15 Only a small number of PFI contracts have expired so far and the public sector's preparedness and understanding of the risks varies greatly between the many authorities responsible for these contracts. Our findings suggest there is a lack of a consistent approach across these authorities, with no strategic central support on managing the end of contracts. Authorities also risk underestimating the time, resourcing and complexity involved in the expiry process. Progress is being made and there is still time remaining to make changes that will benefit the bulk of the contracts expiring from 2025 onwards. Many of these issues may become less prevalent in the longer term as the later PFI contracts benefit from better defined and clearer contractual terms.
16 Early preparations, and a collaborative approach between public and private stakeholders, can help to ensure a successful exit from these contracts. This will require all parties seeking to understand each other's goals, establishing a partnership approach on each PFI project, and sharing experiences on how to manage contract expiry across all levels of government. Our specific recommendations are:
Sponsor departments should:
a Encourage authorities to:
• start preparing for contract expiry on a timely basis;
• ensure the PFI contract is complete and all expiry provisions are well understood;
• develop a contract expiry plan that identifies all the critical tasks and obstacles that may prevent a successful exit; and
• escalate problems which cannot be resolved at a local level to the sponsor department in a timely fashion.
b provide direct financial support to authorities where required, with particular focus on funding dispute resolutions and hiring additional resources.
IPA and sponsor departments should:
c proactively coordinate and develop a programme of support that can be made available to authorities. This should include:
• building internal resource and sector-specific expertise;
• developing a range of different tools that can be deployed depending on the nature of support required, including specialist advice and guidance documents; and
• developing contract expiry training.
d develop an approach to identifying high-risk projects, such as those sitting with authorities that lack appropriate skills and capabilities. The IPA and departments should work with public sector stakeholders to assess how skill shortages can be addressed; and
e assess the costs and benefits of developing an electronic repository of PFI contracts which supports authorities to manage their contracts and helps sponsor departments and IPA to identify high-risk projects and enable a more consistent approach across government.
IPA should:
f assess whether any areas of the contract expiry process would benefit from a more coordinated and centralised approach. This should include:
• assessing the value for money of developing a new centralised pool of internal resources, such as lawyers and surveyors, that authorities can use;
• publishing contract expiry guidance and other useful documents such as terms of reference templates for engaging with external consultants;
• developing a consistent approach to resolving legal disputes including guidance on how an authority should balance the costs and benefits of taking legal action; and
• developing an investor strategy which manages the relationship with private sector PFI stakeholders - equity investors, management service companies, contractors - across all PFI contracts. Such a strategy could also consider working with other government bodies, such as UK Government Investments, who may have interactions with similar private sector companies.
HM Treasury should:
g provide funding to departments which assist financially constrained authorities in formal disputes where it is value for money and practical to do so.