The National Audit Office (NAO) has warned that public sector bodies risk underestimating the time, resources and complexity involved in managing the end of Private Finance Initiative (PFI) contracts.
The report from the Audit Office was released on Friday, 5 June
PFI contracts are a form of public private partnerships used in the UK since the 1990s, but the government said in 2018 it would no longer use the model.
Across the UK, the NAO says there are more than 700 operational PFI contracts in place with a capital value of £57 billion ranging from hospitals to waste infrastructure. Many of the earlier contracts are coming to an end within the next five years. The numbers come in an NAO report published this week.
Now the NAO has cautioned that “poor management of contract expiry” can result in assets being returned to an authority in a worse condition than agreed in the contracts.
“This can lead to extra costs for the authority to pay for repairs and maintenance,” the NAO said.
Collaboration
According to the NAO, early preparations, and a collaborative approach between public and private stakeholders, can help to ensure a successful exit from these contracts.
Gareth Davies, head of the NAO, said: “With the bulk of PFI contracts expiring from 2025 onwards, there is still time for government to make changes that will help public sector bodies to exit from contracts successfully.
“If government does not provide strategic support and public bodies do not prepare sufficiently, there is a significant risk that vital infrastructure such as schools and hospitals will not be returned to the public sector in the right condition and taxpayers and service users will bear the brunt of additional costs and service disruption.”
“There is a significant risk that vital infrastructure will not be returned to the public sector in the right condition”
England
The report focused on deals signed by English councils, and said four waste deals signed as part of a PFI contract are due to come to an end by 2026-27, according to data from HM Treasury’s 2018 PFI database.
These are:
- Hereford Waste Partnership’s 25 year deal with Focsa Services (now FCC Environment), which is due to expire in 2023/24
- Kirklees council’s 25 year deal with SITA UK (now Suez), due to expire in 2023/24
- Surrey county council’s 25 year contract with Suez, due to expire in 2024/25
- South Gloucestershire council’s 25 year contract with Suez
In total, 26 waste contracts are still running under the PFI system, out of a total of 571. Accomodation was by far the largest sector.
Defra was listed as the sponsor department for a total of 26 contracts, with four due to expire by or before 2026/27
Costs
The report commented that there is “a risk of increased costs and service disruptions if authorities do not prepare for contract expiry adequately in advance”. At the end of the PFI contract authorities will have to decide whether services, such as maintenance and cleaning, are either provided in-house, by a new contractor or by the current provider, the NAO said.
It also said that if authorities do not prepare properly there is a risk to service continuity or they may have no choice but to extend the contract.
“If authorities do not prepare properly there is a risk to service continuity or they may have no choice but to extend the contract”
The Office added that many authorities start preparing for contract expiry more than four years in advance but there is a risk this is not enough time.
Recommendations
The report from the NAO has now called on sponsor departments to encourage authorities to:
- Start preparing for contract expiry on a timely basis
- Ensure the PFI contract is complete and all expiry provisions are well understood
- Develop a contract expiry plan that identifies all the critical tasks and obstacles that may prevent a successful exit
- Escalate problems which cannot be resolved at a local level to the sponsor department in a timely fashion.
The NAO also urged the treasury to provide funding to departments which assist financially constrained authorities in formal disputes where it is value for money and practical to do so.
Survey
The Office also conducted a survey of local bodies such as NHS trusts and local authorities as part of the report. This found “that government does not take a strategic or consistent approach to managing PFI contracts as they end”.
“Poor management of contract expiry can result in assets being returned to an authority in a worse condition than agreed in the contracts. This can lead to extra costs for the authority to pay for repairs and maintenance,” the NAO explined
Around 55% of survey respondents recognise they need more knowledge of assets’ condition, and around 35% of survey respondents said they had insufficient access rights to monitor the maintenance of assets, and there is evidence that PFI investors and sub-contractors “are not cooperating with authorities to provide information”
Three waste authorities with PFI agreements took part in the survey.
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Source: letsrecycle.com Waste Managment
