Asset condition surveys
3.18 PFI contracts should include a provision allowing for the completion of an asset condition survey prior to expiry - this is the case for more than 75% of respondents in our survey.46 The survey should identify the amount and cost of any rectification work needed so that the assets can be returned to the authority in the condition stipulated in the contract.
3.19 The contract should stipulate how many years before expiry the survey should be carried out. Just under half the respondents expect to complete the last survey between 24 and 12 months before expiry (Figure 14).47 There is a risk that carrying out the final asset condition survey too close to expiry leaves limited time to complete the identified rectification work and resolve any disputes. This could be a potential issue for one-third of the contracts in our survey, which expect the final survey to be conducted less than 12 months before expiry.48
3.20 Some PFI contracts allow the authority to conduct surveys throughout the life of the contract, not just in the lead-up to expiry. This allows an authority to better monitor whether the SPV is meeting its maintenance obligations, which is important in cases where the authority has limited access to performance data. About 50% of respondents stated that multiple asset condition surveys will be carried out before expiry, with 17% of respondents saying that five or more will be completed in the seven years before expiry (Figure 15 on page 42).49,50
Figure 14 Percentage breakdown of when respondents expect the final asset condition survey to be completed Nearly one-third of respondents expect the final asset condition survey to be completed in the final 12 months of the contract Percentage
Note 1 Survey results to question 25: When was the last asset condition survey or how many months before contract expiry does the authority expect to conduct the last asset condition survey? Number of responses: Greater than 24 months before contract expiry - 6, Between 24 and 12 months before contract expiry - 36, Less than 12 months before contract expiry - 24, Don't expect to conduct an asset survey - 3, Unknown - 6. Source: National Audit Office private finance initiative expiry survey |
3.21 Measuring the condition of an asset can be a subjective process, which means appointing an independent surveyor, agreed by both the authority and SPV, is important. The contract should include arrangements for appointing a surveyor. The terms may vary in regard to who appoints the surveyor (SPV, authority or jointly) and who pays for it. A number of authorities highlighted the importance of ensuring the surveyor is independent, thereby eliminating the risk of surveys being biased. In one example an authority appointed its own surveyor, which was allowed under the contract, but the SPV disputed the findings. With hindsight, the authority felt that the risk of a dispute may have been reduced if an independent surveyor was appointed jointly. If there is disagreement, the contract may outline a procedure whereby an independent expert acts as an arbitrator.
Figure 15 Survey results showing the number of asset condition surveys expected to be completed before expiry Fifty per cent of respondents expect more than one survey to be completed in the seven years prior to contract expiry Percentage
Notes 1 Survey results to question 24: How many asset condition survey reports were received or do you expect the authority to receive in the 7 years before contract expiry? 5 or more - 13, 3 to 4 - 10, 2 - 15, 1 - 17, None - 4, Other/unknown please explain - 16. 2 Fifty per cent is the sum of the following three responses 'Five or more surveys (17%)', 'Three to four surveys (13%)', and 'Two surveys (20%)'. 3 Data does not sum to 100% due to rounding. Source: National Audit Office private finance initiative expiry survey |
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46 Question 7: Did or do the contractual hand back provisions include details on the following (please tick all that apply): a. condition of the asset(s) upon expiry, b. surveys, c. rectification work, d. details of any inspection prior to handover, e. disputes resolutions processes, f. details on the treatment of transferring employees, g. details on the treatment of intellectual property rights, h. secure disposal of confidential assets or systems, i. other. Number of responses: 57/75 = 76% of respondents stated their hand back provisions included surveys (category b).
47 Question 25: When was the last asset condition survey or how many months before contract expiry does the authority expect to conduct the last asset condition survey? Number of responses: Greater than 24 months before contract expiry - 6, Between 24 and 12 months before contract expiry - 36, Less than 12 months before contract expiry - 24, Don't expect to conduct an asset survey - 3, Unknown - 6, 36/75 = 48%.
48 Question 25 as in footnote 47: Less than 12 months before contract expiry - 24, 24/75 = 32%.
49 Question 24: How many asset condition survey reports were received or do you expect the authority to receive in the 7 years before contract expiry? Number of responses: 5 or more - 13, 3 to 4 - 10, 2 - 15, 1 - 17, None - 4, Other/ unknown please explain - 16, 38/75 = 50.67%.
50 Question 24 as in footnote 49: 5 or more - 13, 13/75 = 17.33%.