PFI contract expiry: preparing for a smooth hand-back

Nearly 200 PFIs will expire between 2023 and 2030. The National Audit Office (NAO) recommends that preparation for expiry should begin at least seven years prior to the hand-back.

There are two key practical steps that can make it easier for the contracting authority: understanding the physical status of the asset and the financial position of the special-purpose vehicle (SPV). Before that can happen managers also need to review the expiry provisions in the contract and develop a plan and timeline for the remaining years, including key milestones.

Timeline for private finance initiative(PFI) contracts that will expire by 2049-50

What are the options after PFI expiry?

Options at the time of PFI expiry are driven by the ambitions of the contracting authority and the performance of the PFI to date. The potential options are illustrated below.

What preparations need to happen before expiry?

While it's the responsibility of the SPV to maintain the assets and report to the contracting authority, the asset condition should be tracked closely by the latter. During the lifetime of the PFI, this will help ensure that services are being delivered in line with contracts.

As expiry approaches this is particularly crucial to ensure that the asset is in the appropriate condition at the point of expiry and hand-back. Should it be discovered that the asset falls below the required standard there may be a race against time to ensure issues are rectified by the SPV before expiry.  

To avoid this situation, the contracting authority should have an independent survey conducted early in the seven years before expiry to ensure that there's time to rectify any issues.

You also need to understand the financial position of the SPV. It's their responsibility to fund any improvement works.

With a finite amount of unitary charge left to be received, understanding the financial standing of the SPV is essential to plan how any rectification will be funded. In a worst-case scenario, the contracting authority may need to provide funding. An early assessment of the SPV financials is the best means for avoiding this.

For more insight and guidance, get in touch with Nick Moseley.