The NAO reports on PFI expiry

The National Audit Office (NAO) published on 5 June 2020 its long-awaited report Managing PFI assets and services as contracts end which assesses whether the government is making appropriate preparations to manage the expiry of PFI contracts.

There are currently more than 700 operational PFI contracts in place in the UK with a capital value of £57 billion.  Early PFI projects are beginning to expire and most contracts will expire from 2025 onwards.  The NAO surveyed we surveyed 107 of the 571 English PFI contracts which either have already or are due to expire over the next seven years. 

The key findings in the report are:

• The public sector does not take a strategic or consistent approach to managing PFI contracts as they end and risks failing to secure value for money during the expiry negotiations with the private sector
• There is a risk of increased costs and service disruptions if authorities do not prepare for contract expiry adequately in advance
• Some authorities have insufficient knowledge about the assets’ condition, which risks them being returned to the public sector in a worse quality than expected
• Many authorities start preparing for contract expiry more than four years in advance but there is a risk this is not enough time
• Authorities recognise that contract expiry will be resource intensive and require unique skills, and expect to fill gaps with consultants
• A misalignment of investor and authority incentives at contract expiry creates a potential for disputes
• Early PFI contracts are likely to contain significant ambiguity around the roles and responsibilities of the parties at contract expiry

The NAO makes a number of recommendations for HM Treasury, the Infrastructure and Projects Authority, sponsor departments and authorities.  It recommends that sponsor departments should provide direct financial support to authorities where required, with particular focus on funding dispute resolutions and hiring additional resources and also encourage authorities to:

• start preparing for contract expiry on a timely basis
• ensure the PFI contract is complete and expiry provisions are well understood
• develop a contract expiry plan and escalate problems which cannot be resolved at a local level.