Recommendations & Conclusions
19 items
3
Recommendation
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 bodies, which represent over 80% of the total portfolio, are the most concerning because expertise has dwindled as resources are prioritised elsewhere. Local Partnerships consider the best prepared authorities to be those with multiple contracts, as they will more likely have maintained a PFI team throughout the life of the contract. However, 182 authorities own just one contract. The IPA accepts that filling the skills gap with consultants could be expensive and not the best value for money option. Part of its PFI contract management programme is therefore focused on building capability and recruiting additional staff to develop a central pool of resources. This so far consists of just 17 people, although more people are expected. This is not enough resource to support all 700 contracts. Local Partnerships also has a small team of experts working on PFI and provide training on a reactive basis if an authority requests support. 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.
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Government response AI summary
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.
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HM Treasury
5
Recommendation
Fifty-First Report - Managing the expir…
Accepted
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. …
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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. When a school is converted to an academy, it is no longer the responsibility of the authority, but is instead run by an independent academy trust and receives funding directly from the Department of Education. The authority, however, remains responsible for administering the PFI contract until it ends, despite not inheriting the assets. This can create perverse incentives to protect budgets and limit expenditure on managing the contract, especially during the expiry phase, potentially putting taxpayer interests at risk. The academy trust acquiring the assets may inherit a ‘liability’— the cost of bringing the assets back up to usable condition. The potential risk to the Department for Education is significant with around 300 PFI schools already converted to academy status. This is a very complex issue and further clarification is needed. 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.
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Government response AI summary
The government agrees and states HM Treasury will set out its response by Summer 2021, outlining how taxpayer interests are being protected when PFI contract expiry involves a change of asset ownership between public bodies, specifically addressing the school academies issue.
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HM Treasury
6
Recommendation
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 the condition stipulated in the contract, with all maintenance and rectification work completed before expiry. The PFI company will want to reduce expenditure in order to maximise payments to shareholders. These misaligned incentives can create disputes. The formal process for resolving disputes is outlined in the PFI contract and will usually require an expert panel to make a judgement. If this does not lead to an agreement a resolution is sought through arbitration or the courts. This process can be long, taking a minimum of 10 months in some cases, and prohibitively expensive for some authorities. This can lead to a situation with a small, under-resourced authority dealing with a large, well-resourced PFI company. There are some examples of good practice, such as Highways England agreeing an informal disputes resolution procedure with the PFI company, which is quicker and cheaper. 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. Where disputes do materialise, the IPA should conduct a review to determine whether it is a one-off disagreement or a wider problem that may impact other contracts.
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Government response AI summary
The government accepted the recommendation, stating the IPA intends to agree a disputes protocol with PFI investors by Summer 2022 to resolve issues before formal legal procedures. Specific guidance will be considered for wider underlying issues identified from disputes.
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HM Treasury
7
Recommendation
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 the services that taxpayers are paying for. Transparency can be a problem and the IPA recognises that there are some difficult investors which adopt an approach of ‘asymmetric information’ where the PFI company holds much more information on the performance of the contract compared to the authority. The IPA plans to engage directly with investors to hold them to account, ensuring that information critical to managing PFI expiry is shared with the authorities, but has not yet set out what this will look like in practice. The IPA is also looking to develop a protocol outlining how investors should operate during the expiry process, but this is not yet available. Authorities can withhold a proportion of their annual payments to encourage non-cooperative PFI companies to carry out maintenance, but this is not always an option. Some authorities can also build up retention funds to pay for any identified rectification work but there is a risk that these are not sufficiently large and as these are contractual arrangements they cannot be unilaterally increased later in the process. IPA does not yet have a solution to these scenarios or the actions it would take in response. 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 an investor if found to be deliberately non-co-operative. Managing the expiry of PFI contracts 9 1 Government’s response to the expiry of PFI contracts
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Government response AI summary
The government accepted the recommendation, stating the IPA intends to develop a protocol with PFI investors to ensure transparency and compliance during the expiry process. The IPA will write to the Committee by Summer 2021 outlining further steps.
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HM Treasury
8
Recommendation
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 that this was something it could look to include in future versions of the public database. The IPA aimed to update the database annually, but noted that it relied on returns provided by each department to create the database. It admitted it was not 100% confident that all PFI contracts were actually reported, especially those owed by local bodies.21 18 Affinitext is an information technology and services company. It uses artificial intelligence technology to allow complex documents such as contracts to be easily read, understood and managed. 19 MPC0003 – Affinitext, para 8.1a 20 Q 12; C&AG’s Report, para 3.4 21 Qq 31–33 12 Managing the expiry of PFI contracts 2 Providing support to authorities
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Government response AI summary
The government accepted the recommendation, stating the IPA will compile a central list of all PFI expiry dates by Winter 2021. It noted that the IPA already collects this data annually but relies on accurate departmental submissions.
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HM Treasury
10
Conclusion
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 local bodies’ investment in contract management expertise had “not always kept pace with the extent required”.25 Local Partnerships added that the best prepared authorities were those with multiple PFI contracts, as they were more likely to have maintained a PFI team during the life of the project.26 The NAO found that 182 authorities owned just one PFI contract.27
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Government response AI summary
The government agrees with the committee’s conclusion regarding the lack of expertise and commits to the Treasury and IPA writing to the Committee by Summer 2021. They will set out a plan to fill skill shortages, especially for authorities with limited funds for external support.
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HM Treasury
11
Recommendation
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 received written evidence from Leeds City Council, which told us that as a PFI contract comes to an end, the authority would need to manage the expiry process alongside its daily operations, which can put pressure on already stretched resources. It asserted that it was therefore not possible to start early expiry preparations alongside other work without additional resources.30 The NAO report found that the expiry process required a different set of skills, such as contract negotiations and asset management, compared to managing the day-to-day operations, and that many authorities would be unable to provide these in-house. Some smaller authorities have just one person managing multiple PFI contracts, with limited additional support, meaning the resourcing challenges of PFI expiry are magnified.31 22 C&AG’s Report, paras 2, 1.8 23 Q 11 24 Q 18 25 Q 14 26 Q 41 27 C&AG’s Report, para 1.16 28 C&AG’s Report, para 3.15 29 Q 94 30 MPC0002 - Leeds City Council, paras 8, 9, 11 31 C&AG’s Report, para 2.2–2.4 Managing the expiry of PFI contracts 13
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Government response AI summary
The government accepted the underlying recommendation, committing the IPA to publish a support plan and timetable for guidance notes by Summer 2021. The Treasury and IPA will also encourage departments to develop sector-specific guidance for PFI contract expiry.
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HM Treasury
12
Conclusion
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 for money solution. It told us that it would be essential to provide additional resources to deal with technical, financial, commercial and legal issues and that it was developing a central pool of people that could provide these skills. It explained that this team so far consisted of 17 people, and it expected to recruit additional staff in the next financial year, and aimed to bring the team to 21 in total. It explained that it was working on further plans and proposals about how to develop additional resources and whether this would be best done by departments or through regional hubs.32 Written evidence from Wiltshire Council told us that it specifically appointed a PFI contract lead with a broad range of skills, covering contract and project management experience as well as legal, commercial and procurement expertise which will help eliminate the need for consultancy support.33
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Government response AI summary
The government agrees, stating the IPA will publish a plan for supporting authorities with PFI contracts, including a timetable for guidance notes, by Summer 2021. HMT and IPA will also encourage departments to develop sector-specific guidance.
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HM Treasury
13
Conclusion
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 in PFI owned more than 50% of the contracts. This concentration allowed the private sector to take a portfolio approach to managing the expiry process, which risks putting the public sector at a disadvantage. To address this, the IPA told us that it had requested from each department their strategies for managing the PFI contracts for which they are responsible. The IPA told us that it will work with departments, focusing on these strategies, to ensure that it was able to get help and support to the contract management teams within the authorities.34
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Government response AI summary
The government agrees, stating the IPA will publish a plan for supporting all authorities with PFI contracts, including a timetable for guidance notes, by Summer 2021. HMT and IPA will also encourage departments to develop sector-specific guidance.
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HM Treasury
14
Recommendation
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 the size and level of resource that it needed while attempting to be as efficient as possible. It planned to submit additional resourcing requests to the Treasury in the future.35 Local Partnerships told us that managing PFI expiry needed to “be done correctly” and “the more resources, the better”. It also told us that it could be more proactive in its support to authorities if more resources were made available.36
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Government response AI summary
The government accepted the underlying recommendation, committing the IPA to publish a support plan and timetable for guidance notes by Summer 2021. The Treasury and IPA will also encourage departments to develop sector-specific guidance for PFI contract expiry.
Read full response →
HM Treasury
15
Recommendation
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 it expected to publish this. The IPA told us that it planned to issue guidance and technical notes “over the next year” but was unable to give a precise date owing to the impacts of the covid-19 pandemic. We similarly asked the Treasury whether it expected departments to publish sector-specific guidance. It explained that 32 Qq 22, 69, 70 33 MPC0001 – Wiltshire Council, para 2 34 Q 15; C&AG’s Report, paras 8, 1.4, 1.16 35 Qq 16, 50 36 Qq 20–21 37 Q 20 14 Managing the expiry of PFI contracts this would be a matter for each department once overall guidance was available, but this could be a very helpful initiative given that some specific expiry issues could be common in similar types of assets.38 38 Qq 65–66; C&AG’s Report para 1.15, 3.15 Managing the expiry of PFI contracts 15 3 Relationship management during contract expiry Managing investor relationships
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Government response AI summary
The government accepted the recommendation, committing the IPA to publish a plan for supporting PFI authorities and a timetable for guidance notes by Summer 2021. The Treasury and IPA will also encourage departments to develop sector-specific guidance.
Read full response →
HM Treasury
16
Conclusion
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 that authorities monitor and enforce compliance against the PFI contract.39 PFI contracts are, in theory, self-monitoring which means the PFI company is responsible for reviewing performance and reporting back to the authority. Nevertheless, the authority still needs to monitor the PFI company’s performance to ensure it is receiving the services it has paid for.40 The NAO found that special attention needs to be paid to monitoring on-going maintenance and the lifecycle fund, a pot of money built up over the life of the project to pay for planned, periodic maintenance. It found that failure to monitor maintenance increased the risk of assets transferring to the public sector in a poor condition. It also found that, as the PFI company keeps any remaining lifecycle fund on expiry, there can be perverse incentives to underinvest in assets, making them last longer than originally planned, leaving more cash in the pot for investors.41
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Government response AI summary
The government agrees with the committee’s conclusion and states the IPA intends to develop a protocol with investors by Summer 2021. This protocol will outline how PFI investors should operate during expiry, including requirements for transparency and contractual compliance to address monitoring and maintenance issues.
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HM Treasury
17
Conclusion
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 authority identified a large gap between the money paid into the lifecycle fund and what was being spent on maintenance. The difference could indicate that the PFI company was not carrying out the maintenance work as planned but the authority was unable to challenge whether this was the case because the PFI company denied it access to the relevant information. When asked whether this is acceptable, the IPA acknowledged that there were some “difficult investors” who “liked asymmetric information” on key parts of the contract. This means that the PFI company holds much more information on its performance compared to the authority, which limits the authority’s ability to challenge the PFI company. The IPA recognised that this information was “absolutely critical” in managing the expiry of PFI contracts and told us that it was working to get investors to share assets registers and the financial information needed.42 The IPA also explained that it was working with “key investors” to remind them of their responsibilities and planned to develop a protocol outlining how investors should operate during the expiry process.43
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Government response AI summary
The government agrees, stating the IPA intends to develop a protocol with investors by Summer 2021. This protocol will outline how PFI investors should operate during the expiry process, including requirements for transparency and compliance with contractual obligations.
Read full response →
HM Treasury
18
Recommendation
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 if the surveys were completed too close 39 Q 36; C&AG’s Report, paras 2.7, 3.29 40 Qq 34, 44; C&AG’s Report, paras 3, 2.7 41 C&AG’s Report para 2.8–9, 2.11–12 42 Q 85; C&AG’s Report, paras 2.13–2.15 43 Q 39 16 Managing the expiry of PFI contracts to the end of a contract, there could be insufficient time to remedy any defects identified.44 The IPA told us that the Treasury’s standard PFI guidance recommended surveys should be conducted 18 months to two years in advance of the contract’s expiry, which the IPA believed is too late. The IPA recommended that health check reviews take place seven years before the expiry of the contract, and that this could include requiring an asset condition survey.45 In its written evidence to us, Leeds City Council was concerned that there may not be enough technical experts to complete these surveys, and that creating a “lucrative new industry overnight” may create risks such as surveyors being under- qualified, inadequate surveys being produced in order to quickly move onto the next job or high prices due to lack of competition.46
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Government response AI summary
The government agrees with the recommendation and states that the IPA intends to develop a protocol with investors by Summer 2021. This protocol will outline how PFI investors should operate during the expiry process, including requirements for transparency and compliance.
Read full response →
HM Treasury
19
Conclusion
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 they make these deductions while the debt providers, such as banks, are still involved in the project. It explained that the threat of debt not being repaid would encourage debt providers to put additional pressure on the PFI company to complete any outstanding work. However, the IPA noted that debt was often paid off several years before expiry, meaning authorities need to take early action.47 Withholding annual payments is not always a solution; the NAO identified an example where an authority could only make deductions on the grounds of non- performance or unavailability. This means that if information is not being shared or the assets are not being maintained, but they remain in a usable condition, then the authority cannot withhold any payment.48
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Government response AI summary
The government agrees, stating the IPA intends to develop a protocol with investors by Summer 2021. This protocol will outline how PFI investors should operate during the expiry process, including requirements for transparency and compliance with contractual obligations.
Read full response →
HM Treasury
20
Conclusion
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 contract end, is seen by both parties as a means of “catching the other out,” this could damage relationships before the really challenging aspects of expiry need to be faced.49
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Government response AI summary
The government agrees with the committee’s point and states the IPA intends to develop a protocol with investors by Summer 2021. This protocol will outline how PFI investors should operate during expiry, including transparency and contractual compliance.
Read full response →
HM Treasury
21
Conclusion
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 aside specifically to pay for any rectification work at expiry. The NAO found that of the 28 contracts in its survey which contained a retention fund, 10 respondents did not expect it to be large enough to cover the expected rectification work.50 We asked the IPA how an authority should manage this risk. It told us that the solution was “a larger retention fund”. It recognised that the retention fund was a contractual obligation and could not be unilaterally changed, but noted that the amount paid into the retention fund is linked to the asset condition survey.51 44 Qq 36, 45; C&AG’s Report para 3.18 45 Qq 75–76 46 MPC0002 - Leeds City Council 47 Qq 71–72, 89; C&AG’s Report, paras 3.30–3.32 48 C&AG’s Report, para 3.30 49 MPC0003 - Affinitext 50 C&AG’s Report, paras 3.29, 3.31 51 Qq 86–87 Managing the expiry of PFI contracts 17 Resolving disputes
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Government response AI summary
The government agrees, stating the IPA intends to develop a protocol with investors by Summer 2021. This protocol will outline how PFI investors should operate during the expiry process, including requirements for transparency and compliance with contractual obligations.
Read full response →
HM Treasury
22
Conclusion
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 an incentive to limit expenditure on maintenance and rectification work in the final years of the contract as any savings will be passed through to investors. These misaligned incentives can lead to disputes. The NAO found that more than one-third of authorities who responded to its survey expected to have formal disputes near contract end, with the majority relating to the volume of rectification work and its cost.52
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Government response AI summary
The government agrees with the committee’s observation on misaligned incentives and confirms the IPA intends to develop a protocol by Summer 2021. This protocol will outline how PFI investors should operate during the expiry process, including requirements for transparency and contractual compliance.
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HM Treasury
23
Recommendation
Fifty-First Report - Managing the expir…
Accepted
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 …
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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 will go to either arbitration or the courts. It explained that, under most PFI contracts, the arbitration process has to be voluntary. Even before reaching the courts, the disputes process can be long, in some cases taking a minimum of 10 months. The NAO found that the process can be expensive, which can prohibit authorities from pursuing disputes, especially when success is not guaranteed. There are some examples of good practice in this area. Highways England has agreed an informal disputes resolution process with the PFI company. Designed to be quicker and cheaper, this informal approach takes place before the formal contractual disputes process and involves discussions between nominated individuals from both parties, first at an operational level and then at a project manager level.53 Protecting taxpayer interests
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Government response AI summary
The government agrees and states the IPA intends to agree a disputes protocol with PFI investors by Summer 2022, aiming to resolve issues before formal contractual procedures. Specific guidance will be considered for wider underlying issues.
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HM Treasury