Eating the PFI frog – 10 Urgent Questions You Must Answer
Mark Twain once said “If it’s your job to eat a frog, it’s best to do it first thing in the morning. And if it’s your job to eat two frogs, it’s best to eat the biggest one first.” In time management, the frog is the thing on your to-do-list that you don’t want to do, but you actually need to do.
In the PFI world the spectre of handback is looming large. Whilst COVID-19 has rightly been centre stage and has presented a number of challenges to the industry, handback isn’t going away. Both the public and the private sectors need to start thinking about how to successfully navigate this challenge.
Advance planning will be key to ensuring a smooth transition and that the parties’ interests are best served. Some of the issues that need to be considered include:
- Do you know what the expiry date is? This may seem obvious, but everything flows from the expiry date so this needs to be fixed in your head.
- Are you clear how the handback provisions operate? Don’t assume that they will follow SoPC4 – in many older projects they don’t and can feature bespoke requirements.
- What are the parties’ obligations on and post termination? The parties will have various obligations to comply with at the point of expiry. What are they and how will they be discharged? What continuing obligations do the parties have following the expiry date?
- Do you have a clear view of any Variations? Get a firm grip on these at the earliest opportunity. Don’t assume that the Project Agreement signed at financial close contains all of the obligations of the parties that are relevant to handback. Over the course of 20 plus years there is plenty of scope for change. These can range from authority change notices to formal deeds of variation and may prove to be a complex contractual jigsaw.
- What assets and equipment are being handed over? Given the passage of time, equipment lists under the Project Agreement may not bear much resemblance to what’s on the ground. The parties need to be clear as to what’s being handed over.
- What condition surveys are required? When and how do these need to be carried out? Again you need to be working towards this date as priority.
- Have you conducted an early condition survey? Rather than waiting for the pre-determined survey date to arrive, be pro-active and consider implementing surveys in advance. This would give the Project Company an early view as to the nature and extent of any remedial works that may need to be completed – these can then be better planned to minimize disruption to project operations and to better manage Lifecycle spend (see below). For the public sector greater visibility of the condition of the facilities at an early stage will assist in driving maximum value from the contract.
- What’s the projected Lifecycle spend? The Project Company needs to understand the interface between its handback obligations and the projected lifecycle spend over the remainder of the project. To the extent permitted by the Project Agreement, lifecycle spend should be carefully managed to minimise inefficiencies.
- What extensions are available? – Does the Project Agreement allow for the project term to be extended? Is this attractive to the parties? Are there any procurement law implications?
- What are the future plans? – How does the procuring authority intend to operate and maintain the facilities post-expiry? Whether it is intended to bring service provision back in-house or to conduct a further procurement exercise, this transition needs to be carefully planned.
It’s arguable that handback was never really at the forefront of people’s minds when they were negotiating PFI contracts. And I think that’s completely understandable given that handback was well over 20 years away – it was never going to be a priority. However, time flies faster every year and a wave of projects will soon be approaching handback. We need to start planning in a serious way to successfully surf over that wave. As unwelcome as it may be, it’s time to eat the frog.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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