These recent successes are a reminder to local authorities, NHS Trusts and other procuring authorities to scrutinise insurance provisions carefully to ensure that any sums properly payable to the public sector are accounted for in the insurance reports prepared by or on-behalf of the private sector.
Particular issues to look out for include:
1. Market Movement - the cost of insurance for PFI projects has dropped dramatically since many projects were signed. Under standard form drafting the public sector should be permitted to benefit from this reduction, however we are aware of certain insurance advisors that seek to pass the benefit of these reductions to the private sector parties that instruct them;
2. Project Insurance Changes - we have also encountered projects where insurance advisors have sought to justify the private sector's right to retain insurance savings by reference to Project Insurance Changes or PIC. Recent adjudication decisions have confirmed that a "blanket" approach to assessment of PICs is not permitted and any PIC must be accompanied by a detailed explanation of the activities undertaken by Project Co (in addition to its usual contractual obligations) that have in fact resulted in a Project Insurance Change;
3. Insurance Premium Tax - due to changes in IPT over the life of the project, the Insurance Gainshare calculation must be checked to ensure that it correctly (and fairly) addresses the impact of IPT on the savings payable to the public and private sector parties; and
4. Timescales - Many PFI contracts contain strict timescales for the public sector to challenge the insurance gainshare calculations put forward by the private sector. Failing to meet these timescales can prevent the public sector from recovering payments due to them.
If you would like to discuss these issues, or the operation of insurance gainshare calculations generally, please get in contact with Russell, Bruce, or Jack.