Category: Pfi

Guidance on supporting vital service provision in PFI (and related) contracts during the COVID-19 emergency

6/4/2020

As the priorities of NHS Trusts change to tackle the demands of the Covid-19 emergency, the need for flexibility in the delivery of services under PFI contracts has become more crucial than ever.

In some areas this has created tension between NHS Trusts and their providers as to the correct contractual response to the current situation.

The Infrastructure and Projects Authority has provided helpful direction on these issues in a Guidance Note (IPA 2 April 2020) which is to be read alongside the earlier Cabinet Office Procurement Policy Note (PPN 02/20).

The recent Guidance Note highlights that:

PFI contractors should consider themselves to be part of the public sector response to the current COVID-19 emergency.
PFI contracting counterparties should co-operate to ensure the continued delivery of public services.
The COVID-19 emergency is not, and is not to be, regarded as an event of force majeure.
PFI contractors should ensure contingency plans are up to date and have been reviewed and discussed with contracting authorities to enable continuity of full services as far as possible to respond to the emergency and maintain vital public services, particularly across the NHS.
Contracting authorities should work closely with PFI contractors to use all available options to maintain public services during the emergency period. This will include maintaining unitary charge payments (enabling PFI contractors to pay their workforce and suppliers), revising contract requirements/standards (including scope changes where necessary) and moderating payment and performance mechanism regimes where appropriate.

Collectively, the guidance issued by central government raises a number of important considerations for NHS Trusts:

COVID-19 does not constitute an event of Force Majeure and therefore does not provide PFI contractors with a blanket Excusing Cause under the Payment Mechanisms;
To the extent that PFI contractors cannot achieve full performance under the PFI contract due to the on-going COVID-19 emergency, (including for indirect matters such as illness in the workforce and the need to introduce revised ways of working to protect health and safety), contract requirements should be moderated to support the stable delivery of vital services;
Under no circumstances should contract requirements or performance standards be relaxed to the point where health and safety is put at risk; and
PFI contractors must use their best efforts to deliver any new requirements / standards for NHS Trust as part of the response to COVID-19.

There are specific actions which NHS Trusts will need to take in order to comply with the guidance:

Payments to PFI contractors will need to be maintained at pre-COVID-19 levels (e.g. by adopting an average of the last 3 months’ deductions).
Records of all service variations and changes to requirements will be needed to enable these to be documented. Accuracy of records will be key to enabling NHS Trusts to ensure that retrospective assessments of costs are carried out on an open book basis.
Health and Safety implications of incomplete or deferred service delivery will need to be assessed and mitigated to ensure that mandatory requirements are not breached and critical services are maintained.

These actions will place additional administrative burden on Trusts at a time of extreme pressure. Additional support is available to Trusts from DHSC and P2G.

If you need assistance, please get in touch. We are here to help.

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How should NHS Trusts approach the management of PFI contracts as the Covid-19 issue develops?

25/3/2020

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As the response to Covid-19 intensifies we are seeing a wide range of behaviours from suppliers engaged in PFI contracts. In many instances Project Companies and FM providers are making a concerted effort to support the NHS, going above and beyond normal operational requirements to help hospitals respond to the current circumstances.

Examples of positive actions being taken include:

Increasing resilience of the hospital’s key systems - for example through the proactive replacement of HEPA filters, bringing forward key statutory inspections and accelerating Planned Preventative Maintenance;
Supplementing existing site teams with engineers from schools / commercial property maintenance teams to provide additional resource to meet demand; and
Taking a flexible and transparent approach to requests for variations, re-configuration works and changes to services.

Each of these have assisted the NHS Trusts in question to focus their resources on meeting the growing challenge that Covid-19 presents and efforts of the suppliers in question should be recognised.

Unfortunately this approach is not universal and we have encountered a number of PFI providers who appear to be focused on using the Project Agreement to maximise their contractual and commercial advantage and/or are proving unresponsive to the changing requirements of their NHS clients.

This raises the issues of how a PFI contract responds to the current circumstances and what approach the parties should be adopting to ensure that essential clinical services are maintained to the best of the NHS’s ability.

The Cabinet Office has provided helpful guidance in a Procurement Policy Note (PPN 02/20) setting out “a pragmatic approach”.

This suggests that, in the interests of business continuity and employment, the Trust should consider paying on receipt of invoice on the basis of previous invoices (e.g. a 3 month average figure) on the proviso that suppliers:

Agree to open book basis, sharing the necessary cost data
Continue to pay employees
Flow down to subcontractors

However, it is specifically noted that:

“Suppliers should not expect to make profits on elements of a contract that are undelivered during this period and all suppliers are expected to operate with integrity. Suppliers should be made aware that in cases where they are found to be taking undue advantage, or failing in their duty to act transparently and with integrity, contracting authorities will take action to recover payments made.”

This suggests that rather than a wholesale suspension of the paymech, the Trust agrees to continue to pay invoices at the level of performance experienced prior to the current situation and that, at some later date, a true-up is agreed, with any increase or decrease in payment then accounted for.

Where a contractor requests relief, the guidance provides the following:

Force Majeure
The Trust should work to vary contracts instead, including “changes to contract requirements, delivery locations, frequency and timing of delivery, targets and performance indicators etc”.

Such changes are to “be limited to the specific circumstances of the situation, and considered on a case by case basis.”

Excusing cause & relief events
“excusing cause and relief event provisions generally give a supplier relief from its contractual obligations, which contracting authorities may be able to use to provide relief, for example, to change the KPI regime, payment mechanism or reduce service level requirements. Some contracts may have other relief mechanisms. Whatever the regime, contracting authorities should maximising any commercial flexibilities within the contract, including agreeing new measures such as on meeting lead times, waiving or delaying exercising the authority’s rights and/or remedies (e.g. to claim liquidated and ascertained damages, service credits or terminate the contract), revising milestones or delivery dates. In these circumstances, if there is one, use the contract change control procedure to keep records of any changes made and the decision making behind each one.”

Note that the guidance states:

“Contracting authorities should not accept claims from suppliers who were already struggling to meet their contractual obligations prior to the COVID-19 outbreak.“

Conclusion
The guidance suggests that a pragmatic approach might look as follows:

Seek agreement from Project Co & Service Providers to adopt open book delivery of the services in return for payment consistent with pre-crisis averages.
Where Project Co requests relief via an excusing cause or relief event, agree a temporary revision to the service specification or performance targets (KPIs).

Trusts and Project Companies may wish to enhance the resilience of certain core systems at this time (potentially at the expense of non-core systems) and could consider:

Temporary revision to PPM plans - bringing forward mandatory and statutory activities to put systems in the best operational state and safeguard against reduced access to personnel and critical spares at a later date, and minimising the need for works to be undertaken in critical clinical environments;
Revisions to Call Categorisation Protocols - enabling providers to prioritise critical / essential activities and providing relief from non-critical / non-essential activities (provided that records of what has / has not been undertaken are maintained and provided in a transparent manner);
Working with suppliers to increase critical spare stocks and considering the ability to pool employees and resources across projects / sites to maintain access to skilled technicians over the coming weeks.

In addition, the nature of the crisis is likely to necessitate rapid implementation of (temporary) variations at the behest of the Trust. Trusts and Project Companies should consider implementing an accelerated variation process when effecting Covid-19 related temporary variations, including:

Advance consent from lenders and/or a deemed variation process to enable the Trust Representative to quickly implement necessary variations, with relevant documentation to be put in place in parallel with works being undertaken, or after the event;
Open book accounting to determine variation pricing in arrears, with both parties keeping records of changes agreed and implemented and a recognition from both parties that a reasonable “no better no worse” position will include an assessment of services not delivered;
Relief from exclusivity (where applicable) where Project Co cannot deliver as required and/or the Trust is better placed to undertake necessary works in the timescales necessary.

This is an unprecedented crisis and it is inevitable that there will be some initial difficulties. However, we believe that it is in all parties’ interests to work proactively and pragmatically to facilitate the best possible response to Covid-19. How the parties respond will be remembered long after life gets back to normal.

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The Monthly Report

7/10/2019

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The principle of all PFI projects is that Project Co (and their subcontractors) should self-report against their own performance and declare to the Authority any areas of underperformance against the Service standards. The Monthly Report is where they should do this.

It is perhaps naive to believe that this is going to work. How many times have you sped down the motorway and then called the police at the end of your journey in the knowledge that you will be fined and awarded penalty points? It just isn’t human nature and, certainly, it isn’t typical for commercial organisations to create a culture that expects their staff to purposefully diminish their returns on a contract in order to be contractually compliant.

On this basis alone, it is important for any public sector organisation to actively read and question the Monthly Report and to ensure that it properly addresses all of the requirements under the contract.

The minimum requirements for the Monthly Report are typically set out in both Schedules 14 and 18 of standard form contracts and will include the following:

Incidences reported to the helpdesk, including the target Response Times and/or Rectification Times and those achieved;
Maintenance and other task based activities carried out in the month;
Maintenance and other task based activities planned for the next month;
A summary of all Failure Events and Quality Failures (or equivalent);
The effects of these Failures;
A time frame, in hours, of any event not Rectified on time;
The deductions to be made from the Service Payment in respect of Failure Events; and
The number of Service Failure Points awarded in respect of each Service for that Contract Month.

However, for each Service that is covered by the Project Agreement, it is important to go back to the Service Level Specification and look at the requirements.

On most standard form contracts the Key Performance Indicators (KPI’s) or Service Parameters (SP’s) for each Service are typically well defined and stipulate what should be measured to demonstrate compliance. There can be up to 45 KPI’s per Service on a typical contract, so if there are say 11 Services (General, Estates, Helpdesk, Cleaning, Catering, Portering, Security, Telecoms, Pest Control, Waste and Energy Management) that could easily amount to in excess of 350 individual scores that need to be reviewed and critiqued each and every month.

What is not always well defined, though, is the method of monitoring and the source data that will be utilised.

For Reactive tasks, the method of monitoring is invariably measured using the Helpdesk, provided that Project Co (and their Service Providers) are properly reporting all reactive tasks using the Helpdesk (see our ‘Follow on tasks’ post). What is often missing, however, is clarity around the method of measurement for qualitative or planned tasks. It is therefore important to sit down with the Project Co and Service providers to check whether the contents of the monthly report do in fact evidence compliance with each of the KPI’s or SP’s.

Typically, the Authority will have a defined time frame to raise any issues with the self-declared scoring. This is typically two months, although in order to get any issues properly credited in the current month’s invoice, you may have as little as 5 days. Once two months have passed, the Monthly Report and the data it contains become the sole record for the period, with no challenges able to be raised except in cases of deliberate misrepresentation, gross incompetence, gross negligence, or fraud.

P2G actively monitor the performance and monthly reporting on a number of NHS PFI projects and our experiences to date suggest that there is a large divergence between reported and actual performance when measured against the contract. If you are interested in checking whether you are receiving the Services for which you are paying, please feel free to get in touch.

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Damage

10/9/2019

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Under a typical PFI contract, the cost of any damage to the property is normally the responsibility of Project Co. There are only limited circumstances where this is not the case, i.e. the Authority is liable.

In the majority of cases, if Project Co claim that the Authority is responsible for any damage, then it should be able to evidence that the damage has occurred due to a “breach of an express provision” of the Project Agreement or a “deliberate act or omission” by the Authority or any Authority Party. This means that an individual or individuals did so with the intention or knowledge that the damage would be caused by their act.

You should also check the definition of Authority Party within Schedule 1. For example, in a hospital, it is often the case that patients and visitors do not fall under the definition of Trust Party, so even if they did cause damage deliberately, the Trust are still not liable for the costs of rectification.

We are seeing frequent cases where Project Cos are billing Authorities for damage where these requirements have not been met. Such requests do not need to be paid unless Project Co has provided evidence that the above conditions have been satisfied. Any payments made without the required evidence may be recoverable by the Authority. P2G can review the Authority's entitlement to getting that money back.

If the cost of rectification is above the insurance excess (typically £5,000), even if the Authority is liable for the costs of rectification, their maximum liability will typically be for the excess amount only.

The diagram below simplifies the process of deciding liability in the event of damages and highlights where the financial responsibility falls.

If you think that the Project Co operating and maintaining your building may be wrongly charging you for the reasons outlined above, please do not hesitate to contact us for further advice.

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Programmed Maintenance Follow on Tasks

17/6/2019

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On many of the PFI contracts for which we provide performance management services, we see an absence of self-reporting of issues to the Help Desk. This is particularly prevalent in tasks that are identified through planned maintenance activities. Here we discuss the background to the issue and what your Project Company and service providers should be doing.

In the vast majority of PFI contracts there is an obligation to agree an annual planned maintenance programme, often referred to as the Schedule of Programmed Maintenance. These are pre-approved activities that the Hard FM contractor will carry out over the course of the year and for which they traditionally receive an Excusing Cause, in other words they are relieved from their obligation to maintain the Availability of areas whilst undertaking the planned maintenance activity without penalty.

Programme descriptions are often cursory in nature, therefore to understand the true nature of the planned tasks that sit behind an activity, it is often necessary to ask to review the ‘task sheets’ that sit within the CAFM system and which stipulate the individual tasks that make up the planned activity.

The important point to remember is that the relief that the Excusing Cause provides is limited to the planned works on the programme, not consequential works that are discovered whilst undertaking the planned maintenance activities.

So, taking an example of fixed wire testing, the planned activity is to conduct the test. If the test results show elements of the electrical system that are not compliant, this constitutes a fault and should be reported to the Help Desk by your service provider. Thereafter, it should be responded to and rectified in accordance with the requirements of the contract.

It appears to be common practice on some contracts for service providers to utilise systems outside of the Help Desk to manage the need for consequential maintenance activities that are necessary to address faults discovered as a result of planned maintenance activities. It is our belief that this is primarily an attempt to avoid the maintenance works being subject to the requirements under the contract terms to respond to and rectify faults within specific timeframes.

There are clearly examples where future maintenance needs identified as a result of planned maintenance activities do not represent faults. For instance a lift inspection may identify that a component is nearing the end of its useful life and, whilst still compliant at the date of the inspection, may need replacing within the next 6 months. It is perfectly acceptable practice in this regard for your Project Co to update their planned maintenance programme to pick up this requirement.

What is not acceptable, however, is for issues that are faults (ie issues that do not meet the contract standards) to be programmed at a future point or not logged on the Help Desk.

If you think that your service providers may be operating outside of the approach outlined above, please do not hesitate to contact us for further advice.

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Vacancies for Service Performance Managers & Analysts

8/5/2018

Location: Nationwide, initially home based. Regular travel required.
Salary: £45,000 to £60,000

Opportunity to join a growing business transforming the way the Public Sector manage PFI contracts. Demand for our services is growing daily and we are looking to recruit like minded professionals who share our passion and commitment to deliver value to the Public Sector. We aim to provide first class PFI Contract expertise and delivery insight across the whole of the public sector PFI portfolio.

The successful candidate should have a proven track record of working within either an NHS Trust or a FM organisation. Experience of PFI/PPP is desirable; but more important is a good technical knowledge (either in FM or Contract Management) and monitoring techniques for service delivery. Excellent customer service skills and an ability to work with people at all levels are also prerequisites.

For an informal confidential discussion about the role please contact Bruce Dalgleish on 07702 988434 or Russell Manley on 07939 415679. Applications (CV and supporting letter) should be submitted via the contact form.

Closing date for applications: Monday 14 June 2018

P2G Contract Support LLP is an equal opportunity employer. We value diversity and want our workforce to reflect the communities that we serve. We are also committed to the employment and career development of disabled people. Appointment to vacancies will always be on the basis of fair and open competition.

Department of Health committed to reviewing PFI deals

14/10/2015

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Ben Gummer, Parliamentary Under-Secretary of State for Health, stated in Parliament on 12th October:

A considerable number of PFI contracts were poorly negotiated under the previous Labour Administration. They need to be looked at one by one, and the Department is committed to doing that again to see whether we can reduce the burden on trusts. My right hon. Friend the Secretary of State will have more to say about that in the course of the transformational changes that we are helping the NHS to make.

This is clearly to be welcomed.

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P2G helps Dyfed & Powys Police & Crime Commissioner terminate PFI

8/7/2015

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Back in February 2013, the BBC ran a story about a PFI for a relatively small police station that was costing Dyfed & Powys Police 18% of their entire estates budget. The build cost was £2.7m, yet by the end of the contract the total cost would amount to more than £20m.

The article quoted the Police and Crime Commissioner:

I know I've inherited it and I know it's very expensive and it takes up a lot of my estates budget. I know that what we've ended up with somehow is a state-of-the-art police station in the wrong place for the wrong price. It's deeply disappointing and particularly frustrating when obviously the police service is facing tough financial times as many public services are, we have this contract that we appear to be tied into that does cost us a lot of money.

It went on to say that, whilst attempts had been made to renegotiate the deal, these had been unsuccessful, and that whilst the project did not provide the public with value for money; there was no basis upon which they could vary the terms of the contract in the absence of the agreement of the contractors.

The Commissioner was reported as saying, however, that he would make sure that “no stone is unturned” to see if the issue could be addressed in future.

Intrigued by the story, and taking the Commissioner at his word, P2G wrote to him offering our services. We explained that we operated on a contingent basis and that there would be no payment without results. P2G is a Social Enterprise. We are not driven to maximise our revenue but, specifically, to deliver savings to the public sector.

Over a period of some months, we convinced the Commissioner that savings could be generated and we were eventually successful in winning a tender.

P2G led the review and were aided by Fenwick Elliott (legal), WSP (technical), and Clubfinance (financial modelling).

On 18th June 2015, some 28 months after the initial news report, the PFI was terminated by agreement. Total net savings to the Police Authority will amount to £7.7 million, with a net present value of £3.1 million.

We thank the Commissioner for his support and hope that other public sector authorities take note that significant savings can be made from the effective management of PFI contracts.

Press:
BBC News
Police & Crime Commissioner press release

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The Chancellor's Mansion House speech 2015: Fiscal responsibility - PFI, the Deficit, & Borrowing

10/6/2015

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PFI
Critics of PFI have long argued that it is both expensive and inflexible as a contracting arrangement, a fact that the Secretary of State for Health, Jeremy Hunt, recently seemed to recognise when he stated in Parliament that “many of the hospitals now facing huge deficits are seeing their situation made infinitely worse by PFI debt.”

In relation to value for money the Public Accounts Committee have stated that:

the Department of Health should support evaluation of alternative financing or operating options for costly private finance initiative schemes where there is a clear opportunity for improving value for money. [1]

So, with an estimated 20% of all PFI projects having a contractual right to voluntarily terminate the arrangement and replace an average cost of capital of 9% with government borrowing of 3.5%, why aren’t more public sector bodies doing it?

The short answer is, of course, availability of capital. To terminate a PFI contract the public sector needs to have available funds to pay the compensation involved.

Compensation for voluntary termination on PFI projects broadly falls into two categories: those that have a predetermined compensation sum, and those that calculate the compensation based upon the future profits of the private sector as determined by the market. On many of the contracts that have voluntary termination rights, particularly those with a predetermined termination sum, the value for money argument to terminate is compelling.

The Deficit
The deficit is defined as the gap between what we spend and what we raise in taxes [2]. In other words the current budget deficit, or surplus, is the difference between what the government spends and what it receives.

With the government pledging to return the current budget to a surplus in the current Parliament, anything that reduces the amount we spend on PFI projects would clearly count towards lowering the deficit.

If terminating a PFI contract both delivers value for money and aids deficit reduction, both of which form cornerstones of this government’s manifesto, then why isn’t HM Treasury falling over itself to raise the capital to fund this compensation?

Borrowing
The thing is, when most politicians and commentators talk about the deficit, they are not actually talking about the budget deficit; most are actually referring to government borrowing [3]. Borrowing and deficit are not the same thing. The two are linked, of course, as one covers the other, but the government doesn't just borrow money to fund the deficit. It also borrows to invest.

The current budget covers everyday expenses - welfare payments, departmental costs, etc. But the government also makes investments, such as on infrastructure projects, that are not included. If the government is running a deficit, it may make investments on top of this, and will therefore need to borrow to cover both.

But if the government has borrowed the money for these infrastructure assets anyway, why would paying off one set of bankers and investors who loan them the money at 9%, and replacing it with government money at 3.5%, increase government borrowing?

This is because, for many PFI projects, the Treasury maintain that the contracts are ‘off balance sheet’ for central government and government departments, even though most are recognised as ‘on balance sheet’ for all of the public sector bodies that use International Financial Reporting Standards (IFRS) to produce their accounts.

Treasury data suggests that liabilities that are recorded as ‘on balance sheet’ in the Whole Government Accounts (WGA) (using IFRS) may relate to around 97 per cent of all PFI assets, by capital value. The total capital liabilities in the WGA arising from Private Finance Initiative contracts were £37 billion in 2014. Only £5 billion of these were on the public sector balance sheet in the National Accounts [4].

So if all investment undertaken through PFI had been undertaken through conventional debt finance, Public Sector Debt would be around 2.0 per cent of GDP higher than currently measured.

What needs to happen?
At the moment there is a clear case for voluntary termination of certain PFI contracts to reduce the budget deficit and lead to a demonstrable increase in value for money for the public sector. Yet the ability of the public sector to utilise their contractual right to terminate is being constrained by a desire to maintain the PFI debt ‘off balance sheet’, even when it is already on balance sheet for the vast majority of the public sector bodies that are running at a deficit, i.e. NHS Trusts and Local Authorities.

Within the parliamentary paper on “Accounting and Budgetary Incentives” [5] it was recognised that past behaviours had been influenced by the desire to retain PFI projects off balance sheet. However, conclusions drawn within that paper demonstrate that:

The decision as to whether to proceed with a PFI deal should be based on rigorous qualitative and quantitative value for money evaluation of all the procurement options available. Balance sheet treatment should not be a part of this evaluation.

Clearly this test should not only apply at the procurement stage of a PFI project, but throughout its life. In other words, the decision by the public sector on whether or not to exercise their rights to terminate a PFI contract should also be taken on the basis of value for money. Balance sheet treatment should not form part of this evaluation.

In his Mansion House speech tonight, the Chancellor said:

We have a budget deficit that remains, at just shy of 5% of national income, one of the highest in the developed world.

Our national debt stands at over 80% of GDP. [6]

The funding of PFI termination payments would decrease one and increase the other. But let us not forget that the former is real, while the other is an accounting technicality. PFI debt is a real liability and has to be repaid, whether we like it or not.

The danger is that, in seeking to minimise a notional debt figure, there may be even more reticence to allow the termination of expensive and poor value for money PFI contracts. Such reticence hinders the Chancellor’s stated aim of reducing the deficit with the added longer term consequences for real national debt. Common sense needs to prevail.

Where value for money can be demonstrated, central government capital should be deployed to allow voluntary termination to occur. Balance sheet treatment worries should be consigned to the rubbish heap of political and economic red herrings, where they belong.

[1] House of Commons Committee of Public Accounts Financial sustainability of NHS bodies Thirty–fifth Report of Session 2014–15
[2] "2010 to 2015 government policy: deficit reduction” HM Treasury
[3] "UK debt and deficit: All you need to know" BBC News
[4] Office for Budget Responsibility Fiscal sustainability report 2014
[5] "Accounting and budgetary incentives: Treatment of PFI debt in the national accounts" Treasury Select Committee
[6] Mansion House 2015: Speech by the Chancellor of the Exchequer

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What can the next government do about PFIs?

30/4/2015

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There has been a great deal of talk recently about the unaffordability of PFI projects and this is given added focus by the imminent General Election.

In October 2014, Daniel Poulter, Parliamentary Under Secretary of State for Health, confirmed in the House of Commons that the Government intended to support NHS Trusts in following the example of Hexham Hospital in reducing their PFI burden by supporting voluntary termination of their contracts where a value for money case could be made. However, this was swiftly followed by HM Treasury guidance on the early termination of PFI projects, that introduced a level of subjectivity over decision-making that makes it easy to block terminations.

It is clear that due to a mixture of concern to maintain off-balance-sheet treatment and the need to find budgetary resources to pay the compensation that arises on termination, real central support is not there for individual Trusts or other Authorities to follow Hexham's example.

So what choices will the new Government have when it comes to reducing the burden that PFI projects place on the public sector? Despite what protesters (such as The People Vs PFI) would like to happen, cancellation of PFI projects is just not an option. The public sector has entered into arms-length contracts for these projects, which the courts would have to uphold. Any incoming government could, and should, ensure that departments examine their PFIs for the potential to use the contracts themselves to effect better value for money. Initiatives to date in this regard have been piecemeal. However, what more could be done?

If an incoming government is not prepared to fund authorities that have the ability to terminate their PFI, then we would advocate the introduction of a new Treasury controlled social investment fund that allows the public to invest directly in PFI projects for a fixed level of return of, say 3%. This, in line with other government led investment schemes, such as the Enterprise Investment Scheme (EIS), should attract tax relief at the basic rate. This would make the return comparable with listed funds on the stock exchange investing in PFI assets.

The fund would be used to support the buyout of PFI projects where termination rights exist, either because voluntary termination rights are already within the contracts concerned, or because the public sector have a right to terminate the contract due to a default by the private sector.

In addition, it could also be used to refinance projects, replacing senior debt, where rates are typically more than double that of the government’s own borrowing.

In terms of refinancing PFI projects, at the present time were the cost of capital to be reduced to 3%, the private sector would be the beneficiary of between 50% and 90% of this gain. Given the taxation support and the aim of this policy, this would clearly be inequitable for the public sector. As such it is proposed that, through primary legislation, all PFI and PPP projects would be required to undergo mandatory refinancing where Treasury and the Authority concerned supported the refinancing. This is similar to rights which already exist on PFI projects signed since the introduction of SoPC4, the standard form of PFI contract introduced in 2007.

Treasury, whilst having a cost of 3% for the capital within the social investment fund, would loan the proceeds to the individual private sector PFI companies at the same level of return that the private sector debt providers currently charge. That way there would be no "refinancing gain" for the private sector to share in. Instead the arbitrage could be gifted back to the Authority concerned. This would halve the cost of debt, which typically forms over 60% of PFI payments.

The replacement of private sector debt would have the added advantage of reducing the cost of change for the public sector. At the present time lenders charge high levels of fees and advisor costs when the public sector wishes to amend or change the project or the levels of service it wishes to enjoy. This often prohibits cost reductions and value for money changes, reinforcing the perception that PFI as a procurement route provides long-term inflexible contracting arrangements.

We hope that whoever forms the next Government after May 7th will join us in making a real difference to the unnecessary burden of PFI contracts.

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Guidance on supporting vital service provision in PFI (and related) contracts during the COVID-19 emergency

How should NHS Trusts approach the management of PFI contracts as the Covid-19 issue develops?

The Monthly Report

Damage

Programmed Maintenance Follow on Tasks

Vacancies for Service Performance Managers & Analysts

Department of Health committed to reviewing PFI deals

P2G helps Dyfed & Powys Police & Crime Commissioner terminate PFI

The Chancellor's Mansion House speech 2015: Fiscal responsibility - PFI, the Deficit, & Borrowing

What can the next government do about PFIs?

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