We were right - but the sector took too long to listen

How our 2021 call for mid-life contract reviews became the received wisdom of PFI management, and what it means now in a climate of competing reset models 

Back in March 2021, we published a piece arguing that the right way to start the PFI handback process was not with lawyers and deductions, but with a collaborative contract review - a mutual baselining of performance, obligations and relationships, agreed between contracting authority and PFI provider before the real complexity of expiry had to be faced. We called it starting handback the right way.

We were not alone in thinking this. The IPA's, now NISTA’s, own exit planning programme had already divided its work into four workstreams, one of which was explicitly titled Operational and Contract Reviews. But the idea that such a review should be collaborative, relationship-preserving and jointly owned,rather than a forensic exercise in catching the other side out,was, at the time, far from universal practice. The evidence since then suggests that for a significant portion of the sector, it still isn't.

Two and a half years after our piece was published, the government commissioned Barry White and Andrew Fraiser to find out why. Their report, published by the IPA in July 2023, confirmed much of what we had argued - and painted a sobering picture of what happens when the collaborative approach is abandoned in favour of something altogether more adversarial.

What we said in 2021

Our central argument was straightforward. PFI contracts were entering a critical phase. Authorities that had managed their contracts with a light touch for decades were now, understandably, paying closer attention as expiry approached. The risk was that this renewed attention would manifest not as genuine performance improvement but as a search for financial penalties:a means of extracting value from a relationship that was winding down, rather than a genuine attempt to ensure assets were handed back in the right condition and services maintained throughout.

We argued that the instinct behind more rigorous contract management was right, but that the method and purpose mattered enormously. A contract review conducted as a zero-sum exercise, witheach side trying to catch the other out,would destroy exactly the relationships and goodwill that the harder challenges of expiry would require. PFI providers hold the data, the systems and the staff. Contracting authorities need all three to manage assets post-handback. Breaking the relationship before transition begins puts all of that at risk.

Our recommended approach was to agree the purpose of the review collaboratively before it began: to baseline service, agree a single version of the truth, and commit to sustaining performance on mutually agreed terms all the way to the point of expiry. We also recommended consideration of an independent third party to conduct reviews impartially,and crucially, not paid by results or incentivised to find problems.

What White Fraiser found

The White Fraiser Report, commissioned by the IPA in the wake of the Public Accounts Committee's own 2021 report on PFI expiry, interviewed more than 160 individuals across approximately 90 organisations - spanning NHS Trusts, local authorities, government departments, equity investors, FM providers and legal advisors. What they found was, in many respects, a sector that had taken exactly the path we warned against.

The report describes the PFI industry as being at a "significant inflexion point." A number of public authorities, resource-constrained and facing genuine underperformance concerns, had moved away from relationship-based contract management towards what the report characterises as "overly draconian, if not forensic, enforcement" of PFI contract terms. Disputes had followed. Relationships had broken down. And in some cases, the wellbeing of the individuals,on both sides,who were living and working inside these deteriorating contractual relationships had been damaged.

The private sector's complaint was straightforward: that some authorities were not seeking to improve performance but to maximise deductions from the Unitary Charge. The public sector's counter was equally direct: that playing hardball was the only way to get a response, because SPVs were not investing sufficient resources in self-reporting or rectification. Both sides were right about something. Neither was behaving as the long-term nature of these relationships required.

The report is also stark on the structural problem we identified in 2021: the acute asymmetry of information between public and private parties. It found that PFI contracts were designed to be self-reporting, meaning the SPV was responsible for monitoring and reporting its own performance. But self-reporting, the report notes, was often conflated with self-monitoring, leading to an absence of performance scrutiny. When public authorities investigated, they occasionally found failures, and that discovery, rather than prompting a collaborative remediation, had in many cases prompted a deterioration in relationships that was difficult to reverse.

This is precisely the scenario our 2021 piece was trying to prevent. The tragedy is not that authorities sought to enforce their contracts more rigorously;that was overdue. The tragedy is that the absence of early collaborative reviews meant that by the time enforcement began, the gap between claimed and actual performance was wide enough to make the exercise feel, to the private side, like a trap,and to the public side, like the only lever available.

The reset agenda: right diagnosis, hard prescription

The White Fraiser Report's central recommendation is what it calls a "reset" - a comprehensive overhaul of relationships across the PFI sector, designed both to improve the management of live contracts and to ensure that the approaching wave of expiries does not descend into a decade of adversarial disputes.

The concept has gained significant traction. The Association of Infrastructure Investors in Public Private Partnerships - representing major equity investors including Equitix, InfraRed, Dalmore and Semperian - has publicly signalled its support in principle. The reset framing has been taken up by law firms, advisors and commentators across the sector. The IPA has established a Local Government Budget to help resource-constrained authorities engage with the process.

We welcome all of this. It is, essentially, what we called for in 2021, but repackaged as a market-wide programme rather than a project-by-project recommendation. But it is worth being honest about what the reset agenda involves, because "reset" can mean different things to different parties.

Done well, a reset is what we described: a jointly owned, evidence-based review of where each party stands in relation to their contractual obligations, conducted with the shared objective of sustaining service and protecting the handback. Agreed before anyone starts counting deductions. Documented in something like the joint balanced scorecard we recommended - a shared view of what good looks like, agreed at the outset of the process.

Done badly, a reset is a negotiated face-saving exercise that papers over genuine performance failures without addressing them, or worse, a framing device used by one party to resist accountability while relations cool temporarily. The White Fraiser Report's warning about the "lucrative and self-perpetuating disputes advisory market" applies equally to the reset advisory market. The incentives for advisors are not always aligned with the long-term interests of either party. This is why we firmly believe that fees for Resets for third party advisors should be fixed and the insidious ‘land and expand’, time and materials billing should be banned to avoid value leakage. There should be a market price for a reset, which should include surveys and third party advice, and lawyers should be used only where absolutely necessary. Legal involvement will profoundly change the nature of any dialogue and immediately draw the focus away from operational service excellence.

We have written a great deal about how a different approach, one we call Counterpoint, may be needed. Curshaw has previously been engaged along the lines of counterpoint to jointly advise an NHS Trust and an SPV on how the FM Service Delivery could be adapted on a win-win basis. We expect this approach - the opposite of the zero-sum approach taken in some sub-sectors of the market, to become more prevalent. 

What this means for contracting authorities today

The volume of contracts entering the expiry window is accelerating. According to the NISTA-collated data, approximately 150 PFI contracts with a capital value of around £6 billion are due to expire during the current parliament alone. The NAO has warned of the risk of infrastructure returning to the public sector in unsatisfactory condition. Local authorities, NHS Trusts and schools are preparing for handbacks that in many cases will be managed by people who have never done it before and will only do it once,while the private side of the industry brings decades of concentrated expertise to the same table.

This structural imbalance was one of the original problems of PFI. It remains one now. Central support has improved, but the White Fraiser Report is clear that it remains insufficient.

Our recommendation for any contracting authority with a PFI contract approaching expiry,or indeed one that is still mid-life,is the same as it was in 2021, now reinforced by the weight of independent evidence:start the review now. Start it collaboratively. Agree its purpose before you begin. Insist on a single version of the truth. And be clear with yourselves and your counterparty about whether you are trying to improve service or extract penalties - because your counterparty will know the difference, and it will shape everything that follows.

The sector has largely arrived at the position we advocated four years ago. That is genuinely good news. But arriving at the right destination is only valuable if you use the time you have left wisely.

Curshaw works with contracting authorities and PFI providers on contract reviews, expiry planning and collaborative handback programmes. If you would like to discuss your PFI contract position, please get in touch.