With over 700 operational PFI contracts, the next decade will see a steady flow of projects reaching the end of their concession life. As such, significant resources need to be directed at gearing up for what happens leading up to, and post handback. And the most obvious place to start is for project owners to know their projects inside out.
Graham Thomson, CEO of Affinitext, believes that for both the public and private sectors, having a firm grip on the contract documents is where you need to start your preparation for handback.
And there is a lot that both sides need to get a firm grip on.
“Between the authority, the SPV and the operating /FM contractors, there are many contractual obligations to be complied with” explains Thomson. “These include any option to renew, final surveys, rectification and maintenance work, employee entitlements, TUPE, pension issues, intellectual property rights, land property rights, transfer of assets, operations manuals, insurance, final payments, statutory obligations, cost and other information and documentation...”
Handback is also a wonderful opportunity for government to intelligently capture valuable data across its many assets. This data can be used with existing and new technologies for a variety of purposes – ensuring better use of its current assets and a better understanding of its future procurement needs, as well as delivering improved life-cycle planning, operational efficiencies, health & safety outcomes, etc.
This is a huge amount of information that should be gathered in appropriate data formats and databases for effective analysis. Inherent in the establishment of PFI was a drain of resource from the public to private sector and Thomson is concerned that the public sector will struggle to scale resourcing to ensure that it obtains the most value out of the handback process. “Handback requires a lot of smart thinking and planning, ” he says.
Central government is gearing up for the challenge ahead with both the Infrastructure and Projects Authority and Scottish Futures Trust working with authorities to support this sizeable transition.
While Thomson notes that in the past central government centres haven’t always proved popular with local authorities, who can view such moves as a case of a “we know best” central government narrative, he believes that there is an important role for government to play in assisting under-resourced authorities, especially if government is committed to obtaining best-value from the process. “There need to be recommendations, innovation and development of best practice, continually improved on the basis of lessons learned. You can’t reinvent the wheel every time, or have a siloed approach to important decisions on information gathering and analysis,” he says.
It is looking likely that the government will create a centre of excellence for the hand-back process, building on the success of the Department for Work and Pension’s exit of the 20 Year PFI (Prime) contract, the first major PFI exit of its kind across government. “It is hoped that there will be early engagement across these teams to develop an efficient methodology to best address the complexity and the challenges of hand-back,” says Thomson.
A National Audit Office study is currently underway to assess whether government is making appropriate preparations to secure value for money from PFI contracts nearing the end of their term.
As part of this, it is examining whether the government collects adequate information on the assets, how it prepares for the expiry of these contracts and what skills, resources and governance are in place to effectively manage handback.
As well as ensuring an agreed understanding of and compliance with numerous contractual obligations, Thomson believes that it is essential that there is a good level of trust between the parties.
“Ideally, the relationships between the parties before, during and after the expiry period should be positive and productive.” he says.
Thomson buys into using collaborative working frameworks such as ISO/TR 44000 ‘Principles for Successful Collaborative Business Relationship Management’ and embodied in ISO 44001 ‘Collaborative business relationship management systems’.
However, he says a structured approach to collaborative working isn’t adopted as widely as might be hoped. “Sadly, we all know that a significant number of projects are operating at sub-optimal levels of trust, which is a challenge to be addressed well ahead of the expiry date.”
A key challenge to a strong, trust-based relationship between the parties lies in the under-resourcing of some PFI management teams, with reports that public sector staffing can be lower than one person per PFI” he says. However, this is compounded by team changes on both sides.
Historically, complaints about under-resourcing have been focused on the government side, but Thomson is hearing about similar issues around staff turnover from the other side of the table.
“This challenge may increase with any career moves staff may make as their projects are coming to an end,” he points out.
With a change in the teams, you potentially lose the relationship and the trust that has built up over the life of the contract.
“It’s human nature,” says Thomson. “If you have been working together successfully and there is respect and trust between the parties, then you approach the resolution of issues in a much better way.”
There are, of course, many projects with good relationships, and it is a pity that they are not more widely acknowledged and promoted. For those projects, approaching handback should be a far less demanding (and expensive) process.
Thomson points to the MoD Main Building PFI, which has a culture of collaborative contract management across all parties and which is ISO 44001 certified. Thomson explains: “The MoD, Modus, Skanska and Amey used Affinitext to extract all of the thousands of contractual obligations so as to determine who would manage what, and when. Following this review, tasks were automatically created at each relevant clause, and collaborative compliance has been embedded into the standard way of working across the parties. The parties are ‘walking the talk’ of collaborative working.
Thomson’s vision is that this approach to collaborative compliance should be implemented from the get-go, when contracts are initially let. “When an authority lets a contract, the parties should mobilise in accordance with the collaborative contract management process which should be worked up during the procurement process. Collaboration is in actions, not words” he explains.
It is very likely that the strength of relationships and trust will be put to the test as the parties get closer to handback. There are a number of consultants who now offer their services to authorities to ensure contractual compliance, leading in many cases to claims by the public sector for compensation in the form of payment deductions.
There are many across both the public and private sectors who believe that the handback process may introduce such compliance ‘audits’ as a standard part of the handback process. How ironic if it is only at the end of the contract that you look closely at compliance? What is to be done if you realise that the contract hasn’t been fully complied with for years? Do you then have to look at financial adjustments for non-compliance as a first step in handback?
Concerns about compliance ‘audits’ generally arise where the relationship is weak or where a party is not fully aware of or comfortable that the contract requirements are being met. It may well be that good relations in a PFI will provide even greater value for the parties at the end of project life than during it. This is especially so when you consider that one of the options for the under-resourced public sector may be to re-let the work to the private contractor.
But ultimately, Thomson again underlines the importance of knowing your contract and being prepared for when the contract ends. “Don’t wait until you are behind the curve and then try to dig yourself out of a hole,” he warns.
To view the full survey results along with a report on the Big Question debate held after the survey, please click here.