It is important to examine the causes that led to buyouts, bailouts, terminations and major problems in PFI/PPP contracts, which are summarised below:
Buyouts require public authorities and the SPV shareholders to voluntarily agree to terminate a PFI/PPP contract. The public sector usually saves money from a buyout whilst the private sector receives a lump sum payment reflecting the current net cost of the remaining unitary payments, liabilities and transaction costs, in addition to the unitary payments it has already received from the public authority. The financial negotiations are complex and the financial saving varied. The prime reasons for buyouts were:
• Community opposition to high cost of tolls and removal of alternative transport
• Demand incorrectly predicted
• Financial savings
• Technological change
• Integrate public provision
• Poor performance
Bailouts are a result of a combination of factors that include:
• Unaffordability of PFI/PPP projects because unitary payments are a significant proportion of revenue budget
• Public spending cuts and austerity policies
• Demand pressures - ageing population
• High cost of hospital mergers
Terminations are usually enforced by a public authority as a result of poor performance due to:
• ICT problems, cost overruns and delays
• Failure to obtain planning permission
• Poor demand forecasts
• Construction flaws
• Technical flaws
• Reduced cost of financing
Major problem contracts are those that have experienced one or more of the following:
• Poor performance
• Construction flaws
• Cost overruns and delays
• Excessive operational charges
• Major legal disputes
• Refusal to renegotiate contract to meet public policy objective
It is clear that common and interrelated causes led to buyout, bailout, termination and major problem contracts.