PFI contract expiries: Keeping the UK’s essential services operational
The UK is facing a fundamental question about how we keep some of our most important infrastructure operating effectively as we manage the expiry of the Private Finance Initiative (PFI). National Audit Office research shows the UK’s local authorities run an impending risk of underestimating the time, resource and understanding involved - which could have a detrimental flow-on effect for the public’s essential services.
Introduced in the early nineties, and controversial since their inception, critics have viewed PFI as part of a creeping privatisation of public services, but the impact has been undeniable. Over 700 infrastructure projects, such as new schools, hospitals, prisons and roads, have been created using some £56bn of private sector funding under PFI contracts.
In October 2018, the government announced it would no longer use the PFI model, due to its complexity, inflexibility and poor value for taxpayers. With an expansion of the initiative under Tony Blair’s premiership and most PFI contracts lasting 25 years, there is an impact on hundreds of contracts due to expire in the coming years across the United Kingdom.
This has both direct and knock-on effects on a diverse range of end users. Without putting the necessary steps in place, public sector bodies may receive buildings that don’t meet current building regulations and risk financial loss and operational disruption to essential services, putting undue pressure on millions of customers – including children, hospital patients, the elderly, social care service users and residents of military housing.
Estates of the future
Many public sector bodies will be taking back their assets in a totally different situation. The built environment has changed almost beyond recognition since PFI contracts were established, with the evolution of data and digital tools having revolutionised the industry. Clients and contractors, and the way they think and work, have changed as well. They care about different things and face new challenges. Perhaps most notably, knowledge of how the built environment impacts our climate has created positive change in the way we work.
All of this means many existing assets – both in the context of their physical state and the way that they are run – will need to be extensively rethought to meet the need for agile, flexible, energy efficient, sustainable buildings that we see in the current day.
With local authorities required to transition to net zero carbon by 2040, the mammoth task of incorporating these elements in the future must be supported by comprehensive business advisory to help authorities plan their estates of the future. The outcomes focus provided by the delivery partner model creates a strong grounding for success.
What are the risks?
The transferral of assets from private sector partners back to the public sector is a significant undertaking, requiring a wide range of processes. But, let’s be clear, many private sector PFI firms will want to conclude this process quickly and with a clear focus on their own interests. The risks of not taking appropriate steps are severe, however, and public sector asset owners need to act to put customer needs at the heart of the outcome.
After the PFI expires, responsibility for statutory compliance transfers back to the public sector, with no legal recourse available. From a health and safety perspective, this poses a significant issue if facilities have not been maintained to fire safety, gas, water, electricity and other regulations. This is especially important in facilities that cater for more vulnerable occupants, such as hospitals, social care facilities and schools.
Another risk is financial, as the public sector may not get the value for money it is entitled to via the regular payments paid to the PFI company to maintain the facility, or worse, be left footing the bill for costly repairs and sorting out the maintenance records wherever they and technical surveys were not completed before the PFI contract ended.
Commissioning targeted support before expiry is the best way to de-risk the complex process and guarantee that the public sector body has received value from its PFI contract and ensure that the building has been maintained effectively throughout its lifecycle.
Critical elements are the promotion of transparency and consistency for all parties during this process and maintaining an ‘outcomes focus’ for the benefit of the client and the customers. As an absolute minimum, that outcome must be maintenance of service. At best, it’s an enhancement.
What should the public sector be doing now?
One of the foremost concerns must be around clarifying whether the PFI company has been effectively meeting the agreed objectives for maintaining the asset. An issue that has impacted several high-profile projects, ensuring that the contract partner has maintained the asset to the agreed standards, including upkeep of ‘black space’, such as ceiling voids, is essential.
There is almost certainly going to be a host of cases where perception does not align with reality when it comes to asset condition. One of the most important steps the public sector can take at the earliest stages of the process is to procure independent and honest support to ensure that the condition assessment provides an accurate baseline to work from. This will highlight the gaps and set expectations around the real task at hand.
Creating a procurement strategy
The transitional period of the expiry calls for a wholesale procurement review, where public sector bodies will need to appoint a new service provider and other suppliers, because the PFI and its supply chain contracts will cease at expiry. Data plays a key part in the process to secure value for money as, without historical data, new suppliers may ‘price-risk’ their estimates. Data also supports the condition assessment in spotting the gaps that need filling, allowing an asset owner to work with a supplier to agree and implement a correction course that supports ongoing and effective service provision.
Involving a delivery partner simplifies this enormously, offering trusted and dedicated people to work hand-in-hand with the supply chain and other parties to support the client’s ambitions and secure value for money now and in the future. This collaborative role helps to negate the often transactional nature of the firms on either side of the fence by initiating and owning the ‘outcomes focused’ dialogue. The best outcome is the one that fully supports the customer.
Accessible, verified information and data is key to achieving ‘one version of the truth’. Establishing a data room aids the effective collection and dissemination of the information, enabling the streamlining of processes and decision making. Again, this must be created at the earliest possible opportunity. The extraction and management of this information is vital to driving an efficient procurement process.
Collaborating for positive outcomes
Time is of the essence in planning, implementing and finalising the close-out of PFI contracts.
Public sector bodies need to look for an experienced delivery partner who can act as a trusted advisor and drive alignment with the private sector party. It’s a role that serves as something of an independent arbiter, advocating open and transparent dialogue and fostering the collaborative environment needed to understand and address the different objectives of the parties involved.
In doing this, public sector clients have the best chance possible to ensure their assets are returned in good condition and made fit for the future, with minimal disruption to the communities that rely on them.
