How to get ahead and avoid disputes prior to UK PFI handback

The UK private finance initiative (PFI) industry is already acutely aware of the potential for disputes leading up to and at the point of the handback of assets at the end of a project term. The nature of the issues that may arise will be very much fact and project specific.

Nonetheless, there are likely to be consistent themes and overarching considerations for the avoidance and de-escalation of disputes that all those involved in PFI projects can be thinking about now.

Potential building issues

From a disputes perspective, when the question arises about what parties should do when the surveys have found an issue and they have become aware of existing building issues, they should consider:

• Identifying which party is liable for the issue (which may require legal assistance).
• Triaging issues according to urgency, severity and quantum and prioritising their resolution (in either case, taking into account PayMech requirements and potential liabilities).
• Taking steps to protect their own position based on that triage exercise, as soon as possible.

When triaging, the parties should consider appointing suitable technical experts to offer their opinion if there is any disagreement or uncertainty as to whether issues identified constitute "construction defects" (which breach applicable standards and regulations under the contractual definitions and requirements) or the cause is (or is contributed to by) a maintenance failing, as may well be the case in these long running projects.

This could be covered in the independent handback surveys, which are likely to be jointly commissioned by the parties, although this assumes that they are willing to be bound by the findings. Otherwise, it is prudent for expert instructions to be set up with legal assistance in order to ensure the right issues are investigated and the right questions are asked about the parties' potential liabilities. Where separately engaged, legal involvement can also help to protect privilege over the content of any opinions or reports produced where appropriate.

When parties are taking steps to protect their position, this would historically have focused on the relevant limitation period for construction defects (that is, the period before which the opposing party has a complete defence to the claim on the grounds it has been brought "out of time") in the building contract and agreeing standstill agreements to ensure rectification works are undertaken to avoid court proceedings.

In a handback context, the actions depend on who takes the handback risk. This may involve considering what levers there are in any facilities management contract to ensure the contractual requirements are being and will be met or checking that historic lifecycle and other works have been completed satisfactorily.

Record-keeping checklist

It is important in handbacks for the parties to have an active focus on record keeping. A few questions to consider include:

• Are there appropriate document retention policies in place?
• Are all the necessary parties and its employees aware of these policies and acting in accordance with them?
• If and when employees leave a project, are their policies and procedures in place to ensure all relevant documents, information and data (for example, notebooks, locally saved files) is retained?
• Is there any auto-deletion of correspondence or data ongoing should be stopped?
• Do parties have access to all the significant design and CAD drawings? If not, can copies be requested while the parties still have access or active obligations to share this information?

Quick access to critical documentation and records can often be the difference between early settlement and disproportionate escalation.  

Identify risks early to save cost later

From a claims perspective, there are number of points to consider seeking early advice.

• Check and explain where the handback risks lie, including where responsibility for remediating certain issues sits contractually.
• Understand the contractual definition of handback condition (and inviting technical assistance on specific issues on a privileged basis if needed.
• Review the specific contractual dispute resolution provisions, which could include a tiered process whereby certain steps must be taken as pre-conditions to issuing any formal claims (for example, principals meetings, working group meetings, short-form expert determination procedures on specific technical disputes or mediation).
• Assist in the background in conducting any negotiations, with the aim of de-escalation and avoiding full litigation (while also taking steps to protect and preserve your position).

Osborne Clarke comment

Understanding the potential grounds and processes for dispute resolution and avoidance as early as possible gives the parties the opportunity to de-escalate, manage and resolve issues before the time-pressured handback process ramps up, during which the capacity for reasonable negotiation may reduce.

Parties involved in PFI projects should consider some of the points above now, with the aim of getting on the front foot with any issues which are already rumbling under the surface as potential disputes.