Recommendations & Conclusions
25 items
2
Conclusion
Fifty-First Report - Managing the expir…
The IPA does not yet have the data it needs to fully understand the challenges of managing the expiry of PFI contracts. The PFI contract is central to understanding the potential expiry risks an authority may face. However, these are long, complex documents which have been subject to multiple revisions …
Government response. 2.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2021 2.2 The IPA will write to the Committee setting out the emerging themes from all of the PFI contract expiry health checks that have been completed and …
HM Treasury
3
Conclusion
Fifty-First Report - Managing the expir…
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 which are currently in short supply. Contracts owned by local …
Government response. 3: PAC recommendation: The Treasury and the IPA should write to Committee within 3 months outlining how they plan to fill the current skill shortages, focusing particularly on those authorities with limited funds to recruit or buy-in external support. 3.1 …
HM Treasury
4
Recommendation
Fifty-First Report - Managing the expir…
The IPA is not clear what support will be provided to authorities with expiring PFI contracts, and who will provide that support. Each individual authority is responsible for managing the expiry of its PFI contract. When an authority needs help, support is often lacking, or it is not always clear …
Government response. 4: PAC recommendation: The Treasury and the IPA should set out, within 3 months, their plan for providing support to all PFI contracts, especially those owned outside of central government. This should cover: • What support will be made available, …
HM Treasury
1
Conclusion
Fifty-First Report - Managing the expir…
What support will be made available, including how additional funding will be provided to authorities with limited resources or those with the most challenging contracts. Managing the expiry of PFI contracts 7
Government response. 4.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2021 4.2 The IPA and HM Treasury will write to the Committee in these terms. Of course, decisions on any additional funding will be a matter for ministers …
HM Treasury
5
Conclusion
Fifty-First Report - Managing the expir…
We are concerned that the approach to managing the expiry of PFI contracts risks authorities working in silos rather than collectively securing value for the taxpayer. In the education sector, there are examples where the ownership of the PFI assets and the responsibility for managing the contract are not aligned. …
Government response. 5: PAC recommendation: Within 3 months, the Treasury should outline how it is ensuring taxpayer interests are being protected when the expiry of PFI contracts creates a change of asset ownership between public bodies. 5.1 The government agrees with the …
HM Treasury
6
Recommendation
Fifty-First Report - Managing the expir…
The IPA has not set out a clear escalation process to avoid disputes between the public and private sector going through the courts. At expiry, all parties will want to maximise value from the PFI contract. Authorities will want to ensure the assets are returned to the public sector in …
Government response. 6: PAC recommendation: The IPA should publish a disputes protocol, outlining how disputes can be escalated by authorities, and the steps that can be taken to ensure disputes only need to be resolved by the courts as a last resort. …
HM Treasury
7
Conclusion
Fifty-First Report - Managing the expir…
The IPA has not outlined clearly how it plans to engage with investors to ensure that authorities have access to all information needed to manage the expiry 8 Managing the expiry of PFI contracts process. Authorities need to monitor the performance of the PFI company to ensure it is delivering …
Government response. 7: PAC recommendation: The IPA should write to the Committee within 3 months outlining the steps it is taking to ensure PFI investors are being fully transparent and compliant with contracts, and what action, if any, it will take if …
HM Treasury
8
Conclusion
Fifty-First Report - Managing the expir…
The IPA maintains a publicly available PFI database, which includes information on each of the 700 contracts, such as the value of the project, annual payments, date the contract was signed and contract length. The database does not, however, include the date each contract will expire.20 The IPA told us …
Government response. 2.1 The government agrees with the Committee’s recommendation. Ta rget implementation date: Summer 2021 2. 2 The IPA will write to the Committee setting out the emerging themes from all of the PFI contract expiry health checks that have been …
HM Treasury
9
Conclusion
Fifty-First Report - Managing the expir…
Each individual authority is primarily responsible for managing its PFI contract, including the expiry process. However, when an authority needs help, varying degrees of support are available from multiple sources across government. In the first instance, each authority will be supported by its sponsoring department which acts in an advisory …
Government response. Each individual authority is primarily responsible for managing its PFI contract, including the expiry process. Each authority will be supported by a sponsor department. The IPA is the government’s centre of expertise for infrastructure and major projects. It provides advice …
HM Treasury
10
Conclusion
Fifty-First Report - Managing the expir…
The IPA recognised that more support was needed to address the “huge demand” for expertise, skills and capability in contract management—all of which were currently insufficient. It explained that contracts owned by local bodies, which made up more than 80% of all PFI contracts, were “the most concerning area” as …
Government response. 3.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2021 3.2 The Treasury and the IPA will write to the Committee setting out a potential plan to fill current skill shortages, particularly for those authorities with limited …
HM Treasury
11
Conclusion
Fifty-First Report - Managing the expir…
The IPA estimated it takes seven years to adequately prepare for the expiry of PFI contracts.28 The Treasury recognised the importance of starting preparations early, both to ensure maximum value is extracted from the contracts in their final years and to plan for the transition to new ownership arrangements.29 We …
Government response. 1.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2021 1.2 The Infrastructure and Projects Authority (IPA) will publish a plan for supporting all authorities with PFI contracts. The plan will also set out a timetable for …
HM Treasury
12
Conclusion
Fifty-First Report - Managing the expir…
We asked the IPA what assurance it could give that local authorities would be properly supported and resourced to manage the expiry of their PFI contracts without having to fill gaps with potentially expensive consultants. The IPA accepted that procuring expertise from the private sectors was not the best value …
Government response. 1.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2021 1.2 The Infrastructure and Projects Authority (IPA) will publish a plan for supporting all authorities with PFI contracts. The plan will also set out a timetable for …
HM Treasury
13
Conclusion
Fifty-First Report - Managing the expir…
The IPA acknowledged that its existing team of experts was not enough resource to provide support to all 700 PFI contracts in a complex environment. Across the UK, 328 authorities are responsible for PFI contracts, with 182 authorities responsible for only one contract. In contrast, the 10 largest private investors …
Government response. 1.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2021 1.2 The Infrastructure and Projects Authority (IPA) will publish a plan for supporting all authorities with PFI contracts. The plan will also set out a timetable for …
HM Treasury
14
Conclusion
Fifty-First Report - Managing the expir…
In light of its recent £2 million budget increase, we questioned the IPA on whether it was adequately funded to support the expiry of assets worth around £60 billion. The IPA told us that the resource requirement for PFI expiry was a big and complex subject, and it was considering …
Government response. 1.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2021 1.2 The Infrastructure and Projects Authority (IPA) will publish a plan for supporting all authorities with PFI contracts. The plan will also set out a timetable for …
HM Treasury
15
Conclusion
Fifty-First Report - Managing the expir…
Local Partnerships recognised that in order to prepare for the expiry of PFI contracts, authorities needed both to start early, but also to know what they need to do through each stage of the process.37 The IPA started developing guidance on managing PFI expiry in 2019, and we asked when …
Government response. 1.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2021 1.2 The Infrastructure and Projects Authority (IPA) will publish a plan for supporting all authorities with PFI contracts. The plan will also set out a timetable for …
HM Treasury
16
Conclusion
Fifty-First Report - Managing the expir…
Once a PFI contract has expired, any cash remaining in the PFI company is distributed to shareholders and the company is closed. If any maintenance or rectification work is outstanding at this point, it will be almost impossible for the authority to recover any money owed. It is therefore vital …
HM Treasury
17
Conclusion
Fifty-First Report - Managing the expir…
A PFI contract should grant an authority access to any information reasonably required to monitor the PFI company’s performance. The NAO found that of the survey respondents who monitor the maintenance programme, 35% reported they had insufficient access rights to allow them to do so. In one PFI hospital, the …
HM Treasury
18
Conclusion
Fifty-First Report - Managing the expir…
Local Partnerships explained that asset condition surveys are the most critical aspect of the expiry process as they tell the authority whether or not the assets are in a fit state. These surveys should identify the amount and cost of any rectification work required before expiry. Local Partnerships highlighted that …
HM Treasury
19
Conclusion
Fifty-First Report - Managing the expir…
Authorities have tools to encourage non-cooperative PFI companies to act but they vary from contract to contract. As a minimum, all PFI contracts allow authorities to withhold a portion of their annual payments in the event of poor performance. Local Partnerships told us that authorities will be better positioned if …
HM Treasury
20
Conclusion
Fifty-First Report - Managing the expir…
In its written evidence to us, Affinitext told us that the primary objective of withholding annual payments was to ensure contractual compliance rather than maximising cash savings for the authority through imposing high penalties. It explained that if the process of withholding payments, which can take place many years before …
HM Treasury
21
Conclusion
Fifty-First Report - Managing the expir…
Any rectification work required should be completed before the expiry of the contract. Once the PFI company has closed, authorities have limited options to reclaim any money owed. One option for protecting against this is to build a retention fund, whereby a portion of the authority’s annual payment is set …
HM Treasury
22
Conclusion
Fifty-First Report - Managing the expir…
In managing the expiry of a PFI contract, all parties will want to maximise value from the PFI contract. Authorities will want to inherit an asset in the best possible condition, as this will minimise any future maintenance costs and the risk that services are interrupted. Meanwhile, PFI companies have …
HM Treasury
23
Recommendation
Fifty-First Report - Managing the expir…
Each PFI contract should set out a formal dispute handling procedure. The IPA told us that typically the process required a panel of experts, selected based on the nature of the dispute, to reach a judgement. If the panel cannot reach a judgement, or either party challenges it, the dispute …
Government response. 6.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2022 6.2 As part of its discussions with PFI investors, the IPA intends to agree a disputes protocol that will set out how to resolve issues before they …
HM Treasury
24
Conclusion
Fifty-First Report - Managing the expir…
The authority is responsible for managing the PFI contract until expiry, at which point it inherits the assets.54 In some instances, ownership of the PFI assets can transfer between different public bodies before the contract expires, creating a potential conflict between those who will own the assets in the future, …
Government response. 5.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2021 5.2 HM Treasury will set out its response to this issue and understands that it relates mainly to the sc hool academies issue as discussed with the …
HM Treasury
25
Conclusion
Fifty-First Report - Managing the expir…
Over 300 PFI schools have been converted to academies. We asked whether local authorities might be incentivised to protect their budgets by limiting expenditure on managing the contract rather than maintaining the assets as they would not own them at 52 C&AG’s Report, para 13, 3.22 53 Q 82; C&AG’s …
Government response. 5.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2021 5.2 HM Treasury will set out its response to this issue and understands that it relates mainly to the sc hool academies issue as discussed with the …
HM Treasury