The PFI Programme for Local Government: What can be done to aid transition?

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Rob Hann, (Head of Local Government at Sharpe Pritchard) sets out his views as to what can yet be done to help local authorities as they seek to manage the transition from PFI to new contractual arrangements.

Rob has unique insight as to how the PFI investment programme for local government was successfully delivered from zero projects in 1997 to over 300 major projects across all local government sectors by 2015. Rob was one of the original team of advisers from across the professional and sector divide at 4ps (‘the Public Private Partnerships Programme’) which was set up in 1996 by the LGA to help local authorities across England and Wales to deliver PFI projects. For 20 years (between 1996-2016) Rob worked at the forefront of the PFI rollout programme across local government as Head of Legal at 4ps and (later) its successor body, Local Partnerships (‘LP’).

Much attention (somewhat belatedly) has been focused on the problems and complexities all public bodies will face as many large, detailed PFI contracts come towards the end of their respective contractual terms. For the local government sector, councils also have to face the fact that the PFI funding that was provided back in the day, for the whole life of these projects by the relevant central government department, appears likely to dry up. It seems to be a missed opportunity to help public bodies continue to invest in a substantive portfolio of well-maintained, essential assets going forward. What can and should public bodies be doing now to better manage the transition to whatever comes next when their PFI contracts expire?

Bearing in mind a General Election is pending, depending on the length of the remaining PFI term, before going out to the market seeking new service providers, it might be worth waiting to see what happens? For example, would an incoming Labour Government take a different view to the provision of new and additional funding to kick-start a refreshed and rejuvenated long-term investment programme for public infrastructure schemes, perhaps building on the lessons learned from the PFI? After all, the Blair/Brown Labour-led Governments of the 1997-2010 period used the PFI (much to everyone’s surprise at the time) as a means of turbo-charging the rollout of the largest public investment programme England and Wales has ever seen. The money provided through PFI has had a huge and largely beneficial impact on the public estate, long after 2010 when the last Labour Government lost power. The legacy of PFI assets, many delivered under the then successive Labour administrations led by Tony Blair and Gordon Brown, can be seen all around us in the form of modern, well-maintained schools, efficient and eco-friendly street lighting, a national portfolio of waste management facilities, an express tram system in my home City of Nottingham and much more.

But is anyone exploring what worked well and/or what could and should have worked better with PFI and more importantly, what might yet be done to help public bodies as their respective PFI contracts reach full term to help with the transition to whatever comes next?

The Infrastructure and Projects Authority (‘the IPA’) have at least made a start. Their recently published report (‘the White Frasier report – 20th July 2023‘ ) looks at behaviours, relationships and disputes across the PFI sector, and makes certain recommendations.

Rather bizarrely however, the report starts with a criticism seemingly aimed at public bodies who (the report’s authors believe) may now be managing their PFI contracts a little too rigorously and which is (they say) leading to an increasing number of disputes. The report suggests there is evidence of some Public Authorities moving away from a ‘light touch’ approach to contract management that relies heavily on cordial relationships with Special Purpose Vehicles (‘SPVs’) The report’s authors state that they have received ‘strong feedback’ from consultees to suggest that the manner in which a number of Public Authorities have implemented their change in approach has involved overly draconian (if not forensic) enforcement of the terms of the PFI Contract accompanied by, on occasion, unprofessional behaviour.

Whilst there can be no condoning of unprofessional behaviour wherever it may emanate from, perhaps the report should have questioned whether so called ‘payment-by-performance’ PFI contracts should ever have been managed with a ‘light touch’? To drive out value for money there was always a need for public bodies to carefully monitor what they had signed up to in order to make sure they were paying for the appropriate level of service received and to make appropriate payment deductions if not.

The problem is that the PFI devil is always in the detail.

The report rightly mentions the fact that many public authorities have limited resources when it comes to managing PFI contracts. It could be added that these contracts were by their nature complex and specialist in nature. Unfortunately, many individual public authorities did not have the experience or the resources to manage such contracts or, at least, to undertake the contract management function consistently well. This was entirely foreseeable. One of the difficulties of the whole PFI programme pan-public sector is that, until comparatively recently, no significant support was provided from individual central government funding departments to support public bodies with the contract management function once these contracts had navigated the procurement phase and had entered into operations.

True, one or two central government funding departments, most notably DEFRA for the funding of its PFI waste programme, did provide some level of financial resource to the local government sector to assist with the operational roll-out of the waste PFI programme. This helped, for example, to retain and facilitate a network for local authorities with waste PFI contracts to regularly meet and swap information and to seek help from each other and from centrally based experts on hand to assist them with their difficult (and often common) contractual issues as they arose throughout the operational period. But this type of help was not replicated across all PFI sectors. Nor indeed was it replicated across all local government funded PFI projects. Most public bodies, once a PFI contract was signed, were left to their own devices to cope with the difficulties and complexities arising the best way they could. The consequences of this lack of central support to public bodies throughout the long and protracted PFI operational period of the hundreds of contracts now heading for close over the next decade or sooner, are becoming clearer.

The facilitation of networking of local authorities in the waste PFI sector could even now, provide a template for focussing much needed but still relatively scarce central resources and expertise to help as many public bodies as possible who are now grappling with the complexities of PFI expiry. How such networks are formed and facilitated (e.g. regional, local, national, virtual, by type of sector, type of asset, by central government funding department and/or by service provider – the options are many) needs careful thought but one of the issues this approach might drive out is to help answer the question of how have PFI contractors and service providers performed over the life of their respective PFI contracts and how will this feedback and knowledge of contract performance gathered by public bodies about individual PFI providers be used, or could potentially be put to use, going forward? For example, could such information and knowledge be used for the provision of references or for future procurement evaluation purposes for both the public body itself and perhaps for other public bodies who wish to know how a contractor performed under the PFI? Some PFI service providers will have outperformed. Some will have done what is necessary to deliver the service and no more and others (let’s say) may have not delivered the service to the required standard.

What would be really helpful right now is an independent and comprehensive study into the performance of the PFI contracting market across the spectrum of PFI.  How has the PFI market responded to PFI contracts during the operational phase? Were the benefits expected and promised, ever actually delivered and if so, how was that achieved and if not, why not? Which service providers have out-performed, which have delivered to an adequate standard and which ones have failed to deliver the services contracted and what are the underlying reasons?

One of the things all PFI’s currently have in common is that once the current contracts expire, new contracting arrangements will be needed. Public authorities are being encouraged to rescope and plan the path to re-procurement well in advance of expiry dates of individual contracts. Existing PFI providers will no doubt want to take part in bidding for such new contracting opportunities and may regard themselves as being in a strong position to win such contracts having been the monopoly service supplier for decades.  Facilitation of knowledge sharing by and between public bodies about the performance of PFI contractors on individual PFI projects is an essential step for many reasons. It should, for example, help maintain incentives to provide a good service up to expiry and to help public bodies with the transition to new arrangements and with the consideration of who can and cannot be entrusted with the delivery of public contracts in the brave new post-PFI world. Disputes and how they arise and are resolved (if indeed they are resolved) might be a feature of such feedback.

The increase in disputes across the board on PFI which has been noted by Messrs White and Frasier in their report, is very worrying and looks likely to get worse. Anything that can be done by the central bodies to help reduce either the number of disputes in operating PFI Contracts, or the percentage of disputes being referred to formal dispute resolution will help hard pressed PFI contract managers to keep the PFI ‘ship’ afloat.

The recommendation relating to the setting up of a PFI Dispute Resolution Forum is a good idea, but it is such a pity more consideration wasn’t given to DRP, mediation and other means of settling disputes when the PFI contract standardisation process was first developed. Retro-fitting such a Forum now into the PFI environment will be difficult to achieve and could be too late to have much effect. That said, it makes complete sense for the central funding bodies, the IPA and individual public bodies to have greater access to and information about disputes including decisions of any formal adjudication processes.

The Report’s author’s state that:

‘To the extent that Public Authorities are being advised that disclosure of an adjudicative decision to a sponsoring Department or the IPA would represent a breach of confidentiality, we would encourage the relevant Public Authorities and sponsoring Departments to strongly challenge that advice and, if necessary, approach the relevant SPV for confirmation that they have no objection to such disclosure. Based on feedback from consultees, we do not believe that the private sector has any objection to Public Authorities sharing the details of the outcomes of formal dispute resolution processes with sponsoring Government Departments; in fact, we received strong support for this’.

Let’s hope this is correct, and the private sector are supportive of this approach. Why not put them to the test as if this can be achieved it would be a step in the right direction to help reduce disputes pan-PFI and to share knowledge for the benefit of all concerned at what will be a very challenging time of change and transition for all involved in PFI.

 

Rob Hann is Head of Local Government at Sharpe Pritchard and can be contacted via email: rhann@sharpepritchard.co.uk.

 

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any of the issues raised in this article, please contact us today by telephone or email enquiries@sharpepritchard.co.uk.

Posted in Local government, Procurement, Rob Hann, Transportation, Waste, Water.