Making for the Exit

May 3, 2021
Tim Heywood


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Those public bodies lucky enough to have benefitted from the Private Finance Initiative (PFI) (the Conservative party infrastructure scheme later adopted and greatly expanded by the Blair and Brown governments) will inevitably at some stage need to plan for the expiry of their PFI contract. For those public bodies that were in the first wave of PFIs (which saw many new schools, hospitals and prisons built in the late 1990’s), that time is fairly close.

Many will be due to expire within the next 8 -10 years or so.

This will represent a real challenge as they assess their contracts to see what they actually say about the handover arrangements, asset management and lifecycle costs. That is quite apart from working out how the school or hospital will be able to resource the cleaning, maintenance, security, catering and other services which it will inherit on expiry. 

Most public bodies in a PFI have only small teams managing the relationship with the private sector partner and very few of them will be the people who negotiated the deal in the first place, so ‘corporate memory’ may well be lacking. 

The National Audit Office (NAO)  is all too aware of this and has duly published its report and guidance “Managing PFI Assets and Services as Contracts End” (June 2020).

In their report, the NAO stress the importance of the public sector getting a suitably skilled and experienced team together to devise and deliver an exit strategy. This will almost certainly, they say, mean appointing external specialists, as the necessary skills are in short supply in the public sector.

The NAO say that the teams will need to obtain expert legal support (for the complex contract interpretation, negotiation; dispute management; employment; property; construction etc issues that will arise), financial(not least for advice on asset finance options and lifecycle cost management) and technical input (on property and other asset management issues). 

From our discussions with gunnercooke clients in the NHS and other parts of the public sector, it is evident that many already recognise the need to start putting such plans into operation, mindful that many of the changes needed to move to the handover stage and then on into a new ‘steady state’ in which the public sector either has to take on the services themselves or find new service providers, will take a long time, often many years, to implement.

Tim Heywood FRSA, is a partner in gunnercooke llp and a former senior government lawyer experienced in negotiating, interpreting and successfully managing PFI contracts and other public private partnerships in central government, local government, and the NHS.