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Expiry of PFI Contracts : what are the things you must do?
Many PFI contracts dating from the late 1990s and early 2000s will soon expire. By 2030, on average UK 40 PFI schemes will expire each year.
The project agreement (PA) governing the project is for a fixed term. On its expiry, obligations (and rights) of the parties will cease. At that point, the project company (Project Co) will lose defined access rights to the site. Operations stop: no further services are provided under the PA. Unitary charge payments cease.
How can the contracting authority (CA) ensure the seamless transition to a replacement service provider upon the departure of the incumbent? How does a CA make sure that facilities like hospitals and schools continue to function as normal when services under the scheme stop?
With project expiration on the horizon, a CA should consider the following:
Check the project agreement.
The PA should be checked along with project history to ensure that all variations and the like to the PA have been accounted for.
Do not assume that PA strictly follows the standardised SOPC version: with project-specific elements, no two PAs are identical.
The PA defines the expiry date. Often a fixed period (e.g., 30 years) after the completion of the facility – i.e., the start of the operational phase. Some projects start the services when the PA becomes effective, with the contract period starting then.
Staged completion dates complicate the correct contract period start date: from which of several completion dates (for different phases) does the contract period run? Equally, construction delays can involve disputes about the timing of completion of the works, relevant to identifying the expiry date.
Does the PA identify outputs expected from the performance of the services, e.g. the “facility to be free from defects and fully operational with all areas available”.
Does the PA define residual life requirements for project assets? Does it provide guidance about how the expected residual life of assets is ascertained (i.e. pre -replacement) beyond the expiry date?
The unitary charge /payment mechanism in the PA should be checked, in particular if the CA may apply a retention if project infrastructure and assets are not in a satisfactory condition.
Plan a survey of the facility
Planning should start at least five years before the expiry date identified by the PA.
Joint inspection. The IPA recommends the Project Co and the CA should jointly inspect the facility four years before expiry; to assess compliance the project documents.
The PA will require a survey to be carried out no later than between 18 months and 2 years. Before that period starts:
A pre-survey information checklist is to be provided.
(At least four years before the expiry date), check that an assets register exists and ensure that it is current. If there is none, the CA should create one.
Prepare brief for surveyor based on the completed asset register and other information obtained.
Peter Jansen, Legal Director, Sharpe Pritchard
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