Recommendation 21

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