IPA Guide to PFI EHC: An explanation and response
New IPA Guidance on their PFI Expiry Health Check (EHC) process was published in July 2023 as part of the PFI Centre of Excellence’s Contract Management Programme.
This complements the existing ‘Managing the Risks of PFI Contract Expiry’ alongside the ‘PFI Expiry Guidance’ publications released in 2021 and 2022 respectively.
The Expiry Health Check process aims to improve outcomes in the following areas:
Assessing and improving overall PFI Expiry readiness across the public estate
Identifying particular projects in need of additional IPA support
Continuous monitoring and measurement of the PF portfolio’s preparedness
Five key themes are assessed as part of an EHC:
Through a combination of document review, questionnaires and interviews, each of these categories is graded on a 5-tier RAG scale assessing preparedness in each area ranging from either a ‘critical’ level of work to a project being ‘on target’ (in relation to its proximity to expiry).
In the event of a project receiving a ‘Red’ or ‘Red/Amber’ rating, the IPA will offer support to the relevant CA regarding immediate actions. This is followed by a later ‘Assurance of Action Review’ (AAR), 6 months later, alongside a re-assessment of the project’s RAG scoring.
Key Take-aways:
Health Checks are conducted at 7,5 and 3 years before expiry.
Process including document review, interviews and RAG scoring across five categories.
Red/Amber projects then become subject to immediate and six month post-ECH action reports and reviews.
The EHC process is forecast to last around 13 working weeks from initial documentation requests to final reporting.
Initial results from the EHC Phase 1 indicated that c. 28% of Projects were classified with a Red, Red/Amber, Amber rating indicating a need for ‘critical’ to ‘moderate’ additional work.
Only 5% of Projects achieved a Green ‘At target readiness given the time to expiry status’. The majority of ‘Green’ rated projects were back-loaded towards the end of the examined period (2021-2028)
Our thoughts…
The IPA EHC broadly echoes our experiences to date in managing and advising on PFI expiry.
Without proactive planning commencing at least seven years in advance of expiry, managing asset condition and the underlying contracts, commercial position and relationships can be a challenge with the potential for significant liabilities.
Producing a detailed plan including all possible and relevant data and supported by well resourced internal legal, commercial and project management functions is vital.
Arguably, the current EHC questionnaire fails to consider the expiry process in sufficiently granular detail. Specific but important contractual milestones are not directly considered. Similarly, identification and location of project documentation is emphasised over the depth of the CA’s understanding of them.