Managing the expiry of PFI contracts Contents

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2Providing support to authorities

9.Each individual authority is primarily responsible for managing its PFI contract, including the expiry process. However, when an authority needs help, varying degrees of support are available from multiple sources across government. In the first instance, each authority will be supported by its sponsoring department which acts in an advisory capacity. The IPA, in its role as government’s centre of expertise for infrastructure and major projects, provides further advice and support to authorities.22 Rather than being involved in individual contracts, the Treasury told us it was responsible for making sure there was a support system in place and that this was properly resourced. It explained that this was why it had provided £2 million of additional funding to the IPA to set up the PFI contract expiry programme.23 Support is also available from Local Partnerships, a joint-venture between the Local Government Association, the Treasury and the Welsh Government, which has a small team of experts who have been involved in all aspects of the PFI lifecycle. Local Partnership explained that its involvement was typically to assist with identifying savings or issues that had arisen within the contracts, or to provide training and assistance to authorities when requested.24

10.The IPA recognised that more support was needed to address the “huge demand” for expertise, skills and capability in contract management—all of which were currently insufficient. It explained that contracts owned by local bodies, which made up more than 80% of all PFI contracts, were “the most concerning area” as local bodies’ investment in contract management expertise had “not always kept pace with the extent required”.25 Local Partnerships added that the best prepared authorities were those with multiple PFI contracts, as they were more likely to have maintained a PFI team during the life of the project.26 The NAO found that 182 authorities owned just one PFI contract.27

11.The IPA estimated it takes seven years to adequately prepare for the expiry of PFI contracts.28 The Treasury recognised the importance of starting preparations early, both to ensure maximum value is extracted from the contracts in their final years and to plan for the transition to new ownership arrangements.29 We received written evidence from Leeds City Council, which told us that as a PFI contract comes to an end, the authority would need to manage the expiry process alongside its daily operations, which can put pressure on already stretched resources. It asserted that it was therefore not possible to start early expiry preparations alongside other work without additional resources.30 The NAO report found that the expiry process required a different set of skills, such as contract negotiations and asset management, compared to managing the day-to-day operations, and that many authorities would be unable to provide these in-house. Some smaller authorities have just one person managing multiple PFI contracts, with limited additional support, meaning the resourcing challenges of PFI expiry are magnified.31

12.We asked the IPA what assurance it could give that local authorities would be properly supported and resourced to manage the expiry of their PFI contracts without having to fill gaps with potentially expensive consultants. The IPA accepted that procuring expertise from the private sectors was not the best value for money solution. It told us that it would be essential to provide additional resources to deal with technical, financial, commercial and legal issues and that it was developing a central pool of people that could provide these skills. It explained that this team so far consisted of 17 people, and it expected to recruit additional staff in the next financial year, and aimed to bring the team to 21 in total. It explained that it was working on further plans and proposals about how to develop additional resources and whether this would be best done by departments or through regional hubs.32 Written evidence from Wiltshire Council told us that it specifically appointed a PFI contract lead with a broad range of skills, covering contract and project management experience as well as legal, commercial and procurement expertise which will help eliminate the need for consultancy support.33

13.The IPA acknowledged that its existing team of experts was not enough resource to provide support to all 700 PFI contracts in a complex environment. Across the UK, 328 authorities are responsible for PFI contracts, with 182 authorities responsible for only one contract. In contrast, the 10 largest private investors in PFI owned more than 50% of the contracts. This concentration allowed the private sector to take a portfolio approach to managing the expiry process, which risks putting the public sector at a disadvantage. To address this, the IPA told us that it had requested from each department their strategies for managing the PFI contracts for which they are responsible. The IPA told us that it will work with departments, focusing on these strategies, to ensure that it was able to get help and support to the contract management teams within the authorities.34

14.In light of its recent £2 million budget increase, we questioned the IPA on whether it was adequately funded to support the expiry of assets worth around £60 billion. The IPA told us that the resource requirement for PFI expiry was a big and complex subject, and it was considering the size and level of resource that it needed while attempting to be as efficient as possible. It planned to submit additional resourcing requests to the Treasury in the future.35 Local Partnerships told us that managing PFI expiry needed to “be done correctly” and “the more resources, the better”. It also told us that it could be more proactive in its support to authorities if more resources were made available.36

15.Local Partnerships recognised that in order to prepare for the expiry of PFI contracts, authorities needed both to start early, but also to know what they need to do through each stage of the process.37 The IPA started developing guidance on managing PFI expiry in 2019, and we asked when it expected to publish this. The IPA told us that it planned to issue guidance and technical notes “over the next year” but was unable to give a precise date owing to the impacts of the covid-19 pandemic. We similarly asked the Treasury whether it expected departments to publish sector-specific guidance. It explained that this would be a matter for each department once overall guidance was available, but this could be a very helpful initiative given that some specific expiry issues could be common in similar types of assets.38