As several Private Finance Initiatives (PFI) contracts approach expiry, Greig Fenton, regional director at Thomas & Adamson, examines how collaboration can smooth out a potentially bumpy transition
The great Private Finance Initiatives – or PFI, as it was better known – hand over has begun in earnest. These Public-Private Partnership (PPP) contracts, worth a combined capital value of £57bn across the UK and £9bn in Scotland, will be transferred back to government ownership over the next three decades, with the majority of expiries taking place between 2025 and 2043.
Transferring infrastructure of this scale and magnitude presents both opportunities and risks for the current private owners and the public sector. For the latter, that largely means ensuring properties ranging from schools, government buildings, and roads become an asset to the public balance sheet, rather than a liability. At the same time, the former do not want to become embroiled in disputed handovers that take years, and large legal bills, to conclude.
Consensus over conflict
Initially, it seemed that the process would be similar to dilapidations, with opposing representatives for each side. But, informed by guidance from the Infrastructure and Projects Authority (IPA), what is emerging from the first few cases is a much more collaborative and partnership-led approach, with one set of surveyors jointly appointed by both sides to provide an objective point of reporting.
It is a role we are fulfilling on the transfer of a PFI asset and the principle behind this approach is simple: consensus between parties should lead to better outcomes than conflict.
A single, objective partner can provide a transparent and impartial approach, aimed at delivering what is reasonable and fair in an efficient way for both parties. It can also avoid the lengthy disputes, potential service delivery impacts, expensive legal outcomes, and inherited liabilities for the public sector that are more likely through alternative methods. But, for it to work to its full potential, other factors need to be considered too.
Begin the PFI handover early
Part of that collaborative approach is starting the process with plenty of time until the expiry date. While the recommended schedule for handing back assets is five to seven years, there are reports of some beginning just 18 months in advance, which immediately puts pressure on the situation.
Planning out the process far in advance will enable both sides to deliver their roles and look beyond the PFI contract’s expiry date. They can look at the asset’s future use, take measures in the next few years that will support those objectives, and undertake specific programmes in areas like decarbonisation, which were not as much of a consideration 25 years ago.
The earlier both parties start talking, the sooner an understanding of any works required will emerge and any changes can be factored into the asset’s maintenance and upkeep plans. For example, if a gas heating system is due to be replaced in the next couple of years, rather than replace like with like as per the terms of the contract, it may make sense to opt for a more sustainable alternative instead.
Approaching the situation in this way could represent a win for both sides: the private operator could receive financial input on the uplift cost of any new equipment, while the public service inherits an asset that will contribute to, rather than detract from, its net zero targets.
The burden of proof
Another reason to kick off the handover process early is the time it affords both sides to gather, share, and analyse all of the documentation required to make informed decisions for the long term.
Much of the handover process is based on the burden of proof. Having evidence which shows that a building has been operated and maintained appropriately, as well as confirmation that any plant or equipment within it is operational and fit for purpose, is absolutely critical in that regard.
With verifiable records and verifications like these, it is possible to say – within a reasonable degree of certainty – how much lifespan is left within certain parts and components. A lack of information like this can lead to too much subjective interpretation – for example, whether a property’s roof has another five years until replacement or ten – which almost invariably leads to disputes.
Keeping to the code of conduct
However, it is important to note that a collaborative approach will only work in cases where there is no serious conflict between the private provider and the public authority. The jointly appointed surveyor can mediate to a point, drawing on what the original contract states, but if the situation escalates then it may require legal involvement.
Some points of disagreement are inevitable. And, so far, it looks as though the first generation of PFI contracts now approaching expiry were written with vague wording, which could lead to disputes. Hopefully this issue should pass, as subsequent iterations evolved and clauses were tightened up over time.
From a surveyor’s perspective, though, it is vitally important that the jointly appointed firm aligns itself with the Royal Institute of Chartered Surveyors’ (RICS) code of conduct. This should ensure they act professionally, with honesty, integrity, respect, and responsibility, without any bias towards one side or the other.
Ultimately, much will boil down to the clauses in the contracts written more than two decades ago. As long as these are being interpreted in an objective way that satisfies both sides of the equation, there should be few serious issues. Nonetheless, taking a collaborative approach, building in enough time for infrastructure to be properly assessed, is the first step towards making the process of taking back billions of pounds worth of assets onto the public sector balance sheet as low risk as it can be.
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