3.49 Where a PFI contractor consistently fails to deliver the services to the standard originally specified and the private sector has failed to remedy this deficiency, the PFI contract will fall into default, giving the public sector the right to terminate the contract and step in to ensure continuity of service delivery. In these circumstances:
• with rare exceptions, projects will revert to public ownership, including the assets and staff necessary to continue to deliver the service;
• compensation is only due to the private sector for the true value of assets taken over by the public sector less any rectification costs. In extreme circumstances this could result in no payment; and
• the public sector is then able to take ownership of the project itself or re-tender the opportunity to take over the project to other private sector contractors.
3.50 Given the 564 PFI projects signed to date and the long term nature of the PFI contracts it is likely that a small proportion of the PFI projects will fall so far short of their contractual requirements that they will be terminated by the public sector.
3.51 It is impossible to predict with accuracy the percentage of PFI projects which may fail, but it is important to understand that in these extreme circumstances of failure, after all reasonable attempts have been made by all parties to resolve any difficulties which may emerge, the Government will be prepared to terminate such contracts in accordance with its legal rights, even if at a loss to financial participants in the scheme. Where this happens, it will also act within its legal right to ensure that public services will be maintained.