As private finance initiative contracts end, London boroughs are concerned about the impact on public services. Our new report looks at the risks and opportunities offered by PFI contract expiry.
Research carried out by Future of London found that several London boroughs are struggling to prepare for PFI contract expiry due to a lack of resources and in-house capacity.
The research was carried out in partnership with law firm Devonshires and construction consultancy Airey Miller. The findings are published in a new report called PFI Expiry: How London boroughs can get ahead.
What is PFI expiry?
The government introduced the Private Finance Initiative (PFI) in the early 1990s to build and operate public service infrastructure using private sector funding. This included schools, hospitals and housing.
Local authorities procured three-quarters of all PFI projects in London under agreements typically lasting for 25 to 30 years. The contracting authority pays the private sector operator a monthly sum, or unitary charge, for services.
A few PFI contracts have expired so far, but the number will significantly increase in the next five years. Most assets and services procured under PFI will return to the direct control and operation of local authorities when contracts expire.
PFI expiry puts a strain on resources
Overall, the research highlights concern from London boroughs that PFI contract expiry will increase the financial strain on councils as they deal with rising costs of temporary accommodation and adult social care.
However, the report also highlights good PFI expiry management practice. Some London boroughs see opportunities to modernise services and deliver better benefits for communities.
“We’ve got an absolute opportunity to reprofile our care homes to fit the 21st-century service we need to deliver,” said Fenella Merry, Executive Director of Finance, London Borough of Richmond upon Thames. “So it puts huge potential on the horizon that we didn’t have without that PFI expiring.”
We held two stakeholder roundtables and surveyed officers and directors from 14 London boroughs. We also spoke to the Infrastructure and Projects Authority, and Transport for London, among others.
Report recommendations for action
The report makes recommendations for local authorities and other public bodies with PFI contracts, including:
- Break down the process into business as usual, the expiry process itself and post-expiry service delivery.
- Explore potential extensions to align contract end dates with maintenance and procurement schedules.
- Invest in project management capability and specialist expertise, which can save money in the long run.
- Agree on asset condition, at least five years before expiry, to avoid costly disputes.
Nicola Mathers, Chief Executive of Future of London, said:
“This is the first review of the implications of PFI contract expiry on London local authorities. We talked to most of the boroughs affected and it’s clear that many feel under-prepared and under-resourced.
“Our report also highlights practical approaches that boroughs can take now to ensure they are fully prepared and make the most of this opportunity to modernise services.”
Caroline Mostowfi, Partner and Head of Projects at Devonshires Solicitors, said:
“PFI contract expiry raises a number of issues – not least, how hand back is being managed and what, if anything, will replace those projects.
“The contractual arrangements that underpin all PFI projects are both substantial and complex. This report confirms that many authorities are starting to realise this and that without greater and more immediate focus and resource, they will struggle to properly manage these contracts through to expiry.”
Mark Humphreys, Director at Airey Miller, said:
“The research highlights that local authorities across London face a real challenge in preparing for PFI expiry at a time when council resources and in-house capacity are being squeezed.
“This practical report highlights the vital importance of planning ahead to manage the risks associated with taking on ageing buildings. However, we are pleased the report also encourages local authorities to see PFI expiry as an opportunity to modernise service delivery.”
Download PFI Expiry: How London boroughs can get ahead
Thanks to Devonshires and Airey Miller for supporting this project.
Main photo: © Mike Quinn licensed for reuse under CC BY-SA 2.0