PFI Contracts and the Public Sector: Challenges and Opportunities
Introduced in the 1990s, private finance initiative (PFI) contracts were designed to allow the public sector to utilise private companies more readily when approaching infrastructure projects – both in terms of skillsets and investments. In many instances, this meant that private companies funded, built, and maintained public forms of infrastructure. This included the likes of highways, bridges, airports, hospitals, and schools.
The contracts saw the public sector making long-term payments, often over several decades, which typically covered both the initial investment and interest. However, in 2018 the government announced that it was discontinuing the PFI model. As of now, there are more than 700 PFI contracts active throughout the country, with the first wave of them beginning to expire from 2025. Typically, when a contract expires, infrastructure assets return to public ownership.
The expiration of PFI contracts poses significant considerations for the public sector, in addition to a myriad of potential risks. These include…
Management of Assets:
With the expiration of PFI contracts, many public bodies face the prospect of reassuming ownership of assets they haven’t utilised, or considered, for many years. In order to effectively use, and maintain, returned infrastructure it’ll be imperative that the public sector introduces effective and detailed asset management strategies.
Service Delivery:
The conclusion of PFI contracts will impact how services are delivered for potentially hundreds of public bodies. This is an opportunity to realise reduced costs and improved services. However, any change in strategy will require careful planning in order to minimise disruption to existing models of delivery.
Financial Challenges:
Through the expiration of PFI contracts, some public bodies will realise significant savings – being freed from far-reaching financial obligations. Conversely, many will face the prospect of assuming entirely new ones, which could introduce significant budgetary pressure. This is because reassumed ownership of infrastructure will inevitably introduce both operational and maintenance-related costs.
Neglected Infrastructure:
When PFI assets are returned to public ownership, they should have been well-maintained throughout the lifetime of a contract. However, the National Audit Office anticipates that there will likely be instances in which it has not. This inevitably poses significant risks to the public services that are linked to the affected assets. It has been noted that PFI providers have a clear incentive to limit spending on both maintenance and improvements, in order to issue higher returns to their investors.
Surveys have revealed that at least a third of public authorities with PFI contracts will face formal disputes at the point of expiration – which will pose additional financial challenges.
Public Scrutiny:
PFI contracts have faced controversy, with some critics suggesting that the model has lacked adequate levels of transparency. Either way, the expiration of the contracts now presents the public sector with an excellent opportunity to put in place new models that are strategically positioned to earn the public’s trust.
How Bloom can help you manage the expiration of PFI contracts
Many public organisations intend to prepare for the expiration of PFI contracts around four years in advance. However, this is likely an insufficient amount of time. The National Audit Office has found that the public sector is underestimating the time and resources required to successfully navigate the end of PFI contracts – overlooking the complexities involved.
Whilst the expiration of PFI contracts could represent a significant opportunity for much of the UK’s public sector, it’s crucial that effective and timely strategies are put in place.
At Bloom, we pride ourselves on providing the public sector’s go-to solution for professional services. Our community of accredited suppliers has ample experience in delivering PFI expiration services to local authorities, NHS trusts, the defence sector, academic institutions, and blue light organisations throughout the country.
In addition to this support, our fully managed and compliant procurement solution provides…
Our team would be delighted to hear about your PFI goals, and any projects you may be working on. Together, we can transform the expiration of your PFI contracts into far-reaching opportunities, for your organisation and the communities it serves.