By Mark Poppy, CIPFA property training programme manager
Private finance initiative (PFI) projects tend to be long-term, usually lasting 25 years or more. Owing to the long-term nature of PFI contracts, as time goes on parties inevitably tend to focus more on day-to-day operations and portfolio management, and less on the expiry of the contract. This short-sighted approach can have significant and costly consequences for the local authority.
Contract expiration is becoming an increasingly pressing issue. There are currently over 550 PFI contracts in the public sector. Of these, 78 projects are due to expire before December 2027, and a further 91 projects will expire by 2030. There needs to be a substantial shift in thinking in how local authorities plan for the eventual expiry.
When PFI was rolled out across local government, authorities were incentivised to consider adopting PFI because central government provided much needed additional ring-fenced funding to the local authority to help meet the cost of asset intensive services for the length of the contract.
However, once the PFI contract expires, this additional ring-fenced funding support from central government ceases. This means that local authorities will then be faced with inheriting not just the assets themselves, but also the liabilities which go with their upkeep – without the government funding. The nature of PFI contracts means that significant claims and challenges can arise in relation to the handing over of assets.
In August, the Infrastructure and Projects Authority (IPA) released a support plan for contracting authorities titled 'Managing the Risks of PFI Contract Expiry.' The support plan aims to prepare public authorities for the expiry of PFI contracts and the handover of all associated assets.
The plan suggests that the public authority needs to start preparing seven years before the expiry date. The authority must also identify issues which require maintenance to achieve the required standard from an expiry process. A clear understanding of how the facilities and services will be managed after the exit needs to be focused on. If the local authority does not want to bring the asset under direct public sector control, then a decision needs to be made well in advance of expiry to bring in a new service provider. The whole exiting process requires significant knowledge and skills to ensure a successful handover that is in the public interest.
Recognising the need to build expertise, knowledge and capabilities in exiting PFI contracts, CIPFA is running an introductory webinar on the 18th of November. It follows on from our hugely successful PFI exit strategy event we held earlier in the year. This new webinar will introduce the practical, financial and operational challenges and the expertise needed to deliver successful PFI exit strategies. The course aims to provide you with an essential roadmap for the successful handover of PFI assets in a fair and equitable way which ensures continuity of service delivery and value for money. The learning outcomes of the course intend to give you an:
- appreciation of the wider strategic framework for the transition from PFI contracts and some of the features of best practice in planning and managing a successful transition
- understanding of the alternative service delivery options to be considered in the transition from PFI
- understanding of the contractual, financial and operational considerations in exit strategies
- awareness of the expertise that will need to be developed or acquired to ensure successful, value for money exits, and the transition to new arrangements for the management of the assets
This course will benefit anyone who is currently managing a PFI contract that is due to expire in the next five years, and anyone who will be involved in the planning, negotiation and organisation of the exit strategy. Directors, heads of service and senior managers in highways, health, education, police, fire and rescue, property, asset management, finance and legal services will all find this webinar essential learning to help inform and ultimately improve their PFI exit strategies.
Speakers at the webinar will include:
- Gregor Bitlock, Manager, National Audit Office
- Judith Hopper, Partner, Bevan Brittan
- Colin McConaghy, Partner, Bevan Brittan
- Patrick O Connell OBE, MCIPS, CIWFM, Associate, Peopletoo Ltd
- Mark Poppy, Property training programme manager, CIPFA
Find out more
Sign up for our PFI webinar on 18 November.