Government is not inheriting poor value assets due to bad handling of PFI contracts
We read the article ‘Government inheriting poor value assets due to bad handling of PFI contracts, watchdog says’ with interest.
Firstly, the government is not currently inheriting poor value assets. Approximately 650 out of 700 PFIs are still operational and no formal published assessment, to any defined success markers, has been made of assets that have been handed back. The jury is still out.
Inheriting assets in poor condition is entirely possible and will have a bearing on whether an individual PFI contract represents value for money; however it should be noted that this ought not to happen due to contractual mechanisms designed for the precise purpose of ensuring condition issues are addressed and government is kept whole either through rectification works pre-expiry, retention funds or performance bonds.
Government is far more likely to inherit assets in poor condition if it mismanages the handback process by not preparing and resourcing adequately to address the challenge. Managing PFI contracts mid-life is very different from managing the handback and expiry process which requires different technical disciplines and skills and significant resource augmentation. The public sector organisation I led in successfully managing the first large scale expiry doubled headcount to deliver a seamless handback and asset condition that was fit for purpose. Sadly contract management is a maligned discipline in the civil service and still lurks in the shade of the glitzy policy profession, despite being the means by which taxpayer value is protected and the very best efforts of the Government Commercial Function to raise its profile. Contract management resource shortages on large and complex contracts was identified as an issue by Partnerships UK as early as 2006 and has only got worse since the austerity ushered in from 2010 with some officials now managing multiple complex contracts on a part time basis. This is not sustainable and the public sector challenge, despite guidance from the centre for local authorities and NHS Trusts, is significant.
Government also risk inheriting assets in poor condition if they break partnership working and the trust between the public and private sector on individual PFI contracts before or during the handback process. In the recent past there has been an increased tendency towards contract disputes often with insufficient focus on outcomes for service users like teachers and pupils, patients and clinicians. This is a surefire way to make a lot of lawyers on both sides of the PFIs a lot of money!
The best way to start handback is from a position of assured and demonstrable contract performance. The public sector rightly wants to know and see that it is getting what it is paying for. Before the high stakes of managing handback 7 to 10 years out there should be no legacy and on-going disputes and service users should be happy with the operational outcomes from the assets that they have paid to be built and maintained. Achieving this, ideally using systems and data, should be the focus before the bow wave of expiries.
A credible and committed pipeline is, as the Public Accounts Committee note, very important both for addressing the infrastructure deficit after decades of lost investment and for investors but it is essential to recognise that how legacy PPPs are managed will have a profound bearing on who will want to bid and invest in any renewed PPP. Failure to address current challenges will determine market interest and therefore competitive pricing and/or pricing in of risk. This is something we can ill afford. Renewed PPP has to be value for money and has to work. Without it little to nothing will be built on time and on budget - as has been the case since the moratorium on PPPs in 2018.
If you are interested in how to start handback the right way and in how Curshaw has successfully facilitated joint handback workshops and plans on an independent and joint appointment basis that is designed to deliver efficient, effective and equitable outcomes then speak to us.