2.3 HM Treasury developed the Standardisation of PFI Contracts (SoPC) guidance to set out a standard approach to risk allocation between the public and private sectors to be applied to all PFI projects.
2.4 The first edition was published in July 1999; the latest version, SoPC4, was released in March 2007. The main objectives of the guidance remain unchanged and are to:
• Promote a common understanding of the main risks which are encountered in a standard PFI project;
• To allow consistency of approach and pricing across a range of similar projects; and
• To reduce the time and costs of negotiation by enabling all parties concerned to agree a range of areas that can follow a standard approach without extended negotiations.
2.5 Since version 3 of SoPC (published in 2004) there has been a mandatory requirement for all authorities to comply with SoPC, or approved sector specific contracts based on SoPC, when entering into PFI contracts. Compliance means including all of the "required drafting" referenced in paragraph 1.4.1 of SoPC4 and adhering to the "clear contractual principles" (without specific drafting) set out. Together, the required drafting and the mandatory contractual principles are referred to as the "Core Areas". Where projects wish to derogate from a Core Area, they must submit a derogation request to HM Treasury for approval.
2.6 Feedback from departments, local authorities, the market and the NAO is that standardisation has been beneficial. The combination of SoPC4, sector-specific contracts and the derogations process ensure the lessons learned from over 680 closed projects are not lost. Continuing this good practice will safeguard the quality, value for money and risk transfer within complex PFI projects. It will help maintain discipline and focus dialogue during the procurement process. This central support can also help departments and authorities hold the line in contract negotiations with the private sector.
2.7 In light of the experience to date, HM Treasury has concluded that all PFI projects supported by central government - whether delivered centrally or at the local level - should continue to follow the standard guidance and seek approvals for derogations from HM Treasury where necessary. Compliance with SoPC4 or the relevant sector-specific contract will be a key consideration of HM Treasury's approval of the business case.
2.8 Departments should agree with HM Treasury at an early stage of the assurance and approval process which projects will be expected to comply with the standardisation and derogations process. Further information about the derogations process can be found at Annex B.