Managing the expiry of PFI contracts Contents

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Summary

Vital public services such as schools and hospitals face serious disruptions should government fail to prepare for the expiry of its 700 PFI contracts. These PFI projects represent public infrastructure assets worth around £60 billion, and future costs of around £170 billion. The very earliest contracts have expired, and some 200 will expire in the next 10 years, accelerating from 2025 onwards. Any mismanagement of the expiry process could result in large sums of taxpayer’s money being wasted. A lack of attention from the public authorities running these contracts could also leave the public sector footing large bills for rectification work which the PFI company has already been paid to do.

The Infrastructure and Projects Authority (the IPA) estimates it takes seven years to adequately prepare for expiry. The IPA plans to review 55 PFI contracts by 31 March 2021 using its new health-check tool. But many challenges remain, and it is unclear how these will be addressed, and at what level of government. Smaller local bodies, especially those with a single PFI contract, are exposed to greater risk as they often have limited resources to effectively manage expiry. Local bodies will need support to manage the expiry risks. While discussions are progressing around who is responsible for providing this support, no decisions have yet been made. What is certain is that action needs to be taken now to avoid this becoming a huge payday for consultants.

By minimising expenditure on maintenance in the final years of the contract, PFI investors can pay out higher dividends and walk away with limited threat of recourse. The IPA is aware of ‘difficult’ investors who are not sharing important information that authorities need to successfully manage the expiry process. The IPA plans to engage with investors but has not yet set out what this will entail, or how this will help authorities when disputes arise. The high concentration of PFI ownership among private investors allows the private sector to take a portfolio approach to managing the expiry process, which risks putting the public sector at a disadvantage. A lack of contractual tools to hold non-cooperative investors to account further disadvantages authorities in securing value for money from the expiry process.