With multiple private finance initiative (PFI) contracts due to expire over the next decade, procuring authorities are advised to start considering and preparing for handback sooner rather than later.
In its 2022 guidance ‘Preparing for PFI contract expiry’, the Infrastructure and Projects Authority (IPA) recommended that authorities start preparing at least seven years before expiry. The private sector project companies also need to turn their attention to forthcoming expiries in good time.
So, what should you be doing? This guide highlights the key points that project companies need to consider when preparing for the handback of PFI assets.
It sounds relatively simple, but given the complexity of these contracts and numbers of documents which make up the contract, passage of time, and probable variations that have been agreed over the contract life, assembling a full and accurate contract is a crucial task.
As well as the contract with the procuring authority, project companies will also need to collate contracts with downstream parties.
Once satisfied that the contracts (both upstream and downstream) are complete and accurate, you should review the relevant contract provisions to establish:
A detailed review will be required and legal support may be beneficial in this process.
There are likely to be obligations in respect of the provision of documentation and records and project companies will need to understand what documents they need to provide and to review their records and ensure everything is up to date and available. The volume of documentation is likely to be significant so do not leave this too late.
In its 2022 guidance, the IPA also recommends early condition surveys 5-7 years before expiry, although this may not be reflected in the PFI contract which may require a survey typically 18-24 months before handback.
Thought needs to be given to the nature and extent of the survey and inspection process, in the context of a full understanding of the contractual requirements. For example, would joint inspections be beneficial and when should inspections take place? If an inspection is carried out in years 5-7, what will the position before for areas that require maintenance or repair in the final 12-18 months? Whilst an early survey can be beneficial, this doesn’t necessarily give a final list of works and further surveys or joint inspections may be required to ensure the handback condition is achieved on the required date.
Legal advice is likely to be required on the application of The Transfer of Undertakings (Protection of Employment) Regulations 2006, also known as TUPE. Advice may also be needed on any equivalent contractual provisions relating to employees and the practical implications in terms of employees in the period leading up to handback.
The IPA recommends procuring authorities consider and put in place additional resource to manage the handback process. The handback task is likely to be an extensive process which could take many months, or even years, and project companies should also address how they will adequately resource this process.
Whilst of course hoping to avoid disputes, it would be prudent to review the dispute resolution procedures in both upstream and downstream contracts. Many project agreements have complex dispute resolution procedures often with a tiered structure where certain notices and executive meetings must take place before any formal proceedings.
In short, project companies under PFI contracts due to expire in the next seven years should start preparing themselves for the handback process, consider resourcing and management of handback and engage external advice if required.
For information on Ashfords’ PFI experience please see our page, or if you require any assistance please contact Lianne Edwards or Mark Manning.
