With a staggering 700 active PFI contracts, more than 300 set to conclude between 2024 and 2034, and a substantial £58 billion in payments due to investors by public authorities within that timeframe, the scope of this issue cannot be understated.
These contracts encompass vital social infrastructure such as hospitals, schools, prisons, offices, roads, and defence facilities. While they occasionally make headlines in the construction industry press, recent years have seen a heightened awareness in mainstream media and public discourse.
This increased attention can be attributed to the conclusion of the first 32 PFI deals over the past six years, with the impending expiration of 300 contracts in the next decade carrying an estimated asset value of around £35 billion (adjusted for inflation). The immense scale and complexity involved in transitioning these assets back to the public sector are significant factors driving the current focus on this issue.
What are the risks at hand and why is it crucial to be proactive?
For many stakeholders with PFI assets, the convenience of relying on third-party management for their infrastructure has been a key benefit. However, the prospect of PFI handback represents a potential shift in this dynamic, as ownership of assets reverts back to contracting authorities. This transfer process poses various challenges, chief among them being the condition of the returned assets.
Alarmingly, nearly half of respondents in a National Audit Office (NAO) survey expressed dissatisfaction with the condition of assets received post-handback. Additionally, contracting bodies must assess their own readiness in terms of capacity and capability to effectively manage the handback process and assume responsibility for operating and maintaining the assets moving forward. This multifaceted task demands a thorough grasp of commercial, contractual, and legal aspects, coupled with expertise in built asset management, technical engineering, and property strategy.
What steps should be taken in response?
Our team of experts is actively assisting clients navigating the handback process, having conducted in-depth reviews for the Infrastructure and Project Authority and collaborated on developing diagnostic tools for assessing handback readiness. We recommend four essential initial actions for those engaging with PFI handback:
• Understand the contractual obligations of both your organisation and PFI providers at handback, recognising the potential complexity of these agreements.
• Evaluate your organisation's capacity and capability, acknowledging that the team involved in the initial PFI arrangement may not be equipped to facilitate the handback process.
• Ensure access to comprehensive and reliable data to support the hand back process, as shared data from PFI providers may not always meet quality standards.
• Contemplate the future landscape post-PFI contract, considering how your asset needs have evolved and planning accordingly.
According to the Infrastructure and Project Authority, preparations for handback should commence seven years prior to PFI expiry. If you have not already begun addressing these critical aspects, there is no time like the present to initiate this vital process.
