Buildings could be left in a ‘unsatisfactory condition’ when PFI deals end

Schools and hospitals built under controversial Private Finance Initiative (PFI) deals could be returned to public hands in a ‘unsatisfactory condition’ when contracts end, a watchdog has warned.

In a new report published today, the National Audit Office (NAO) has warned that many councils have underestimating the time, resources and complexity involved in managing the end of PFI contracts, many of which are due to come to an end in 2025.

The watchdog said there is a ‘danger that important infrastructure could return to the public sector in an unsatisfactory condition’ and services could be disrupted unless a ‘more consistent and strategic approach’ is taken.

According to the NAO, there are currently mre than 700 PFI contracts in operation around the country and the bulk will start to expire from 2025.

PFI deals were used by both councils and NHS trusts for many years to finance the building of large-scale infrastructure projects, including schools, hospitals and roads.

However, the use of such deals and, in particular, their cost became more and more controversial, and in 2018, the government announced it would no longer use PFI agreements.

In February 2018, Unison backed calls for a windfall tax on PFI companies after claiming they are ‘cashing in at our expense’.

The NAO report found that while authorities will want to ensure they receive assets in the best possible condition at contract expiry, PFI providers have an incentive to limit spending on maintenance and improvement work in the final years of contracts, as savings can be used to pay higher returns to investors.

More than a third of respondents expect to have formal disputes, which can be costly for authorities.

And the report concludes that while many authorities have started preparing for contract expiry more than four years in advance but there is a risk this is not enough time.

A lack of adequate preparation risks increased costs for authorities and service disruption. Before contracts expire, authorities will have to decide whether services, such as maintenance and cleaning, will be provided in-house, by a new contractor or by the current provider. If authorities do not prepare, services can be disrupted, or they may have no choice but to extend contracts.

‘With the bulk of PFI contracts expiring from 2025 onwards, there is still time for government to make changes that will help public sector bodies to exit from contracts successfully,’ said the head of the NAO, Gareth Davies.

‘If government does not provide strategic support and public bodies do not prepare sufficiently, there is a significant risk that vital infrastructure such as schools and hospitals will not be returned to the public sector in the right condition and taxpayers and service users will bear the brunt of additional costs and service disruption.’

The full report — Managing PFI assets and services as contracts end — is available to read here.

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