The handback of PFI projects is no simple task, and with 200 of those projects set to expire across the UK in the next 10 years, there are concerns about how that process is going to take place.
For both the contracting authorities and the private sector on either side of the projects, the key to that handback process lies in three areas: managing expectations, collaboration and resourcing.
Let's look at the first of those – expectation management and rule setting and how the IPA's programme plans to support contracting authorities successfully achieve this.
Given the standardisation of PFI contracts, we would be forgiven for instinctively thinking that the approach to handback in each contract is consistent. That is not always the case. The early PFI agreements can be very light touch on what is a complex and important area of the contract. Later contracts may be more prescriptive but, somewhat unusually in the contracting world, none will have been written with any experience of the process for which they are legislating.
There are distinct first mover advantages at play and given the private sector is likely to be gaining experience as the cycle moves on, without careful management on behalf of contracting authorities by central bodies such as the IPA and the Scottish Futures Trust, the balance of power (through progress along a steep learning curve) will inevitably tip towards the private sector.
The IPA programme offers an initial expiry health check to projects which are 7 years from expiry. A short report is produced assessing readiness for expiry and identifying any follow-up action recommendations. The health check will include a review of key project documentation, the relationship between the contracting parties, asset condition, commercial planning and future service provision requirements. Further checks are carried out 5 years and 3 years prior to expiry. If significant corrective action is required, the IPA will follow up 6 months prior to expiry with an assurance of action review. Early identification of potential project risks will be crucial in preventing disputes and ensuring continuity of services at handback.
Whilst many in the industry think 7 years' planning is unnecessary, one thing is for sure: agreeing the rules of the game between the authority, project company and service provider should be the first thing on the agenda.
A major part of that preparation will be in understanding the relevant asset. Checking that the project is compliant with the contract, that the facilities management (FM) team has been doing what is needed of them and that the asset register is up to date and accurate will go a long way to ensuring that all parties are aware of what needs to be achieved, or what can be achieved, by the expiry of the contract.
Reading the contract, understanding the process it sets out (and perhaps more importantly, what is missing from that process) and using that assessment to structure reasonable and agreed rules for the discussions to come will be vital for success. Framing that discussion early, with all parties aware of what is expected in the run up to expiry will help to build trust in the process. The IPA is developing further expiry guidance which is due to be published this autumn. The guidance will include a "toolkit" of resources, including practical checklists and best practice help sheets.
This first step of assessing the project and framing the discussion could have wider benefits. We are already seeing the market approach project expiry positively. For contracting authorities, project companies and FM providers alike, this could be an opportunity to shape the project, outside the four walls of a PFI arrangement, and make it fit for the future. We are already seeing this happen, for example the DVLA is using the impending expiry of its own integrated PFI contract as an opportunity to learn, grow and adapt using the experience of managing the PFI as a springboard for improvements and they are actively exploring ways to bring their soft FM services to an end early, to enable that improvement.
FM providers should likewise view expiry as an opportunity and actively explore a number of options for post expiry life. For example, by considering ways in which they can assist net zero carbon targets by bolting decarbonising technology onto project assets or sites, working with contracting authorities to add energy solutions like solar panels and heat pumps, or by considering how to link projects with district heating networks. Where there is appetite for the continuing delivery of services, FM providers may in some cases be considering buying out SPVs following debt repayment.
There are significant issues for the project parties to understand, not least in terms of staff transferring under TUPE, leases and land matters and, when thinking about extensions or continuing services, procurement. The IPA plans to offer specific PFI expiry training to contracting authorities in tandem with the launch of its expiry guidance.
All of these issues, aspirations and concerns will become clearer once the parties get round the table and get into the detail of agenda setting, allowing discussions to be framed in terms of opportunities for all parties.
For more information on how to approach the PFI handback process, read our blogs on the other key themes:
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