The Infrastructure and Projects Authority (IPA) has now published 'Preparing for PFI Contract Expiry Tool Kit'. The guidance is intended to provide support to contracting authorities but will be of interest to all stakeholders involved in the PFI market.
The key themes of the report are:
- Ensuring value for money
- Ensuring continuity of services
- Highlighting the complexity of the expiry process.
The importance of getting PFI expiry right
As we are continually reminded, the IPA predicts that the expiry process will take seven years to facilitate properly. Given the importance of the underlying services being delivered by these projects, it is essential that the process is managed effectively. Without proper management, contracting authorities may face operational disruption, lack of service continuity, financial loss or reputational damage.
Management and knowledge are key
PFI expiry is not a distant event. One of the IPA's notable recommendations is that the expiry process is itself treated like a distinct project, in order to achieve greater clarity and structure. Likewise, the IPA highlights the importance of early support and buy-in from senior figures within the contracting authority - having strong leadership and a distinct project structure is crucial to success.
Given the complexity of the process, the IPA recommends that early consideration is given to the resources available to contracting authorities and whether specialist advisers (for example technical, legal and financial) will be needed. Linked to this is the recommendation that contracting authorities speak to and network with each other. By collaborating on their experiences and sharing issues and solutions, contracting authorities can better prepare for their own projects.
In the private sector, where equity investors and management services providers own and operate portfolios of projects often grouped by their common procurement routes, it is clear that there will be advantages to sharing information on best practice with internal corporate groups and early advancement along the learning curve, bringing into sharp focus the requirement for contracting authorities to put in place appropriate management processes and structures.
Implementing PFI expiry – a process, not an event
Successful implementation of the PFI expiry process is necessary to ensure that the transition does not impact on the quality of the services. The IPA breaks down the implementation process into five different topics:
1. Contract awareness and management
Having a solid understanding of the contract provides a foundation upon which the whole process is built. Awareness of the expiry process provisions in the contract is therefore essential. Those provisions are not always clear/prescriptive and therefore early understanding of the contractual backdrop is important.
2. Relationship management
Given the complex web of each party's obligations, having a good relationship between stakeholders is crucial. Building and maintaining this relationship will make the implementation process more efficient and, like all effective relationships, will take time to bed in and develop in the context of expiry, particularly where the parties are starting from a less than harmonious operational foundation.
3. Assets
Underpinning the whole expiry process is the handback of the underlying asset to the contracting authority. The condition of the asset at expiry is key to the continuity of the service and a clear understanding of those assets, shared between the parties and in the context of the contractual requirement in respect of those assets, will be vital.
4. Commercial approach
Contracting authorities should assess, develop and confirm their aims and objectives from the outset, in order to provide structure and focus to the decisions they make during the expiry process. The IPA also highlights the importance of recognising the commercial levers available to contracting authorities.
5. Future services
The PFI expiry process presents an opportunity to set out how the future of the service delivery will work. It is important that the expiry process helps facilitate the delivery of new services.
The IPA guidance document should be read by all stakeholders involved in the expiry process. While not providing project specific advice, the underlying themes and guidance provide a framework from which contracting authorities can begin preparation and guide them throughout the implementation phase.
For more information, read the PFI expiry guidance, along with additional toolkits.
For more information on PFI project handback see our four-part blog series:
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