19.1.1 In the majority of PFI projects involving buildings, the Authority will own the land and grant a licence or lease to the Contractor. Occasionally, however, the Contractor will procure land itself. On PFI projects involving equipment, the Contractor will commonly procure the equipment itself. During the life of the Project the Contractor will manage the operation and maintenance of the relevant assets.
19.1.2 Consideration should be given to the nature of the interest that the Contractor should have in the asset during the life of the Project and, in the context of procurement of assets for the purpose of delivering the Project, consideration should be given to whether or not the Authority or the Contractor would be best placed to manage such procurement.
19.1.3 On equipment projects, where the Contractor will commonly own or procure the equipment258 and the equipment is important to the ability of the Authority to fulfil its statutory duties, it is vital that the arrangements are structured so that the Authority can always obtain use and, if necessary, ownership of the equipment, and that no insolvency or receivership of the Contractor will disturb this. The Authority should seek appropriate legal advice and ensure that the Direct Agreement, and the Authority's broader relationship with the Senior Lenders (who may have security rights in the equipment), is structured accordingly. Similar considerations apply on PFI projects involving land where the Contractor procures the land259.
19.1.4 On property projects, commonly the Authority will own the land (and buildings built on it). The Authority must, in these circumstances, ensure that it conducts due diligence over its property rights early in the procurement process260 to ensure that the Project will not be jeopardised during the procurement due to a late discovery of a problem relating to the nature of the Authority's interest in the property.
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258 This has been the case in certain MOD equipment projects.
259 In this connection, where it is important for the Authority to be able to take back control of the property, it is more secure for the Authority to take a freehold interest in the property (and grant a lease or licence) rather than taking a mere option.
260 The Authority should ensure legal due diligence is conducted to verify the legal interest and also that the condition of the asset is verified.