Rob Hann, Head of Local Government at Sharpe Pritchard, takes a look at new guidance on PFI expiry recently published by the IPA to help public bodies wrestle with the complexities of transition they will face as these contracts reach full term.
Rob was the former head of legal at 4ps and Local Partnerships during the roll out of the PFI programme across the local government sector during 1996-2016.
Both the Public Accounts Committee (PAC) and the National Audit Office (NAO) have in recent months flagged up the fact that many long term PFI contracts are coming to an end at various times over the course of the next decade, and that public bodies need to act now to plan for the transition to whatever comes next in terms of crucial public sector service continuity.
The scale of the problem is outlined in the PAC report where it states:
“Over the next 10 years, an estimated 200 PFI projects will come to an end, representing £10 billion of assets. In most cases, when a PFI contract expires, the assets will transfer to the public sector. The process is complex and requires the public body (the authority) that entered into the original contract to take several actions in advance of expiry. First, the authority has a duty to ensure the private company has completed any scheduled or reactive maintenance, including any rectification work required to bring the asset up to the condition stipulated in the contract. Second, the authority needs to decide if the assets and services are required after expiry and, if so, how the asset will be maintained, and the services provided.”
The PAC in particular asked searching questions about the readiness and capability of government departments and other public bodies to deal with the complexities and issues which will inevitably arise, and which will need to be resolved on a contract-by-contract basis with the vast majority of these infrastructure projects. The Infrastructure and Projects Authority (the IPA) came in for particular scrutiny given its role as the Government’s ‘centre of expertise’ for infrastructure and major projects, set up to provide advice and support to departments and authorities. The PAC made some hard-hitting recommendations setting out what they expected to see by way of support to public bodies to help with PFI expiry. As a result, and over the Christmas/New Year period, the IPA has been busily recruiting an army of approved consultants with PFI experience which, no doubt, will soon be mobilised to help individual public bodies with specific issues. However, in response to the PAC recommendation “to proactively publish guidance for authorities”, a substantial swathe of new guidance has also now been published (28th February) and can be found here (the IPA Guidance).
The IPA Guidance consists of a comprehensive initial tranche of guidance entitled “Preparing for PFI Contract Expiry” and contains some 74 pages with helpful diagrams and highlighted text to help readers better understand the core messages contained in the document. This tranche is supplemented by several so-called ‘toolkits’ which explore some of the specialist features of PFI contracts that might commonly be found, such as how assets might be held; how projects might be structured; how surveys might be carried out pre-expiry; and what other guidance might be available and from where.
The IPA Guidance makes essential reading for anyone involved in helping public bodies to manage these contracts to contract term close and beyond. That said, the guidance is very high level and is not sector-specific. Perhaps more guidance specifically tailored to a sector will be produced by other central agencies and departments (DEFRA for waste, the DFE for schools etc), which might also pass on the lessons being learned incrementally as the earlier PFI projects reach their end term, for the benefit of the later contracts in the programme.
Watch this space!
Rob Hann is Head of Local Government at Sharpe Pritchard LLP.
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