2.13 All SoPC41 contracts and associated financial models have a level of cost transparency (for both PFI provider and subcontractor costs) which enables authorities to understand the costs of individual services under the contract and the mark-ups applied to the base cost of changes2.
2.14 HM Treasury is engaging with PFI investors, subcontractors and lenders at a national level to seek their agreement to, amongst other things, apply SoPC4 cost transparency to older contracts through a voluntary code of conduct.
2.15 The Queen's Hospital contract pre-dates SoPC4, but nonetheless contains similar entitlements to project information. However, many older contracts do not give this degree of transparency to the authority. Without this information, authorities may find it difficult to determine the VfM of implementing savings measures.
2.16 Experience has shown that where older contract information provisions are not express nor explicit, the authority has to justify each request for information and access may be slow. Whilst amending the project agreement to incorporate SoPC4 cost transparency provisions may not give an authority legal entitlement to any additional information that it is not already entitled to, it may make the process easier. Implementing the SoPC4 cost transparency provisions into project agreements that do not already have them could bring the following benefits:
• clearly establish the authority's rights in terms of what information it can ask for without the need for discussion and justification;
• require the project company and its subcontractors to keep and maintain full records of the costs of performing the services;
• specifically require the project company to furnish to the authority regular reports of all financial information provided to senior lenders in any quarterly period;
• specifically require the project company to furnish to the authority copies of the Financial Model at financial close and further copies any time it is subsequently amended; and
• afford the authority extensive rights of access to project company and sub-contractor records in all areas of design, construction, operation, maintenance and finance.
2.17 Authorities will require legal advice to apply the SoPC4 cost transparency drafting to their existing contracts. If transparency provisions were to be the only amendment to the project agreement then the time, effort and cost of contract amendments may not be justified. But if the project agreement is being amended elsewhere (for example as part of the implementation of cost savings measures) then authorities should seek the incorporation of the SoPC4 best practice provisions simultaneously.
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1 Standardisation of PFI Contracts volume 4 (http://www.hm-treasury.gov.uk/ppp_standardised_contracts.htm)
2 Required drafting is set out in para 26.2 of SoPC4.