UK Inquiry Tracker

Managing the expiry of PFI contracts

Public Accounts Committee Closed Inquiry

Opened: 21 Dec 2020 Closed: 17 May 2021 Parliament page

Private finance initiative (PFI) contracts are a form of public private partnerships used in the UK since the 1990s. PFI is a way to finance and provide public sector infrastructure and capital equipment projects, such as roads, hospitals, and schools. PFI contracts set out a long-term agreement between the private … Read more Private finance initiative (PFI) contracts are a form of public private partnerships used in the UK since the 1990s. PFI is a way to finance and provide public sector infrastructure and capital equipment projects, such as roads, hospitals, and schools. PFI contracts set out a long-term agreement between the private and public sector to deliver infrastructure such as roads, hospitals, and schools. There are currently over 700 PFI contracts and the bulk will start to expire from 2025. In October 2018, government announced it would no longer use the PFI model. Existing PFI contracts remain in place and the earliest ones are now starting to expire. Most PFI contracts result in the assets - whether it’s a hospital building or an IT system - being returned to the authority once the contract ends. PFI assets should be well maintained throughout the contract life and be in a good condition when returned to the authority. However, one of the main risks to value for money in PFI contracts is that they are not, which poses a risk to any public services associated with those assets. The NAO has found that public sector bodies risk underestimating the time, resources and complexity involved in managing the end of PFI contracts , and that there is danger that important infrastructure could return to the public sector in an unsatisfactory condition and services could be disrupted unless a more consistent and strategic approach is taken to ending PFI. While authorities will want to ensure they receive assets in the best possible condition at contract expiry, PFI providers have an incentive to limit spending on maintenance and improvement work in the final years of contracts, as savings can be used to pay higher returns to investors. Survey of public authorities managing PFI contract found a third of them expect to have formal disputes over the end of contracts, which can be costly for authorities. Many authorities start preparing for contract expiry more than four years in advance but there is a risk this is not enough time. A lack of adequate preparation risks increased costs for authorities and service disruption. Before contracts expire, authorities will have to decide whether services, such as maintenance and cleaning, will be provided in-house, by a new contractor or by the current provider. If authorities do not prepare, services can be disrupted, or they may have no choice but to extend contracts. Authorities also risk underestimating the resourcing and complexity involved in the expiry process. Private stakeholders can take a more coordinated approach to managing expiry as the 10 largest private investors in PFI own more than 50% of contracts. In contrast, the 10 public authorities with the greatest involvement in PFI oversee just 18% of all contracts. About 25% of the public authorities survey respondents said they lack the necessary in-house skills to manage contract expiry, and 60% are planning to hire consultants. The Committee recently reported on Government’s costly reliance on consultants. The Committee will question senior officials at the Treasury, and the Infrastructure Projects Authority (tbc). If you have evidence on the issues raised in this inquiry, please submit it here by 6:00 pm on Monday the 1 of February 2021. Show less

12 Recommendations

13 Conclusions

1 Report

1 Oral session

3 Letters

1 Event

Activity timeline 6 events

10 Sep
2021

Correspondence

Correspondence from Matthew Vickerstaff, Deputy CEO, Infrastructure and Projects Authority, re Private Finance Initiative (PFI) Contracts, …

31 Aug
2021

Report published

Treasury minutes: Government response to the Committee of Public Accounts on the Fifty-first report from Session 2019-21

19 Mar
2021

Report published

Fifty-First Report - Managing the expiry of PFI contracts

8 Mar
2021

Correspondence

Correspondence from Charles Roxburgh Second Permanent Secretary, HM Treasury, re Private Finance Initiative (PFI) contracts, dated 3 March …

23 Feb
2021

Correspondence

Correspondence from Sean Hanson, Chief Executive, Local Partnerships, re Managing the expiry of Private Finance Initiative (PFI) contracts,…

8 Feb
2021

Oral evidence

Managing the expiry of PFI contracts

Oral evidence sessions 1 session

8 Feb 2021

View on parliament.uk

Managing the expiry of PFI contracts

Charles Roxbourgh · HM Treasury Matthew Vickerstaff · NISTA Sean Hansen · Local Government Association

Reports 1 report · click to expand

Title	HC No.	Published	Items	Response
Fifty-First Report - Managing the expiry of PFI contracts	HC 1114	19 Mar 2021	25	Responded

Recommendations & Conclusions

19 results

3 Recommendation Accepted

Fifty-First Report - Managing the …

Many authorities currently lack the skills, expertise and capabilities to successfully deliver PFI contract expiry,...

Many authorities currently lack the skills, expertise and capabilities to successfully deliver PFI contract expiry, with locally managed contracts most at risk. The IPA recognises that there is a huge demand for skills, expertise and capabilities in contract management—all of … Read more

Government Response

The government accepted the recommendation, committing the Treasury and IPA to write to the Committee by Summer 2021. They will outline a potential plan to address current PFI skill shortages, particularly for authorities with limited funds.

HM Treasury

Managing the expiry of PFI contracts

Activity timeline 6 events

Oral evidence sessions 1 session

Reports 1 report · click to expand

Recommendations & Conclusions

Many authorities currently lack the skills, expertise and capabilities to successfully deliver PFI contract expiry,...

We are concerned that the approach to managing the expiry of PFI contracts risks authorities...

The IPA has not set out a clear escalation process to avoid disputes between the...

The IPA has not outlined clearly how it plans to engage with investors to ensure...

The IPA maintains a publicly available PFI database, which includes information on each of the...

The IPA recognised that more support was needed to address the “huge demand” for expertise,...

The IPA estimated it takes seven years to adequately prepare for the expiry of PFI...

We asked the IPA what assurance it could give that local authorities would be properly...

The IPA acknowledged that its existing team of experts was not enough resource to provide...

In light of its recent £2 million budget increase, we questioned the IPA on whether...

Local Partnerships recognised that in order to prepare for the expiry of PFI contracts, authorities...

Once a PFI contract has expired, any cash remaining in the PFI company is distributed...

A PFI contract should grant an authority access to any information reasonably required to monitor...

Local Partnerships explained that asset condition surveys are the most critical aspect of the expiry...

Authorities have tools to encourage non-cooperative PFI companies to act but they vary from contract...

In its written evidence to us, Affinitext told us that the primary objective of withholding...

Any rectification work required should be completed before the expiry of the contract.

In managing the expiry of a PFI contract, all parties will want to maximise value...

Each PFI contract should set out a formal dispute handling procedure.

Government Response AI assessment · 25 of 12 classified

Correspondence 3 letters