PFI handback – what type of frog are we dealing with?
Much of the discussion on PFI handback, which I have outlined before, centres around the need to carry out condition surveys. But before you can carry out a survey, you need a clear picture of what you are surveying (ie. the assets being handed back) and what the required condition is (ie. what is the handback requirement). It is here that variations over the course of the project term can seriously complicate matters. What variations have been implemented over the project term? Can you identify all of them? Where is the underlying contractual documentation? How do these variations impact upon the handback process?
What are the assets that are being handed over?
In most instances this should simply be the estate which the Project Company is responsible for together with the associated fixtures and fittings. However, the position may be complicated by a number of factors, such:
- retained estate
- post completion construction works completed by the Project Company where the Project Company is not responsible for ongoing maintenance
- post completion construction works completed by the procuring Authority or a third party
- descoping variations (for example, the transfer of general change in law risk back to the procuring authority, the removal of services or a relaxation of service standards)
- retrofitting of energy generation assets or energy efficiency measures
- changes to the PFI site (ie. the red line plan)
- changes to the responsibility for the provision of furniture, fixtures and fittings
- changes to the FF&E list over the lifetime of the project
- bespoke equipment provision arrangements (for example, the provision of managed equipment services on NHS projects or ICT services on schools projects)
A first step is to establish the position at financial close. This should be reasonably straightforward, although there may be a number of project specifics. Then the impact of any variations will need to be overlaid to establish exactly what is being handed back by the Project Company.
What is the required handback condition?
Handback provisions will either be:
- a specific handback requirement (for example, Estate Condition B on NHS projects); or
- a generic requirement – the obligation to hand back the assets in a condition which is consistent with the Project Company having complied with its maintenance obligations (this is the approach adopted on BSF).
On the face of it, a specific handback condition should be easier to assess. But generic handback requirements may prove harder. This will involve an initial assessment of the requirements of the Project Agreement (including the authority’s requirements, the Services Specification and the Payment Mechanism). As ever, the devil will be in the technical detail – mismatches between the front end of a Project Agreement and the technical schedules are not uncommon. Again, the effect of any variations will need to be taken into account. Once the handback requirements are determined, they will then be applied to the different areas of the facilities and to individual asset types to establish the handback condition.
The trouble with variations
It is essential to get a clear view of any variations that have been effected since financial close. Over the course of 20 years, it is likely that there will have been a number of variations. Detailed analysis will be required in order to reach a firm view as to the current contractual position. In my experience, no one completes a full amendment and restatement of project documents when documenting variations. So this presents us with the task of reconciling the project documents with 20 years or so of variations. And that assumes you can find them all. This may involve formal Deeds of Variation, Authority Change Notices and (don’t fall off your seats’ lenders) any oral or informal variations that have occurred. Given the age of many projects and the change in personnel responsible for managing a project, this is no mean feat. But it’s hard to see how the parties can successfully complete the handback process without a clear view of the handback obligations. You need to start pulling these threads together well in advance of the condition survey date.
(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.
‘Doing the right thing’ is at the heart of Freeths. Find out more about our excellent client service and the strong set of values that guide the way we work.
Talk to us
Freeths are a leading national law firm with 13 offices across the UK. If you have a query about our services or just want to find out more, why not give us a call?
Contact: 03301 001 014