Public sector warned ‘clock is ticking’ on PFI and PPP contract expiry

Public sector warned ‘clock is ticking’ on PFI and PPP contract expiry

27 Apr    Finance News, In Business

A warning has been issued today that services such as health and education could be impacted as Private Finance Initiative (PFI) and Public Private Partnership (PPP) agreements come to an end without proper management in place to ensure any necessary works have been completed.

The engineering and project management firm say the public sector faces a huge challenge as hundreds of contracts to build schools, hospitals, offices and other facilities from the late 1990s onwards begin to expire over the next ten to 30 years.

Hundreds of buildings could return into public ownership without a clear understanding of the asset’s condition, with the risk of public sector organisations paying for work such as boiler replacements and heating systems, that should have been paid for by private sector partners.

The National Audit Office has also previously said that the public sector is not prepared* for the contracts as many have not yet begun the transfer process to return buildings back into public ownership, which the Infrastructure and Projects Authority (IPA) states should start seven years before the end of the contract to ensure a smooth transition.

Sonia McRobb is Associate Director at Faithful+Gould which along with Atkins has launched a new PFI/PPP Expiry Offer. She highlights that there are currently 530 PFI contracts approaching expiry dates over the next thirty years, with approximately 160 set to expire between now and 2030.

She said: “One of the biggest consequences facing public sector organisations if they fail to act in a timely manner is the risk of taking back the asset back in a worse condition than agreed. This could lead to costly works and – ultimately – there is a real concern that the public sector could end up paying twice for these works.

“Action needs to be taken in order to avoid that kind of worst case scenario, but the clock is ticking and both the private sector companies and public sector asset management teams need to tackle this issue head on, and as early as possible.”

Sonia adds that due to the longevity of the agreements it is likely that the specialist knowledge required to manage the transfer of the contracts will not be available for many contracting authorities. In addition, earlier contracts have been found to have more ambiguous drafting, which is more likely to lead to disputes.

She says: “It’s up to all parties to ensure contracts are up to date and everything is in order to ensure a smooth transfer process for all the contracting authorities in the public sector.

“However, the transfer back to public ownership can be a long, complicated process and it’s common that those people who put the contract in place are no longer in post. The earlier both parties focus on this issue and bring qualified, expert advisors on board where needed, the better the outcome for all concerned.”

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