Clock is ticking on PFI contract expiry

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Sonia McRobb

Associate Director, Leeds contact form

It’s been three years since the National Audit Office (NAO) warned the public sector was not prepared for the volume of PFI contracts reaching expiry. Sonia McRobb, Associate Director of PFI Expiry Solutions, says little has changed in that time, but the clock is ticking and action is required now.

The late 1990s may seem a distant memory for most people. But the early days of the Blair Government was the era that gave rise to the Private Finance Initiative. At the time, it was seen by Tony Blair and Gordon Brown as a pioneering way to fund the building of essential new public facilities.

However, as the years have passed and Governments have come and gone, the public sector now faces a real wake-up call financially, as these contracts, typically 25 to 30 years in length, are now reaching expiry and little has been done to manage the transfer of the assets back into public sector ownership.

In addition to the warning issued by the NAO in 2020, the Infrastructure and Projects Authority (IPA) also recommended the process of managing the end of the contract should take five to seven years, in order to ensure a smooth transition.

So, when you consider there are approximately 160 contracts set to expire between now and 2030, it raises the real risk that hundreds of buildings could return into public ownership without a clear understanding of the asset’s condition.

This would mean public sector organizations would be paying for work, such as boiler replacements and heating systems, that should have been paid for by private sector partners. And in the worst-case scenario, we could see disruption of services.

In total, there are around 530 PFI contracts approaching expiry dates over the next 30 years, and action needs to be taken now to avoid this kind of worst-case scenario. But the clock is ticking and both the private sector companies and public sector asset management teams need to tackle this issue head on, and as early as possible.

Due to the longevity of the agreements, it is likely that the specialist knowledge required to manage the transfer of the contracts will not be available for many contracting authorities.

Quite simply, people have moved on or retired, teams have changed, probably a number of times in a quarter of a century. Is the paper trail intact to ensure they have all the right documentation?

In addition, earlier contracts have been found to have more ambiguous drafting, perhaps due to less attention to detail in the rush to get the funding secure decades ago, which is more likely to lead to disputes today.

It is up to all parties to ensure contracts are up to date and everything is to guarantee a smooth transfer process for all the contracting authorities in the public sector. Therefore, the earlier both parties focus on this issue and bring qualified, expert advisors on board where needed, the better the outcome for all concerned.

The new service from AtkinsRéalis offers a holistic view of all the component parts of the PFI expiry process, along with the strategies and capabilities to deliver successful post-hand back outcomes.