Expiries are approaching
What are Private Finance Initiative Contracts?
Private Finance Initiative (PFI) contracts are those where public sector projects are financed and run by the private sector. They were introduced in the UK in the 1990s to design, construct, finance and maintain infrastructure such as hospitals, roads, schools, prisons, waste management and office accommodation. Typically the contracts have an operational length of 20 to 30 years with the public sector making annual repayments to private sector contractors.
There are around 700 live PFI contracts with a capital value of £57bn in nominal terms. The total annual repayments between contract commencement and expiry i.e. total value is approximately £280bn.
The Department of Health and Social Care and Department of Education have the highest volume of contracts illustrated by the red dots in the graph below. The blue bars show total contract values by Department. Health and Social Care, Defence and Transport are the top three Departments by value and account for around 55% of the total PFI contract repayments.
Why is this of interest now?
The reason we are talking about this now is because a number of PFI contracts are fast approaching expiry
Over the next ten years there are due to be around 150 expiries with a total value of £50bn over the life of the contracts. Expiry peaks in the 2030s with around 400 projects and a total value over the life of the contracts of £133bn, falling to 115 projects and a total value over the life of the contracts of £103bn in the 2040s. Activity is set to peak in 2036 with the expiry of 55 projects with an estimated total value of £22.9bn.
The chart below shows how many contract expiries there are in each year and the total value, over the life of the contract, of those expiring contracts. This indicates the magnitude of the PFI contracts that expire in each year between now and 2051.
What is hand-back and why does it matter?
Expiry will involve the private sector handing back hospitals, roads, prisons and more besides to the public sector. It is important that this critical infrastructure is handed back in the right way to the appropriate standards to maintain ongoing operation in accordance with statutory compliance. As we know from experience early preparation and planning is key to success.
Why is Curshaw talking about it?
We have the proven, practical experience of delivering the first large-scale PFI exit. The first large-scale expiry was the Department for Work and Pensions’ (DWP) property PFI under which a portfolio of 1,000 properties were owned, operated and maintained by Telereal Trillium. The estimated sum of repayments in the published data was £8.8bn but the actual sum of repayments was closer to £13bn.
We joined DWP two years out from expiry and delivered seamless exit, handback and cutover into a new operating model. This involved the design, procurement and mobilisation of a £600m pa property supply chain, the TUPE of approximately 4,000 staff and the mobilisation of IT systems and saved £1.4bn over ten years. We were part of the team that won Civil Service Commercial Team of the Year.
We know exactly what it takes to deliver success in a complex, uncertain environment, handling business critical infrastructure under time pressure.
