PFI Expiry - New Solutions For Legacy Problems

• Published date: 12 February 2021
• Subject Matter: Finance and Banking, Financial Services, Project Finance/PPP & PFI
• Law Firm: Gowling WLG
• Author: Dominic Richardson

The coming expiry of Private Finance Initiative (PFI) and Public Private Partnership (PPP) contracts looms ever larger as an issue for public and private sector alike. The UK Public Accounts Committee has launched an inquiry into management of the expiry of PFI contracts and major government initiatives have been launched including the UK Infrastructure & Projects Authority (IPA)'s "Private Finance Initiative (PFI) Contract Management Programme".

In this article, we look at some of the key issues and how a collaborative approach can contribute to successful outcomes for the next wave of PFIs to expire.

Even as the world pressed the 'pause' button at various times throughout the COVID-19 pandemic, an 'under the radar' issue has continued to move into focus - the coming expiry of Public Private Partnerships (PPPs).

PPPs saw their heyday in the UK in the 1990s and 2000s, when projects including those procured under the UK Government's Private Finance Initiative (PFI) saw a boom in the construction of public infrastructure. The principles behind PPPs were to enable the public sector to avoid having to fund the up-front capital cost of major projects whilst obtaining up-front visibility over 'whole life' costing. In practice, this meant concession terms of between 20 and 30 years, meaning that at the start of 2021 only a handful have reached their expiry date (with a number of others voluntarily terminated).

With the IPA now advocating that procuring authorities should start the process seven years out from the expiry date, this issue is particularly pertinent at the time of writing, as we are about to reach the hand-back period on a large number of PFI contracts.

Figure 1: Cumulative totals of PFI projects due to reach their expiry date 2020-2035 by sector

The dynamics of a PFI project change substantially in its winter years, in particular after the point where senior debt has been repaid. The purpose of this alert is to identify some of the key drafting provisions in PFI contracts and provide food for thought about potential creative alternative approaches to the coming challenges for all parties involved in PFI and PPP projects.

The fate of PFI Assets

A good place to begin is to consider if a PFI asset has a future. This is a straightforward question in sectors such as highways, but a complex one for many accommodation-based schemes. These complexities are a result of both recent events and longer term trends. In addition to issues thrown into focus by...