PFI expiry: Confusion, uncertainty and fear for the future

As contract expiry and handback move ever nearer, there remains uncertainty over whether there is market capacity to deal with the process - and appetite to take on what follows

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“I’m not sure the market is clear on what it wants yet in terms of handback provision,” says Anthony Walker, director at surveyors Sircle.

He has already seen a number of opportunities put out to tender, but points out that some want full-blown, end-to-end handback services, while others are procuring more on a piecemeal basis, as they decide what is required.

However, what is becoming clear is that capacity in the surveying market to deal with this rising tide of demand will become increasingly restricted. “To date, not that many have done a whole end-to-end handback,” Walker adds. “The scale of this huge.”

One of the issues here is that if organisations do go down this road of seeing a full-blown expiry contract there will only be a small number of organisations able to spend the time and effort bidding for and carrying out this work. This will inevitably result in only a few organisations being in very high demand, thus resulting in cost increases and a potential bottleneck in the expiry programme.

Within those companies, there will also likely be only a relatively small number of experts with any significant experience of PFI, meaning the ability to carry out the type of examinations required under the contracts could be further limited. There have already been stories of surveys being carried out for handback that failed to provide the requisite information as demanded under the contract - instead simply offering a standard survey with a list of defects and/or recommendations that bore little relation to what the PFI contract provisions actually required.

“Hopefully, as the handback market matures, better ways to carry out surveys will emerge that align to the requirements whilst remaining attractive to the surveyors,” Walker continues. “Going forward, there may be some mutual benefit in PFI companies having surveyor frameworks of three or four surveyors, who can be called off at different times during the handback process, rather than trying to get one to do the whole thing. That would create less risk for the smaller companies and make them more willing to be involved.”

The question of capacity goes beyond the survey process, too. As contracts head towards expiry, there are many public authorities around the country that are hoping to procure some sort of follow-up contract with the private sector to ensure continuity of services. Having spent the past 20-30 years relying on the private sector to provide a range of services, many authorities do not have the experience, resources or personnel available to take on that work when the PFI deal ends.

Facilities management, in particular, is an area where capacity is tight in the public sector - however, there may well be reluctance from the private sector to take on some of this work. Where relationships have soured on deals, FM providers are at least as desperate as their public sector counterparts to be released from the PFI contracts, which have seen them bear the brunt of deductions. With their fees capped by the contract, some are working on zero fees as they see what they are charging being eaten up in deductions.

This is also storing up problems for the future. “The public sector is saying that post-PFI, it wants to partner with FM providers, but it needs to encourage a market that has had some bad experiences and needs to develop a more collaborative approach to get good market interest,” warns Eddie Davies, managing director of consultancy services at Vercity Consultancy.

“Centralised departments want the market to expect fairly sophisticated FM contracts, including help with smarter and greener spaces,” he continues. “This complexity is similar to what many have experienced in the PFI market, but delivered with varying degrees of success. Again, setting these up in a more collaborative manner is key.”

Data overload

Another significant challenge facing the handback process is the apparent confusion that many feel when it comes to the state of the asset, how that compares to the original contract requirements, and how to find out what has been going on in the intervening decades between financial close and now.

At one time, there was a prevailing view in the UK PFI sphere that if a contract had to be taken out of the draw during the operational phase, it was the first sign that the relationship was breaking down.

However, as those contracts are now dusted off, it is increasingly evident that things written down 30 years ago may no longer apply to the modern setting, or have been ignored or superseded without any formal changes being written into that document. As a result, there is a concern that, as handback provisions are scrutinised, questions will be asked over why and when certain activities were stopped - perhaps as the result of a verbal conversation between two practitioners who may no longer be involved in the contract any more.

“Where people have changed, you don’t have the continuity of understanding in those contracts,” warns one advisor.

Therefore, for many PFI projects, the starting point of the handback process will be attempting to find any and every documented conversation about any potential changes that have been made over the course of the contract - but not necessarily updated in the contract document itself.

And it goes beyond those areas where the two parties may have simply shaken hands on a change.

“A number of PFI projects don’t have good quality data on things like floor plans, room data sheets and equipment lists,” says Walker.

While some will have moved into the 21st century and embraced technology to manage their contracts, that is not the case for all deals and some in the industry point out that there are deals where data rooms still exist as physical structures with reams of paper in boxes, rather than being an online tool that can be easily searched.

“Many don’t have digital records of these things,” Walker continues. “I think it is important to reduce risk in the bid phase and maximise the survey period to scan and digitise all documents at the very start of the handback process, which is a big task in itself.

“Making documents available electronically contributes to greater efficiency for future surveys and ensures that there is ‘one version of the truth’.”

Some are already looking to get on top of this challenge. “We are developing a solution to monitor and record the right handback information,” says Kevin Hawkins, head of management operations at Kajima Partnerships, whose contracts are at the younger end of the spectrum, and therefore still have some time to go before handback issues start to kick in.

Despite the challenges, many in the industry recognise that the whole process provides something of an opportunity, as contracts need to be whipped into shape so that the assets’ performance can be understood and sensible decisions can be made about their future.

“The handback process will require surveys on steroids,” Walker says. “The challenge is to create new ways of doing things to benefit both the public and private sectors.”

Hawkins points to another potential opportunity for all parties involved. “The fact that there is little drafting [around handback provisions] is an opportunity to do something sensible,” he says. “There should be a level of scrutiny around that, but there needs to be an informed client.”

Expiry and handback could well be a long road, with plenty of potholes to navigate. But it may also provide opportunities to demonstrate how the private sector can add value to public infrastructure and assets.