In July 2023, Government published its White Fraiser Report which looked to review the behaviours, relationships and disputes arising across the PFI sector. Whilst it is inevitable that at some point in the PFI process that disputes will occur, there have been an increasing number of disputes arising over the behaviours of both those in the public and private sector. The report aimed to illustrate the feelings from both the public and private sector on the increasing negative behaviours and disputes arising and propose suggestions which may allow contractual relationships under PFI contracts to be more harmonious.
The report found that the overwhelming sentiment from those in the private sector was that the public sector were taking an increasingly rigorous, sometimes aggressive, over technical and literal interpretation of PFI contractual obligations and terms. Such conduct has led to concerns that the aim of the public sector in utilising such rigorous behaviours is not a genuine attempt to try and resolve issues but an attempt to penalise the SPV and maximise the level of Deductions which can be made against any Unitary Charge. These concerns are negatively impacting SPVs' ability to both recruit new employees and retain current employees due to the aggressive conduct of the public sector.
On the other hand, while the public sector consultees did not deny such behaviour, they felt that such a rigorous approach was needed as the only way to receive a proactive response to issues was to "play hardball". The consensus of the public sector was that SPVs are not investing in enough resources to deal with any ongoing issues, leading to the delay on rectification and ultimately allowing issues to increase in severity and urgency. The public sector also commented that when further complaints were made about the above, the SPVs would then resort to using the goodwill. This was understood by all consultees as an integral part of the PFI contractual relationship, as a bargaining chip to prevent the public sector party exercising its rights under the PFI contract.
Government has recommended a complete "reset" approach to relationships, focussing on parties increasing their flexibility under PFI contracts both in terms of ability to react to issues but also in how they react to issues.
The guidance recommended that both public and private sector parties should review and assess their current resources. Owners of SPVs should take an "industrial" approach to resourcing rather than considering their role as purely asset ownership. SPVs should be prepared for the eventuality of issues arising and consider early in the relationship, or upon a "reset" of the relationship, issues that might occur and those which may be already occurring regularly and prepare resource to handle those issues. Meanwhile authorities should ensure that while not micromanaging SPVs, they should invest further resource in more regular monitoring of SPVs and the PFI project to ensure that issues are identified early and addressed accordingly. Further suggestion was made that while issues are being rectified, authorities should try to refrain from making Deductions from Unitary Charges which may hinder the productivity of resolving those issues. SPVs should be incentivised to resolve any issues and not penalised.
In being more aware of resource and therefore more able to react to issues as well as more flexible in approach, it is hoped that relationships will be much more harmonious in future.
The recommendations in the report provide a useful framework in order to prevent disputes arising and escalating. As many PFI contracts come closer to expiry underlying disputes are likely to be brought to the fore so that these can be resolved prior to the end of the contract's term. It's therefore important that all parties engage with these issues early in order to properly understand their rights.
We are advising a number of clients on the expiry of PFI contracts across a range of sectors including education, health and waste. If you would like to discuss your PFI contract, please contact Andrew Hirst.