PFI handback – eating the biggest frog first
As a young solicitor, I was often told by clients not to worry too much about PFI handback provisions. “We’ll all be retired by then” was the usual refrain. Fast forward a few years, I’m no longer a young solicitor (although still a fifteen year old in my head) and thanks to Coronavirus I’m certainly a long way off from retirement (Tesco tartan beckons in my later years). At the same time those handback provisions which were so far off in the distance are now rolling round into view.
Of course, we all know how the handback provisions work, but to recap for those in need of a refresh:
- 18 months or so before the expiry date, the Authority carries out a survey to assess whether the facility has been maintained in accordance with the Project Agreement;
- if the survey shows that the facility has not been maintained in accordance with the Project Agreement, the project company is required to carry out the relevant rectification works;
- the Authority is entitled to deduct the costs of the rectification works from the unitary charge and place those funds in a retention account as security for the rectification works;
- once the works are complete, the retained funds are released to the project company;
- if the project company does not complete the works, the Authority can carry out the works and make withdrawals from the retention account.
That’s all straightforward enough and reflects SoPC. But whilst standardisation has been in place since the turn of the century, BEWARE – there’s a good number of projects out there which don’t follow the standard form. Indeed, I have seen a number of handback arrangements which could prove to be a real headache if not picked up early:
- Freehold Transfers – here the freehold to the project site has been transferred to the project company. The Authority has the benefit of a lease which expires at the same time as the Project Agreement. The Authority has a right to request a further lease on expiry, failing which it must vacate the site.
- Long leaseholds – a variant of the freehold transfer, the project company has a long leasehold of the project site, whilst the Authority’s sub-lease will expire with the Project Agreement. If the Authority wants to retain access to the site, it is required to exercise an option to acquire the head lease. Sometimes there is an alternative of extending the project agreement.
- Rights to extend – these seem to have been in fashion in the late 90’s (presumably before the knives were out for PFI). Typically, the Authority has the right to extend service provision for a further period, but the detail as to the basis upon which that extension might operate is left to be agreed. Given the current climate, it might be hard to imagine that any Authority might extend. However, local authorities still seem keen to make the most of the procurement flexibility offered by LEP, so I don’t think this can be completely discounted.
- Short survey periods – final surveys being carried out anything from 6 to 12 months from the expiry date. Whilst not insurmountable, without some forward planning this does pose a number of practical difficulties.
It’s generally accepted that preparation is key for successfully implementing the SoPC handback provisions. Preparation is all the more important when the parties are faced with a non-standard position.
(For the uninitiated the frog represents the thing on your to-do-list that you don’t like doing, or keep putting off, but you actually need to do now – please see my note here).
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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