The End is Nigh for PFI


By Mark Poppy, CIPFA Property Training Manager

The Public Accounts Committee evidence on 8 February saw possibly the most public examination to date of the legacy of the UK's remaining 700+ PFI projects to be addressed by the UK public sector.

The recommendations by the Public Accounts Committee (PAC) follows on from the NAO report last year. The PAC identified that only 20% of PFIs are held by central government or arms lengths bodies, and that expertise concerning the management of PFI contracts may not have been retained by many local bodies. There may be particular concern over 182 public sector organisations that have only one PFI contract.

Sector specific guidance may have a role to play in helping manage the drawdown of PFI contracts, perhaps much in the same way specific procurement packs and model contracts were developed for PFI programmes. The broader concern from the PAC was around the resources and guidance to smaller authorities. In the first part of this decade over 50 operational PFI contracts will expire. This number rises to around 200 contracts over the next ten years.

The Infrastructure and Projects Authority guidance suggests starting to prepare seven years from the expiry date. The respective public authority also needs to identify issues which require maintenance to achieve the required standard and what is required from an expiry process. A clear understanding of how the facilities and services will be managed after the exit needs to be focused on.

When PFI was rolled out across local government, authorities were incentivised to consider PFI because central government provided much needed additional funding to help meet the cost of supply of those asset intensive services for the contract term. However, once the PFI contract expires, the additional ring-fenced PFI funding support from central government to the authority ceases. So local authorities will be faced with inheriting not just the assets but also the liabilities which go with the upkeep of those assets, only now, without extra central government grants to help meet those costs.

In the absence of any additional funding, the public body will need to undertake an options appraisal to explore which of several alternative courses of action open to it are most suitable. The options available will depend on the sector, the assets in questions and the needs of the public body going forward. If the public body does not wish to bring the assets under direct public sector control, a decision will need to be made as to when and how to go out to the market, well in advance of contract expiry, to seek a new service provider. Again, this raises the question of knowledge and skills within the sector and how it can respond.

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  • To provide support to public bodies CIPFA have arranged an Introduction to PFI Exit Strategies practical webinar on the 12 May and 9 September and are also running a more in depth course considering the theory and strategy around public-private partnerships: CP3P Foundation Level

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