In January 2021, we hosted a virtual roundtable event supported by the National Audit Office (NAO) to discuss the large number of PFI expiries that will happen in the next 5-10 years. To strengthen the value of the event, our own experts were joined by speakers from the NAO, PFI operators and funders with experience in this area.
The attendees included stakeholders in local and central government, including justice and health, as well as some of our own colleagues and clients in audit and advisory whose interests included contract management, commercial, legal and finance.
In this virtual roundtable, supported by the National Audit Office (NAO), we led participants from the public sector, investor and funder communities in a roundtable conversation preparing for PFI expiry.
The participants shared a wide range of views that included some key insights for all PFI stakeholders, including the need for understanding your contract, early preparation as you approach expiry, and the importance of focusing on the needs of service-users.
You can find out more about what everyone had to say and learn more about driving the best outcomes from your PFI in our report on the roundtable.
We kicked off this virtual roundtable with an introduction from the NAO, who introduced the principle themes of their recent report: ‘Managing PFI assets and services as contracts end’. These themes formed the basis of our conversation:
• Understanding the contract
• Knowing the asset
• Skills and capabilities
• Tools and relationships
The questions arising from these themes led to an enthusiastic and insightful conversation about delivering improved experiences and better outcomes for stakeholders preparing for PFI expiry.
It was no surprise that our stakeholders had a lot to say about getting more value for money from the contractors delivering the PFI.
One local authority noted that simply instructing an experienced solicitor to challenge the contractors improved their outcomes. Others pointed out the importance of collaborating with them to avoid incurring expensive legal fees for extending a contract. It was agreed that the one problem in this area was the loss of corporate memory when key people moved on to other opportunities. This problem was worse for smaller councils who accumulated less knowledge because they managed fewer PFIs and sometimes relied on external consultants.
It was generally observed that a contract that succeeds in one instance might not work well elsewhere, so knowledge sharing is invaluable, especially for smaller stakeholders who can benefit from the experience of larger investors managing many more PFIs.
Of course, the most important thing is to start with a sensible approach to the length of the lifecycle and the size of the lifecycle pot. Participants agreed that better options for the treatment of the lifecycle pot do need to be looked at. It was also mentioned that lenders have a role to play in policing the lifecycle, many of who are looking to become more involved.
Periodic events where all parties can collaborate would be a useful practice for ensuring good stakeholder management.
Consensus also emerged on what stakeholders need to be aware of as they prepare to hand back their PFI after it expires.
It was important for all stakeholders in a PFI to be aware of changing requirements for assets in the sector, from schools to waste management and recycling facilities, so that operations can be adapted in the interests of end service users. Collaborative behaviour can be encouraged by adherence to the Treasury Code of Conduct, but resourcing needs to include time for regular interaction between stakeholders.
Procurement competitions need to be run well in advance of expiry, although this can be challenging as it depends on access to data from current contracts to shape future requirements. Again, collaboration and transparency are key, explaining the reasons for the data requests, including the importance of times for completion of post-expiry arrangements.
After all this, the vital question for service posts at the point of PFI expiry is 'what does success look like?' Stakeholders need to know what type of arrangement is suitable for them.
A well-prepared business case is obviously a necessity, and it is worthwhile considering HM Treasury's better business case approach, which includes associated training. The World Bank Group and others also offer training from certified PPP professionals to build capability.
Early development of the business case allows all stakeholders to participate in conversations on arrangements and costs. Participants agreed that there is an opportunity to do something different to drive savings but recognised that outcomes might be limited.
Another priority for stakeholders is energy efficiency, in recognition of the fact that the UK government has declared 2050 as its target for Net Zero, and most local authorities are aiming to reach it by 2030. Achieving this would be a win-win opportunity for PFIs and also demonstrate how public bodies can work collaboratively with the private sector.
Everyone agreed on the importance of getting all parties round the table to facilitate open dialogue on direction and strategy.
After some in-depth conversations, this engaging and productive roundtable ended with agreement on the key themes and messages to take forward.
Everyone agreed that early preparation for PFI expiry is critical because success relies upon transparent relationships and access to information to make informed decisions. The NAO reflects the Infrastructure and Project Authority’s recommendation that preparations commence 7 years before expiry. It was also accepted that because requirements are very different from 25 years ago, PFIs need to be flexible when amending contracts. Waste PFI contracts were highlighted as an area where this has been an issue because of increased recycling rates.
In the future, the delivery of assets and services may be better supported through more flexibility and different terms, including the ability to take advantage of digital innovations.
Finally, participants pointed out the desirability of providing input on PFI Select Committee consultation regarding the delivery of PFI expiry.
We have a well-developed approach to PFI management and delivery, including expiry. Contact Wayne Butcher if you would like to discuss this topic further or have any questions or comments about the PFI expiry roundtable.
