Local authorities and NHS Trusts with PFIs which include ‘insurance gain sharing” provisions could potentially claw back significant sums by challenging the finding of insurance cost reports.
Bevan Brittan is currently acting for several public bodies challenging the findings of the jointly appointed insurance broker, with six figure sums likely to be recovered in some cases.
Insurance gain sharing provisions
Some PFIs include provisions around “Insurance pain/ gain sharing” and SOPC4 included standardised wording for PFI contracts. These provisions set out that any savings made when placing insurance, which are as a result of market movement or as a result of the required insurances being placed within a portfolio, are shared between the parties.
The drafting was included on the assumption that insurance costs would rise and that Project Cos would seek to claw back those additional costs from the public sector. In reality, the insurance market has proved steady and, far from costing more, the cost of placing insurance has in fact fallen. .
Despite this, there is a pattern of appointed insurance brokers finding that there is no exceptional saving, and that accordingly no sums are due to the local authority / NHS Trust.
Local authorities and NHS Trusts should consider challenging that finding. Bevan Brittan’s appointed experts are often finding there is a significant saving that can be reclaimed by public bodies.
However, it is important to note, that under the Project Agreement, any challenge needs to be raised within the requisite timescales.
The timescales are strict, and often public bodies have just 25 days to respond after the insurance broker produces its report. There is a risk that the report will be deemed to be accepted if public bodies do not respond within that timescale.
What local authorities and NHS Trusts need to do
If PFIs are part of your portfolio, the first step is to check when any joint insurance cost reports are due. This is usually set out on the insurance schedule to the Project Agreement.
You should be aware that the report you receive may not comply with the contractual provisions and may not accurately reflect the market conditions. Accordingly, you may be able to challenge it and reclaim insurance savings. However, you need to act quickly.
How Bevan Brittan can help
Bevan Brittan is helping a number of local authorities and NHS Trusts challenge insurance brokers’ reports in PFIs with insurance gain sharing provisions. This includes reaching a settlement for one body with an exceptional saving of approximately £900,000, and another case being pursued through adjudication.
Bevan Brittan’s market leading PFI and PPP team can work with you to challenge the findings, and advise as to whether a commercial negotiation can be undertaken, or a more formal dispute resolution process be undertaken. We advise clients across a range of sectors, including health, education, highways, street lighting, waste and accommodation.
If you think this issue may affect you, please get in touch with our experienced team to find out how we can help you.