I watched it so you don't have to... Public Accounts Committee: Managing the expiry of PFI contracts

Perhaps unsurprisingly Mrs James eschewed the delights of the Public Accounts Committee grilling the IPA and Local Partnerships on PFI handback preparedness in favour of "Bridgerton".  So I settled down in front of my laptop with some strong coffee, despite suggestions from others that something even stronger might be needed.  44 minutes in and I think they might have been right …Two and a half hours later, it's pretty clear to me that the IPA has a developed a detailed plan as to how to approach the handback challenge.  The central message is one of early preparation for procuring authorities, which is hard to argue with.  It's also clear to me that MPs might want to do a bit of homework before challenging industry experts.

The key themes were:

  • The scale of the challenge - there are over 700 projects to manage through the handback process, with around 175 expiring over the next 10 years.  There is a lot of work to do.
  • Resourcing - this is a huge challenge, both for central government and procuring authorities.  Not only are there a lack of bodies, but also a lack of expertise across the financial, technical and (most importantly) legal work streams, with local authorities being the most concerning area.   "Short of skills, short of advice" as one witness put it.  Sir Geoffrey Clifton-Brown MP was keen to ensure that local authorities were not forced into the clutches of expensive consultants - rather the IPA should deliver this advice to local authorities and charge them for this.  Robbing Peter to pay Paul?
  • Early preparation – the NAO recommendation that authorities should start their preparations seven years out from expiry now seems to be set in stone.  In the word of Local Partnerships "we need to make authorities aware that they can’t start preparing early enough for the expiry of contracts".  There was a clear acknowledgement that carrying out surveys two years before the expiry date (as per SoPC4) is far too late.
  • "The data is not great on PFI contracts" - many authorities have incomplete data and there are real issues around reconciling variations.  Local Partnerships bemoaned a project with seven major variations, plus 75 change notices and the absence of a single compiled project agreement, making cross referencing something of a nightmare.  Much to the horror of Meg Hillier MP, a lot of data is on CD-ROMs!  SPV reporting has also been wanting across a number of projects.
  • The problem of early contracts – the handback provisions in early contracts are often lacking and, in many instances, there are residual value payments due to the SPV.  Richard Holden MP then dived down a rabbit hole concerning authorities' liabilities on termination, missing the point that RV payments were limited to a handful of projects.
  • Termination - Corbynista MP, Olivia Blake, leapt at the chance to suggest termination as a possible panacea to handback woes.  A patient explanation from the IPA on the rationale behind compensation on Authority voluntary termination, and the need to demonstrate value for money then followed.  Personally, I can't see how termination is going to achieve anything other than accelerating the expiry date.  But I suppose it achieves a political goal.  Keep the red flag flying, Olivia.
  • Contract management – there was much debate around who was responsible for the handback process if it all went wrong.  The harsh truth was that authorities should have the relevant contractual levers to incentivise performance and should not be afraid of exercising them.  Time to take the Project Agreement out of the drawer and start some contract management.
  • Post expiry plans - alongside handback, authorities need to be preparing for life after PFI and consider how they will procure ongoing services.  Part and parcel of this will be ensuring that any maintenance backlog is addressed via the handback process.

Mission accomplished for the IPA and Local Partnerships in making their case that they have robust plans in place to manage PFI handback.  The Committee did its best to try and pick holes in those plans, albeit with limited success.  However, for those looking for answers on PFI handback, I'm not convinced that the Committee provided anything new.

Written by: Partner, James Larmour,


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