Recommendation 16

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