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The Beginning of the end? U.K. PFI contract expiry

Header Image - The Beginning of the end? U.K. PFI contract expiry
November 2020  |  Model Build

When I was setting out in PPP / PFI as a fresh young analyst, the idea that these 20+ year deals would one day reach contract expiry seemed an unimaginably far-off prospect.

However, as I survey my many grey hairs in the mirror, that time is now upon us and there are interesting times ahead for UK PFI as the early pathfinder projects come to an end.

Here are some interesting stats from the NAO:

Here’s a link to the NAO report published in June.

 

The Public Sector is gearing up, through the Infrastructure and Projects Authority (IPA) to deal with the gargantuan task ahead, of managing the hand-back of the assets of 700+ projects over the coming years.

Careful analysis will be needed to evaluate the strategic options available for each project to ensure optimum value for money is achieved. These options could well include ongoing private sector involvement through; extensions, refinancing or re-tendering of portions of the service.

The Public Sector will need a carefully coordinated and well-resourced approach to match the challenge of negotiating all of these contracts with the small number of funds that hold the majority of the assets. If there is one key message from the early schemes to reach expiry, it is that early preparation will be key.

The analytical challenge will be different from each perspective: the managers of large funds invested in PFI projects will want sophisticated portfolio analysis; the individual local authorities with just a single project to manage won’t have the resources to negotiate alone and will need support from more centralised bodies.

 

End of the Beginning?

As the first chapter of PFI in the UK begins to draw to a close, there is an opportunity to reflect on the many successes (and failures) of the PPP model.

PFI has its critics, but there is no question that it has delivered a huge capital investment programme, leveraging in private sector finance and expertise whilst transferring risk away from the Public Sector.

Unlike conventional procurement, the assets will be handed back in good condition having been well maintained and operated over the life of the contract.

If we are to meet the infrastructure needs of the UK in the years to come, we need a replacement for PFI and quickly.

Is this the beginning of the end, or the end of the beginning? Please let us know your thoughts by getting in contact with us.

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Danny Leitch

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