If you have a PFI contract, deciding to renegotiate elements of it is a complicated affair fraught with potential pitfalls. However the private sector expect it to happen and are often astounded that it doesn’t happen more frequently. PFI contracts are not as inflexible as many people choose to believe.
It is possible to cut costs in a successful PFI partnership. It certainly isn’t always easy, but with the correct approach and buy-in from key stakeholders, one can reach an agreement that benefits all parties in the long term.
Before you do anything you need to gain a better grasp of exactly what you hope to achieve through renegotiation. “Cutting costs” is all well and good, but you need to consider how costs will be cut. Renegotiating a contract under such circumstances is a delicate enough process as it is, so it is important that you equip yourself with an understanding of your intended outcomes before you approach your partner.
Most PFI providers have a large exposure to the public sector and many will have signed up to the new Treasury Code of Conduct, so it is important to use these levers to help bring pressure to bear on them to assist. However, far more important is your approach to them as an organisation.
All PFI contracts are “owned” by Special Purpose Companies (SPC’s). Their raison d'etre is to deliver long term sustainable returns for their shareholders. Given the length of PFI contracts, it is not in their interests to maintain their margins to a point where their public sector partner is put in serious financial jeopardy; but ultimately they are there to make a profit for their shareholders and weaving a path between these positions is a balancing act that requires finesse to deliver.
If you operate a traditional buyer/supplier relationship, this will make delivery harder as your private sector partner is likely to take a short-term and solely profit-driven approach to the contract. You may find that renegotiation or re-shaping is more adversarial in these circumstances.
If, on the other hand, you do have a true partnership/alliance operating model, your partner will understand your financial challenges and they are far more likely to work with you on potential solutions that can appeal to both their sense of partnership and moral obligation to work together for the public good.
Ultimately, a wise private sector partner will understand the long term benefits of working in true partnership with a public sector organisation, be it a local authority, NHS trust, police force or the like.
Partnership also extends to the way the contract fundamentals are handled. Knowing exactly what you should be getting and holding the private sector to account for failure to deliver are key components of successful contract management. Doing so will, in the long term, improve your ability to successfully renegotiate elements of the contract to deliver savings. However the way you conduct yourselves and your ability to think through the issues that your ‘partner’ will face, as a result of the changes, is vital.
There is nothing simple about the process of renegotiating a PFI contract. However, a healthy dose of common sense (including pro-actively helping the provider open new doors so it can address new opportunities) and a willingness to work in true partnership with your provider will take them and you a very long way towards achieving a positive outcome.