The Journey to Hand Back - PFI
In 2020 the National Audit Office found that over the next decade, more than 200 PFI contracts are due to expire, covering over £10bn in assets. All sectors were supplemented by assets funding by banks and institutions and delivered and managed by the private sector, along with some associated services under rigid, long-term contracts.
Driven partly by the NAO report, partly by the acknowledgement of poor expiry provisions and partly a general lack of coordination across the public sector PFI client base, HM Treasury through the Infrastructure and Projects Authority (IPA) has recently brought forward guidance on “Preparing for PFI Contract Expiry”. It draws on the limited UK experience of PFI expiries to date and extrapolates best practices and critical success factors for any Project SRO to absorb. Whilst the guidance is a relatively light read, the implications of deploying the guidance are significant.
The actual scale and complexity of achieving a successful PFI hand back cannot be underestimated, and any client relying on the provisions of the contract and the goodwill of their contractor/partner to see them through ignores some unpleasant realities. Whilst hidden away in the pages of detail, the IPA guidance does not shout loudly enough about some key aspects of PFI expiry and it is worth calling these out:
It is more than Business as Usual. Success means taking a pragmatic approach to each aspect of the journey. Similar to when the PFI contract was negotiated, the client-side will need to structure its approach and work across layers of technicality and seniority, aligning commerciality, with asset and service knowledge and negotiating guile.
It will cost. Even the IPA guidance contemplates additional actions and stages of discovery and assessment beyond that initially contemplated within the contracts. Add to that the client-side time, effort, resource and cash that will be needed for a public sector client to reach a suitable post expiry outcome.
It can impact all aspects of service delivery. Inheriting it will unlock possibilities for service realignment and change that may not have been afforded for 20 years. It is key that these considerations are made with cognisance of service outcomes and the risk and economics of achieving these.
Don’t rely on the centre. Many Government departments have their own PPP forum or policy unit which will set the tone for the expiry of PFIs, offering wisdom and ensuring compliance. However, it is unlikely that they are named signatories with responsibility to deliver the respective contracts and front-line services. They will advise and support, but it is the sovereign NHS Trust and Local Councils alike who will need to make the expiry work.
The contract is vague and corporate knowledge and expertise are in short supply.All public sector clients will need to invest in understanding their deal and its implications well before engaging with their counterparty to agree on what should be delivered. Similarly, every organisation will need to prepare its staff and service users for the change. Importantly it is both the preparation, training and familiarisation up pre-handover and the implications of the obligations and implications of asset ownership post-handover.
It is a project in its own rights – Taking all of these aspects, PFI expiry is a significant corporate workstream or initiative in its own right. It will need a capable SRO with the right support and a bespoke governance structure, enabled to manage and negotiate with complex and varied stakeholders. Its set-up will need business case styled justification and approval, as will the strategic intent of any “post expiry” asset and service solution and configuration.
So, the public sector client base cannot say it hasn’t been told, but the mantle must now be picked up by each and every public sector client to immerse themselves in their own deal and drive it to their agenda to achieve their desired outcomes, in a timeframe determined 20+ years ago.