kept up with inflation to manage the expiry process effectively.

Feedback from boroughs showed PFI contract expiry will increase the financial strain on councils already dealing with unprecedented financial pressures.

Once PFI contracts expire, responsibility for maintenance of the assets and services involved would initially fall to local authorities unless transferred to third parties such as schools and academies.

Councils could therefore inherit unknown, problematic and expensive risks and liabilities if expiry and hand back is not managed properly.

The report also highlighted good PFI expiry management practice. 

The report recommended public bodies with PFI contracts should break down the process into 'business as usual’, expiry and post-expiry service delivery.

They should explore potential extensions to align contract end dates with maintenance and procurement schedules, invest in project management capability and agree on asset condition, at least five years before expiry, to avoid costly disputes. 

Caroline Mostowfi, partner and head of projects at Devonshires Solicitors, said: “PFI contract expiry raises a number of issues - not least, how hand back is being managed and what, if anything, will replace those projects.

“The contractual arrangements that underpin all PFI projects are both substantial and complex. This report confirms that many authorities are starting to realise this and that without greater and more immediate focus and resource, they will struggle to properly manage these contracts through to expiry.

“The consequences of not doing so could severely impact future service delivery and result in unsuitable buildings and facilities, representing significant liabilities, being handed back to the public sector to sort out.

“However, it is not too late for authorities to address this. By doing so, they will be far better placed to ensure that tomorrow’s local infrastructure and public services will be coherently planned, procured and fit for the future.”

Mark Smulian