Handback ‘needs future pipeline’ to be successful

Government must look forward to incentivise industry to deal effectively with issues arising from PFI handback, warns industry report

Law firm DLA Piper has published its full list of industry-endorsed recommendations to deliver a successful PFI handback process.

Having outlined some of the key plans at the UK Partnerships Hub conference in June, the firm has now released the full 10 recommendations, which it hopes will support authorities and private partners to successfully navigate the expiry and handback of their PFI contracts. 

Among these recommendations is for the government to establish long-term options that show a clear path for private sector investment. DLA also suggests the creation of transition advisory teams, akin to bid teams, bringing together different disciplines to provide support and advice on the expiry of contracts and what comes next. Meanwhile, the firm’s proposal to create a ‘supreme court’ to tackle expiry issues has already garnered interest in the market after it was announced at the June conference.

The consultation process involved over 150 key stakeholders from across the PPP industry, engaging in a series of confidential discussion sessions.

Three themes emerged from the engagement, which informed DLA’s final recommendations: a focus on short-term ‘survival’ of the process rather than a view to consider the long-term nature of the assets; a lack of certainty over what constitutes a successful end point; and a certainty that the process will result in a series of disputes.

In response, DLA Piper’s recommendations seek to address these issues and provide a framework that the industry could adopt in order to improve the outcomes that the process of PFI handback can offer. The recommendations are briefly outlined below, but to read the full publication, click here 

The Recommendations

  1. A Forward Investment Plan

Focusing on the future is often lacking in discussions around PFI expiry, with energy spent instead on ending the existing contract. DLA argues that the UK government “must tell the market what comes next for private investment to incentivise the right behaviours during handback”. It recommends the government commissions a market engagement exercise and an independent report to consider new revenue support models.

  1. PPP Stakeholder Council

A structured forum such as this could be used to enable stakeholders to contribute their thoughts and experiences, as well as creating “an effective listening tool” to help establish and alleviate concerns. The council would comprise the whole range of interested parties, from government ministers through to FM providers and advisors.

  1. Conduct Charter

Through DLA’s consultation, it was clear that “undesirable behaviours” have been seen across the industry, with a “general undercurrent of combative and antagonistic practice”. To tackle this, a charter developed by the above-proposed stakeholder council could be developed that is then endorsed by the industry. Ensuring this charter has teeth will be critical, and DLA suggests breaches should be “addressed at the most senior levels”.

  1. Handback Forum

Distinct from the stakeholder council, this organisation would enable parties to share experiences and include a training hub to help those facing a handback process.

  1. Expiry Protocol and Project Plan

While existing protocols have been created, DLA suggests that these need to be refined to “ensure that they are not overly partisan”. As an example, it suggests a standard form protocol where the payment mechanism is “is disapplied for a set period of time for specific issues whilst full investigations are conducted and remedial schemes (where required) are devised and implemented”.

  1. Transition Advisory Teams

Mixed disciplinary teams, akin to bid teams, would be tasked with supporting the collaborative delivery of contract expiry and the transition of the asset. DLA said these teams could balance stakeholder needs and take into account the long-term value and importance of outcomes.

  1. Dispute Resolution Court

When announced at the UK Partnerships Hub, this concept garnered the greatest attention from industry experts. While the previous recommendations are primarily aimed at avoiding disputes, this one recognises that this will not always be possible. Those in the industry believe that such a court could form a useful model for the industry to access specialist, expert decision-making that can establish a body of precedent for the market to learn from.

  1. Commercial Stakeholders

As lenders’ requirements can stifle efforts to introduce creative solutions that support the long-term future of the asset, DLA believes they can still play an important role by becoming ‘commercial stakeholders’. In this position, they should agree at an industry level to either engage on a commercial basis with handback negotiations (akin to shadowing) or to delegate decision-making within authority limits to asset managers.

  1. Information Exchange Certainty

From transparency on lifecycle expenditure to clarity on public sector advisory appointments, providing a good flow of information between parties in a PFI contract is critical. To make sure all parties know what should be provided and to ensure the information flow does not dry up amid suspicion and uncertainty, DLA recommends guidance be provided establishing a “set of norms for information exchange”.

  1. Net Zero

“The overarching reason DLA Piper has commissioned and developed this report is to help future-proof the infrastructure industry,” the report says. Net Zero is a critical part of the future of all infrastructure assets, and tackling emissions in existing buildings will be of huge significance. As part of this, DLA recommends creating a cross-stakeholder working group to explore options, rather than each project having to reinvent the wheel on sustainability.