If you withdraw private funding from PFI, you won`t have much left. If you transfer the financial risk to the public sector, this must be reflected in the structure of the contracts. The public sector cannot simply step in and borrow the money and take more risks so that the PFI structure can be maintained while leaving the high returns that these projects can bring to the private sector. That seems to us to be quite ridiculous. [21] A report by the Court of Auditors (NAO) entitled “Managing PFI assets and services as contracts end” recommended that preparations for the surrender of expiring private equity initiative (IFP) contracts should begin seven years before the expiry of the contract. In this blog, we look at the most important measures for authorities in managing the PFI transfer process. PFI contracts allow authorities to withhold a portion of their annual payments in the event of poor performance of the VPS, but as the transfer deadline approaches, this penalty weakens. The Guardian published a full list of PFI contracts by department in July 2012[108] and the UK Treasury published a full list of PFI contracts by department in March 2015. [109] Depending on the nature of the project, PFI contracts usually last 25 to 30 years. However, it is not uncommon for companies to have contracts that span less than 20 or even more than 40 years. During the term of the contract, the consortium shall provide certain services previously provided by the public authorities. The consortium is remunerated for the work under the contract on the basis of the “no service, no fees” service.
Treasury officials have also admitted that they may need to try to renegotiate some PFI contracts to reduce payments,[130] although it is far from certain that private investors would accept it. A public sector authority signs a contract with a private sector consortium technically called a special purpose vehicle (SPV). This consortium is usually formed for the specific purpose of providing the PFI. [6] It is owned by a number of private sector investors, usually including a construction company and service provider, and often a bank. [6] The consortium funds will be used for the construction of the plant and for the maintenance and replacement of capital during the term of the contract. Once the contract is up and running, the VPS can be used as a channel for contract modification discussions between the customer and the plant operator. VPS often charge a fee for this “service”. [7] The good news is that now is the perfect time to put your PFI home in order.
Here are our top tips for managing the “transition period” of your PFI contract. Some PFI transactions have also been linked to tax evasion, including an agreement to sell properties belonging to the UK government`s tax authority. The House of Commons Public Accounts Committee has criticized HM Revenue and Customs for the PFI STEPS deal to sell about 600 properties to a company called Mapeley, based in Bermuda`s tax haven. The committee said it was “indeed a very hard blow” for the government`s own tax collection services to have entered into the contract with Mapeley, whom they described as a “tax evader.” Conservative MP Edward Leigh said there were “significant weaknesses” in the way the treaty was negotiated. Government agencies had failed to clarify Mapeley`s tax plans at an advanced stage of negotiations. Leigh said: “It`s amazing that everyone`s tax office didn`t learn more about Mapeley`s structure during contract negotiations.” [99] Authorities must understand the transfer process as defined in the PFI contract and develop a project program with key data until surrender. You should also identify gaps in the transfer process and, if possible, agree on any necessary work bypasses with the SPV to ensure a smooth transfer. It is unlikely to be easy to negotiate changes to a contract that is about to expire, and the sooner that happens, better and more pragmatic legal advice is essential for better and more pragmatic legal advice. We will establish a centre of excellence to actively manage these contracts for the benefit of taxpayers, starting with the health sector.
The Private Finance Initiative (PFI) was a UK public procurement policy that aimed to create “public-private partnerships” (PPPs) in which private companies are responsible for carrying out and managing public projects. [1] Originally launched in 1992 by Prime Minister John Major, the PFI is part of the broader privatization and financialization agenda and is presented as a way to increase accountability and efficiency in public spending. [2] If you fail to take a firm control of your PFI contract now, you may incur significant additional costs and/or service interruptions. With the tarnished reputation of PFIs, there may even be consequences for your authority`s reputation. More than 50 UK hospitals have been purchased under a PFI contract with a capital cost of over £50 million: In 2007, the UK Treasury issued guidelines on transfer arrangements that should include PFI contracts, including: Jonathan Fielden, Chairman of the Advisory Board of the British Medical Association, said PFI debt “distorts clinical priorities” and affects patient treatment. Fielden cited the example of Coventry University Hospital, where the NHS Trust was forced to borrow money to make the first £54 million payment to entrepreneur PFI. He said the trust was in a shameful position to fight for money even before the hospital doors opened. The Trust did not have the means to operate all the services it had ordered and had to put services on hold and close stations. [55] Although an PLT contract should contain detailed provisions on transfer, the early examples contained little guidance to rely on and are therefore likely to contain ambiguities about the roles and responsibilities of the parties at the end of the contract. The trust complained in July 2019 that inflexible Treasury rules prevented it from buying back its 40-year PFI contract, which could save it £30 million a year. Contract shareholders will receive annual dividends of around £20 million, which is “twice as high as expected at the start of the project and is expected to reach £60 million by the end of the deal.
The pound sterling will rise.” [120] These calculations can be complex. In particular, the valuation of equity is often a major source of litigation. Not all project agreements are clear on the basis of such an assessment, which may lead to a debate as to whether it should be based, for example, on the modelled value of equity at the time of signing the contract or on the actual value at the time of termination. In practice, the difference between such valuations can be tens of millions of pounds if the profits of the project companies have exceeded expectations. In August, the Infrastructure and Projects Authority (IPA) published a support plan for contracting authorities entitled “Risk management related to the expiry of PFI contracts”. The support plan aims to prepare the authorities for the expiry of PFI contracts and the transfer of all related assets. .
