When considering the status of behaviours, relationships and disputes across the PFI sector we were pleased to encounter widespread acknowledgement (among both public and private sector consultees) that the effective management and delivery of PFI Contracts requires a degree of goodwill and flexibility. It is widely accepted across the PFI industry that this will become increasingly important on the journey to hand back and net zero. We are satisfied that good, professional and productive relationships between Public Authorities and SPVs are a prerequisite to the successful implementation of the remaining term of any PFI Contract.
The PFI industry is, however, at a significant inflexion point. In recent years, a number of Public Authorities have started to manage their PFI Contracts more rigorously. This has involved the relevant Public Authorities moving away from a light touch approach to contract management that relies heavily on cordial relationships with SPVs. For the most part, Public Authorities are resource constrained when it comes to managing their PFI Contracts and so, in that context, a more rigorous approach to contract management should be welcome. However, we received strong feedback from consultees to suggest that the manner in which a number of Public Authorities have implemented their change in approach has often involved overly draconian (if not forensic) enforcement of the terms of the PFI Contract accompanied by, on occasion, unprofessional behaviour. When this approach has been taken by Public Authorities, disputes have typically resulted, relationships have broken down and accompanying goodwill has been lost. More worryingly, we heard stories of how this approach has had a negative impact on the wellbeing of individuals.
Public Authorities should expect their PFI projects to be delivered in accordance with the requirements of the relevant PFI Contract, but evidence suggests that this can be hard to achieve when a Public Authority's own contract management is under resourced. For that reason, we support the provision of greater public management resource to allow effective PFI Contract management. However, when a Public Authority is considering managing its PFI Contract more rigorously, that decision should be in response to clearly defined strategic objectives (including the manner in which any consultants should be managed), to minimise the risk of unintended (and unwanted) outcomes. If, by taking a more rigorous approach to contract management, the SPV's contractual compliance improves, then this will only be a successful outcome to the extent that it is not eroded by any consequential damage to the relationship between the parties, reduced flexibility and/or goodwill on the part of the SPV or reduction in the SPV's ability to recruit staff to deliver the PFI services.
Our review highlighted that public sector consultees believe that some SPVs have not invested sufficiently in the systems and resources necessary to ensure that self-reporting works reliably. Public Authorities that have introduced more rigour into their contract management shared information with us that substantiated this view. When we dug deeper into this issue, it became clear to us that most SPV Owners can broadly be classified as what we call "industrial" or "financial" SPV Owners, with the former typically managing their assets more proactively than the latter. We recommend that more SPV Owners should adopt the "industrial" owner approach and move away from using cordial relationships with Public Authorities as a proxy for contractual compliance. All SPV Owners should invest appropriately to deliver properly assured performance that can withstand unexpected change or discontinuance.
Without intervention, we expect the current trend towards increased disputes and deteriorating relationships to accelerate. However, based on the feedback that we received from both public and private sector consultees, we are satisfied that there has been historic under management of PFI Contracts by both the public and private sectors and that this collective under management has been to the detriment of the performance of some PFI projects. It is for this reason that we make an overarching recommendation that a "reset" approach be developed jointly by the public and private sectors. A "reset" provides the SPV with an opportunity to deliver assured performance through undertaking (at its own cost) a comprehensive service review and survey of the PFI project, with a time limited window for addressing any issues identified. The Public Authority would agree some relief from Deductions for this programmed approach, thereby incentivising the SPV to take comprehensive action.
We are satisfied that the "reset" approach will provide all parties with not just the opportunity to achieve assured performance of PFI Contracts, but also an opportunity to enrich the relationships and goodwill between them. Some SPVs and/or Public Authorities may, instead, choose to bury their heads in the sand and hope things improve. Our view on this is clear. They won't.