The report into “behaviours, relationships and disputes across the PFI sector”, undertaken by industry stalwarts Barry White and Andrew Fraiser, may have left some wanting more.
As we reported last week, some believe it to be a “massive missed opportunity”, and “artificially balanced” in a way that is designed not to heap too much opprobrium on one side or another. This has therefore led to fears that the report will have little impact in practice in those cases where aggressive contract management has led to deals reaching the verge of collapse.
Indeed, it would not be obvious to an outsider on a reading of the executive summary, that a small percentage of health PFI contracts have a “toxic” culture now attached to them (a phrase used later in the report). Or that such approaches are making it “increasingly difficult to attract high calibre staff, because the employee market considers there to be growing reputational and wellbeing risks associated with accepting particular roles” (as stated again, later in the report).
Nonetheless, the authors are clear that something has to change. After urging a reset, the final lines of the executive summary are forthright in their views: “Some SPVs and/or public authorities may, instead, choose to bury their heads in the sand and hope things improve. Our view on this is clear. They won’t.”
This is, of course, only a report. While there are some who would like the light to have shone brighter on some of the negative behaviours, it could only ever do so much. It has put forward some sensible recommendations - such as the dispute resolution forum. A similar proposal in DLA Piper’s Project Autumn publication was received positively by the industry at the time.
The key, then, will be what happens next. The report is due to be formally published later this month, after which the Infrastructure & Projects Authority (IPA) will spend some time preparing its response.
How this report and its recommendations are transformed into action from the IPA will determine how PFI projects are dealt with over the next two decades, as contracts head towards expiry. The IPA is limited in what it can do to a certain extent: it is unable, for example, to mandate certain things in contracts to which it is not a party.
It can, however, set the environment in which these contracts operate, thereby providing, as one source put it, “something that can be relied on by parties”. In other words, a way of giving parties who feel their partners are not acting in an appropriate way, something to point to that sets out the principles of how they should be behaving.
As we discussed in our recent podcast, sources have warned that while the difficult projects may only be a tiny minority at present, the fear of contagion is real - and is even putting off international investors who worry that the “unprofessional behaviour” referred to in the White Fraiser Report could be transferred to any project that they might consider investing in.
There are, therefore, good reasons why these issues need to be tackled, especially as the government looks to increase the involvement of the private sector in things like the energy transition.
To deliver this improvement needs better resourced partners. The report does call for private parties to become ‘industrial’ managers, getting involved in the weeds of contracts, rather than ‘financial’ managers who sit back and simply look at the bottom line. But on the public sector side, too, there is a call for a more intelligent approach to contract management, which the report acknowledges will require public bodies “having the capability to implement its own auditing and assurance on performance, reporting and compliance”.
Such requirements will mean investment in resource from the public bodies - and while the report insists this is a local, not central, issue, the big question here is where will the money come from? Local authorities, health trusts and other public sector bodies are renowned for lacking cash, so this is a big ask (especially when PFI deals were often sold to authorities on the basis that they would take away their responsibilities for these assets).
We have been covering the issue of aggressive contract management for some time, back to our first in-depth report on this in February last year. The private sector has always been clear that where it works with well resourced, informed clients, they can have robust discussions and be held to account without relationships breaking down. Therefore, if these issues are to be properly tackled, the approach may well require investment into teams across the country to properly resource them.
None of this will be easy. But if these minority of projects are not to become what PFI is remembered for (regardless of the true legacy shown by the other 90% of well run schemes), all sides will need to come together and embrace not only this report, but the action that it hopefully sparks from the IPA.
A strong response is now required, because the IPA needs to set the environment in which all future relationships are based, including providing the guidance to help parties know what each side is doing and what its endgame is, so that all sides are working towards the same outcome with the same goals in mind. This will make for better relationships and, hopefully, behaviours will also improve. Without such guidance, as White and Fraiser themselves might put it, “they won’t”.