PFI Handback - Looking at the big picture

At our most recent PFI Handback event, the audience was asked what aspect of handback was most important to them, and the answers were revealing: 17% said the condition of assets; 16% said information & data gathering; 13% said managing liabilities; 4% said relationship management; and 0% picked continuity of services. The remaining 50% said … all of the above!

These results show how complex this area can be, and there is not a one size fits all solution. Some of the main issues raised are covered by these categories, about which you can find out more in our series of articles.

• What have we learned so far?
• The big picture
• Managing relationships
• Information and data
• Net Zero
• Disputes

Central Government, in the form of the Infrastructure and Projects Authority and National Audit Office, has issued guidance recommending that parties prepare for PFI contract expiry at least seven years in advance. The value and complexity of these projects means that the industry is increasingly focused on what handback means – for both the public and the private sector.  

Given the scale of handback , the finite pool of skilled personnel, and the various grounds on which disputes may materialise, the road ahead is still uphill. Nevertheless, if parties take the time to get to know their contracts and assets, and invest in their people and relationships, projects are more likely to be a handback success story than a cautionary tale. 

At our Edinburgh event, the audience heard from Alastair Nicol, Senior Associate Director, and Donna Stevenson, Senior Associate Director, of the Operational Contract Management Team at the Scottish Future's Trust (SFT), which is actively advising parties on PPP projects in Scotland - of which more than 20 will reach expiry by the end of this decade.

They made it clear that there has been a lot of positive engagement with the private sector to "make this work", but that there were significant challenges – not least public bodies having the budget to get the right resources in place to properly prepare for handback.

When organisations find themselves in a situation where they "don't know what they don't know", it can be very difficult. There is a sea of data to gather and use, challenges in assessing the condition of assets, and a host of governance issues. 

This means that when bodies suddenly go from using an asset to managing the process of the last few years of a contract, issues inevitably occur. 

The question was raised as to whether public bodies fully understand the complexity of handback, or whether it  comes as a shock. These are organisations which may be facing resource challenges in their immediate day-to-day priorities, and this means that they are not always in a position to think four or five years down the line.

One way to avoid this is to start a conversation, where external specialists can ask a number of questions about the issues involved and allow bodies to start thinking about the issues that might be coming to them. Talking through things they might not have thought about can bring them to the front of mind. 

Any ongoing service contract needs to have ongoing dialogue with providers, and the advice was given to make this more structured as handback approaches. Reporting and governance pieces around a project should factor in handback to their ongoing agenda, and parties must look at the "art of the possible" as early as possible. 

Another key point is that solutions may not be in the contracts as such, which are not always perfect and fit for handback, so finding these solutions will rely on relationships between the parties. 

Among all of this, there is a danger that continuity of service – the "Beyond Handback" considerations – may get lost in the noise which could lead to a risk of projects falling off a cliff. That said, there is clearly a level of priority to some of the big issues. When a project is seven years away from handback then the condition of assets is going to be more important. When it is one year away, continuity of services becomes more important. 

As the sector begins to move fully into the stride of exits, there is little doubt that everyone involved would prefer a respectful process, and the reality is that most projects will reach a pragmatic resolution.

Directors and public sector managers are actually in a similar position in trying to achieve their goals. 

Public bodies will want what they have paid for (whatever that is), but at the same time they want to avoid creating white elephants which may require a modified outcome compared to what the contract originally envisaged. It can be hard to do this contractually and will involve other stakeholders such as lenders, which will require additional time.  

Investors are looking for a return on the investment and the private sector wants certainty at the end, finishing with the SPV being wound up in the best manner possible