With the recent change in government, and the extra scrutiny of the public finances that naturally follows, it’s no surprise that the public sector’s PFI liabilities are once again coming under the microscope.

In October 2018, the then-Conservative government announced a ban on new PFI contracts. However, the long term-nature of existing agreements, and the repeatedly raised questions around how they are managed by the private sector, and whether they really represent value for money for the taxpayer, has meant that they have continued to loom large in the consciousness of both the media and the British public.

Since as far back as 2012, the labelling of PFI debt liabilities to the public purse as a ‘ticking timebomb’ has been regularly used by commentators across the public financial and property industries, and the expiry of the first schemes in recent years has done little to lessen those noises.

The fact that the Crown Commercial Service’s upcoming retender for Estates Management Services looks set to include a lot, specifically for PFI Expiry advice services is another clear indication that the government is starting to take serious steps towards tackling the issue, but whether or not it will be a case of too little, too late remains to be seen. However, what is for certain, is that for many authorities, managing PFI expiry should already be a big priority.

Why your PFI expiry should be a priority

There are 700 PFI and PF2 contracts that are still currently active, with over 350 due to expire in the next 10 years, covering a diverse range of critical public infrastructure including schools, hospitals, social housing, highways, prisons and defence facilities.

The Infrastructure and Projects Authority’s (IPA) PFI Centre of Excellence guidance recommends that planning for expiry should commence at least seven years ahead of the end of the contract for authorities to effectively understand and manage the contract, anticipate and prepare for risk and ensure a smooth transition to future service delivery.

Despite this, the data on the satisfaction level at handback, as well as NAO survey information, suggests many contracting authorities are underprepared and leaving it too late to understand the full picture. As a result, they’re left facing inadequate timescales and resources to understand, manage and negotiate complicated issues, not only increasing the risk of costly estate liabilities and protracted disputes down the line, but also the risk of management failures leading to potentially serious harm caused by operational disruption or lack of service continuity and significant reputational damage.

With that in mind, if your authority has PFI expiry on the horizon, there really is no better time than now to begin preparations.

Navigating risks and challenges – and seizing opportunities

The management of PFI expiry and asset handback is by its nature inherently complex, even the most well-prepared are likely to encounter challenges that need to be carefully negotiated. But, there are some key steps authorities can take now to maximise outcomes from the process, even if you are late getting started on your preparation journey.

1. Engage with the PFI Co as soon as possible

Many authorities report encountering difficulties with PFI Co engagement, citing a lack of effective communication, restricted or poor record-keeping, and adversarial relationships between parties as key blockers to them properly understanding their contract and therefore developing their strategy for expiry.

Tackling these issues as early as possible to drive engagement and promote mutual understanding is critical – it will allow you to gain vital information on asset condition and service performance and open a dialogue on plans for handback. Early discussion with the PFI Co can help find mutually beneficial ways to reduce the risk of issues, such as collaborating on a single joint dataset and management platform, appointing joint surveys, or undertaking key investigative steps at the same time – such as condition surveys and asset verification – which can prove especially helpful where timelines are compressed.

2. Take the opportunity to plan for a better future

With such a long-term arrangement ending, but an imperative need for service to continue beyond expiry, there is a significant opportunity to reassess whether the capital assets, resources and operating model are still fit for the market and your future needs and reshape the post-handback landscape to meet how both will have shifted over the life of the contract.

There are likely to have been significant developments in terms of technology, standards and regulations, as well as emerging strategic or policy-related focus areas, such as building safety and net zero carbon that need to be accounted for. Alongside this, there will be a wealth of experience and lessons learned from operation that can be incorporated into the future service provision to realise efficiencies and improvements.

Getting to grips quickly with detailed market analysis will pay huge dividends in informing your expiry strategy, as it will help you identify which assets you still need, what condition they need to be in and what their lifecycle is, where you may have information or skills gaps, and if/how you need to approach critical resource continuity, (e.g. through TUPE processes).

3. Critically assess your own capacity and capabilities

In many cases, it will be at least two decades since you have been directly involved in managing the assets or services, so it’s critical to understand as soon as possible whether you have access to the right expertise and resources. Often, those initially involved in setting up the contracts will have moved on, and authorities find themselves without the specialist resource or skills base required to manage the expiry project effectively. As the contract relates both to capital assets and service delivery, with several key stakeholders with diverse obligations and strategic interests, its vitally important to understand that there are many complex and interlinking aspects to expiry that cannot be approached in isolated silos.

Successfully managing expiry is a journey, not an event – so getting senior buy-in and governance in place early is crucial. You will need a dedicated integrated project team, and to appoint strategic support that covers property strategy and technical advice, asset management/FM, legal, commercial, and operational expertise.

You’re not on your own, we can help

If you’re not sure where to begin, engaging the support of a specialist multi-disciplinary property consultancy at an early stage can add significant value to the expiry process, as they will have extensive contacts with project funders, lawyers, planners, agents and operators, making it easier for you to assemble the right team to support the entire expiry journey, into future use and beyond.

At Hollis, our technical expertise spans both the public and private sector across education, healthcare, custodial and wider commercial asset types, and we’ve worked to advise authorities and PFI Co’s on a range of property-related issues for PFI contracts, from defects, conditions surveys and project monitoring and delivery, through to planned maintenance advice, building safety and fire, FM consultancy, dispute resolution and expert witness.

This range of expertise, coupled with our appointments to key public sector frameworks, enables us to leverage our wide inhouse range of integrated technical services and extensive nationwide contacts in legal and commercial disciplines to assist clients at every stage of the PFI expiry process, and maximise strategic outcomes.

Need further help? No matter where you are in your expiry preparation journey, our experts and partners can provide technical and strategic advice to support your planning process – get in touch!