1.1 The aim of this guidance note is to help public sector authorities with PFI contracts to put in place a voluntary protocol for managing variations during the operational phase of their PFI projects where they consider one may be necessary. Two of the main purposes of negotiating a change protocol are to put in place an appropriate change mechanism process and to establish transparency of pricing where these are not clear in the contract. This will help to achieve value for money for the public sector. This guidance note also sets out good practice and lessons learnt from commissioning and carrying out variations from a large number of projects.
1.2 The document "Standardisation of PFI Contracts Version 4 (SoPC 4)" published in March 20071 is applicable for all PFI projects which had not already been signed or appointed a preferred bidder prior to 1 May 2007. SoPC 4 guidance expands upon previous guidance to include the recommendation that bidders should assume that a service of change implementation is part of the Authority's Requirements and that an appropriate amount of flexibility is designed into the initial bid solution and priced to cope with anticipated changes. SoPC 4 guidance also includes the requirement that a well-developed change protocol is put in place in the contract to cope with changes over the operational life of the contract2. In August 2007 HM Treasury published a note of the key Change Protocol Principles3.
1.3 By entering into a PFI arrangement, the authority normally enters into a long-term arrangement (25-30 years) with an SPV. The PFI contract will set out the initial requirements of the public sector but changes to the assets and/or the services originally specified are likely to be required over the lifetime of a PFI contract. Accordingly, PFI contracts across all sectors acknowledge that changes in an authority's long-term requirements and in the contractor's method of delivering a service may occur and most PFI contracts include clauses which deal with authority initiated changes, contractor initiated changes and changes resulting from a change in law.
1.4 In practice, however, some authorities have experienced problems with the process for managing change. Discussions with contract managers in 2006/7 at the Operational Taskforce's regional seminars revealed that contract managers were concerned about certain of the practical aspects of carrying out the change process and ensuring value for money from their change requests. Experience has shown that the contractual change mechanisms in existing contracts, but particularly in those signed some time ago, are not always adequate in practice, especially for high value changes or multiple low value changes.
1.5 Many existing operational projects have developed their own processes to deal with variations. In this guidance note, HM Treasury recommends that operational projects should develop a voluntary protocol with their private sector partners where the existing change mechanisms in their contracts are insufficient for their needs or would benefit from further clarification, explanation and detail. Section three provides an example of a pro forma protocol for an accommodation project. This deals with the issues applicable to operational projects and is recommended as a precedent for those accommodation projects that do not already have SoPC4 protocols. It should provide a basis for agreement between authorities and their contractors to put in place better arrangements to deal with ongoing change in their projects where these are required. Where projects already have a protocol in place or have detailed provisions in their contracts which deal with the process, it may not be necessary to negotiate a new protocol, but it is recommended that the arrangements are nevertheless re-examined and if necessary, revised to take into account the matters dealt with in this guidance note.
1.6 This guidance is intended to consider the main issues to be covered in a protocol. This note is intended to help contract managers and their private sector partners to develop a variations protocol which takes account of the nature of their particular project and the coverage of their existing contract. There may be opportune times for Authorities to negotiate the introduction of a protocol, for example at the time of a Best Value Review or prior to a benchmarking/market testing exercise.
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1 Standardisation of PFI Contracts Version 4, HM Treasury, March 2007
2 See above. SoPC 4 Chapter 13 pt 3 deals with Change Protocols
3 See http://www.hm-treasury.gov.uk/documents/public_private_partnerships/ppp_standardised_contracts.cfm