What procurement questions should contracting parties have in mind when anticipating the expiry of UK PFI contracts?
Published on 5th Dec 2023
Managing arrangements requires early planning – especially when the incumbent is considering rebidding
The Private Finance Initiative (PFI) projects agreed in the 1990s are starting to draw towards the end of their terms with a large number expiring in the next two to five years. Managing arrangements for expiry requires early planning and, following our first Insight in this series, this piece considers some of the procurement questions which the parties should bear in mind.
1. Does the PFI contract require variation?
As many PFI contracts focus on construction and maintenance, modification of the contract to provide for preparation for hand back may be needed, particularly as hand back obligations are not always clear.
As public contracts, their modification is governed by the Public Contracts Regulations 2015 (the PCR). These require that any amendment which meets the definition of "substantial" is permitted only where it falls a statutory safe harbours under the PCR.
Whether any of the safe harbours is available in practice is a fact-specific consideration and legal advice should be sought in relation to any proposed modification.
2. Is a settlement agreement in prospect to determine liability between the parties?
In many cases there may be a dispute between the parties, for example regarding hand back obligations or financial liabilities. Where such matters are ultimately agreed in a settlement agreement, the Project Company should be aware of forthcoming changes to the exclusion criteria which apply to companies bidding for public contracts.
The current exclusion ground which relates to poor performance of a previous public contract will be revised and extended by the Procurement Act 2023 (expected to be in force from October 2024) to include entry into a settlement agreement in relation to a public contract as a potential trigger for exclusion. As this will be a discretionary exclusion ground, an authority will be required to act reasonably when applying this and have regard to all relevant facts. It is not the case that any settlement agreement will definitively lead to exclusion, but the parties should bear in mind the potential effects on future bids when negotiating and drafting such a settlement.
3. Preparation for a procurement process to secure the service in future
The process to re-procure the services following expiry is likely to take some time and will need to have concluded before the expiry of the PFI contract.
An incumbent will need to consider how to protect any commercially sensitive information about the current provision of services which may otherwise be disclosed as part of the procurement. It may also be necessary for the parties to consider steps to avoid distortion of competition resulting from the information held by the incumbent, which may include steps such as ensuring that "clean teams" are available to work in parallel on the bid and on-going service delivery. Early thought should be given to ensure that such steps are in place and appropriate resourcing is available.
