Setting yourself up for PFI expiry success
Effectively Managing PFI Contracts through the Expiry Process - Individual Projects
As the leading independent commercial lifecycle consultancy advising on PFI expiry, CURSHAW has been committed since our launch in 2019 to openly sharing our market-leading insights to drive the early and collegiate dialogue that we regard as a prerequisite to all parties delivering efficient, equitable and effective handback – “E3”.
In this spirit, this first of two blogposts shares CURSHAW’s latest practical guidance on preparing for individual PFI expiries. Our second blogpost will develop this thinking for our portfolio approach, essential in situations where a contracting authority has multiple in-flight PFIs.
Individual PFIs
This section explains how we have built on our previous critique of the Infrastructure and Project Authority’s (IPA’s) PFI Expiry Guidance to set out a practical process and the requisite steps involved in achieving the ‘what good looks like’ standard defined in the IPA guidance.
A core tenet of programming these steps is to centre the activities around the time remaining to expiry and the consequent skills, resources, effort and alignment of workstream activities required in each of our three CURSHAW key phases, namely: Review, Preparation and Delivery (‘the RPD Approach’). The detailed activities underlying this RPD Approach has been informed by CURSHAW’s in-depth knowledge and experience of the granular day-to-day activities and hygiene factors that are crucial to establishing the foundations for a successful and optimal outcome.
Before starting, it is vital that a viable Programme Team is established to deliver the required programme and sequencing of activity. CURSHAW recommends that this is commenced around 7-9 years before the expiry date, depending on the scale and complexity of the project.
The core workstreams within our template CURSHAW PFI Expiry, Exit and Transition Structure (“PEETS”) are as follows:
SRO and Governance;
PMO;
Commercial Exit;
BAU;
Target Operating Model (TOM) Design and Procurement;
Mobilisation and Transition; and
Support: Legal, HR, Finance, Data and IT, HSE, other technical specialists.
The resource levels within each of these workstreams will clearly be carefully tailored to the scale and nature of the expiry task in hand. For example, a Local Authority party to a single expiring PFI contract may have single expert resources each covering multiple workstreams. The critical point is however that these component workstreams themselves are fundamental, even if the same team members are working on a number of them simultaneously.
Phases Overview
Phase 1: Review
The core purpose of this Review phase is to draw out any issues related to current performance, contract management and risk management and data robustness, completeness and availability. It is crucial to understand - and early - where are the gaps in critical data or the flaws in current performance. These early insights are crucial to prioritising and targeting the effort across all of the component workstreams highlighted in our CURSHAW PFI Expiry, Exit and Transition Structure above.
Early experience is already highlighting the importance to Contracting Authorities of commencing their countdown to PFI expiry by undertaking a robust commercial contract review, to baseline the existing contract and the exit provisions against the reality of the current situation as expiry approaches. This first review stage should ideally take place ahead of the 7-9 year expiry window identified above, which will allow sufficient time for aspects of the contract to be satisfactorily renegotiated before it is either too late or there is significantly diminished leverage. The second review stage, 5-7 years before expiry, is more closely aligned to the IPA’s Expiry Healthcheck / Preparedness Assessment, with a particular focus on the expiry process.
Each Contracting Authority must carefully establish the strengths and weaknesses of its commercial as they enter the PFI exit process. This has proven essential to these users being able to develop and execute an effective expiry and transition plan. Only this detailed understanding of their commercial position will provide the solid foundations upon which the overall commercial strategy can be built. To quote the old adage: “Fail to prepare, prepare to fail.”
Phase 2: Preparation
One of the first activities within this Preparation phase following initial review is design your required Project Team and governance structure. Early establishment of a clear, practical, robust and non-bureaucratic governance structure, underpinned by effective and fully-accountable leadership, is essential to success.
The Senior Responsible Officer (SRO) with responsibility for the PFI in question should establish the required workstreams set out above, identify the required support functions and appoint the workstream leads. The details will be dependent upon the scale and complexity of each individual PFI and the lead-time to expiry. But the ready availability of appropriately skilled resources at the specific time required for a particular contract expiry timeline cannot be assumed and early planning for this will be essential.
Recruiting these resources, and/or procuring external support, must be planned for and completed ahead of the need. Each team must then select and follow the appropriate IPA review model from the toolkit. This is to ensure the expiry process appropriately anticipates and is well prepared for the relevant IPA review and assurance processes. A crucial consideration in this phase is the interrelated nature of the activities of the various workstreams, both in terms of any specialised input, such as legal advice, which has implications across the various disciplines, but also any emerging implications on the programme’s critical path or sequencing of the work as expiry approaches.
At this stage it is also critical to establish an agreed plan between the contracting authority and the supplier on how to proceed with expiry activities. This includes ensuring that key supplier staff are focussed on maintaining BAU service delivery while also seeing through the expiry negotiations and process.
Phase 3: Delivery
Once preparation activities and the drafting of detailed project and workstream plans are commenced and resourced, the workstreams will need to jointly interpret and consolidate the findings from their respective completed preparatory works to identify how these insights will impact and influence the actual delivery of the expiry, and reflect on whether any findings mean that the overall commercial strategy should change.
For example, delivery can only be achieved successfully when the Mobilisation and Transition team (workstream 6 in our PEETS model above) works across all stakeholder groups, and at a highly-detailed level, to ensure that the activities for the outgoing supplier de-mobilisation and the new incoming service mobilisation, cutover period and transition are all precisely programmed with both the existing service provider(s) and any new service provider(s). During this “Delivery” phase, the effectiveness of the exit negotiation strategy will become clear, as will the elements of expiry which are likely to impact on the future operating model e.g. asset condition, work order backlog, and TUPE, among others.
And the work of these PEETS workstreams is not finished when the expiry date arrives.
Following this pre-expiry phase of work, there is then the need to run post-completion validation and stabilisation over the post-contract close period in order to fully transition and stabilise all aspects of the new TOM and the way it is managed by the retained organisation of the contracting authority. By ‘retained organisation’, we mean the element of the TOM that is made up of the contracting authority’s staff. In this period all required governmental compliance sign-offs need to be completed, such as internal and external audits and Post-Programme Reviews. Our experience to date indicates that too many authorities are underestimating the level of ongoing effort, focus, skilled resource and continued governance that is required to set-up this post-expiry model for long-term success.
Throughout this whole expiry delivery phase, both up to and beyond actual expiry, it is crucial that every workstream lead is fully aware of each other’s priorities and have ready access to each other through highly effective formal and informal reporting mechanisms. The structure of these mechanisms will depend on the scale and complexity of the PFI and the resultant PEETS programme teams.
Our RPD Approach has been designed as a logical, efficient and structured approach to what is often an extremely complex and high-risk process. And where the financial and operational consequences of failure are considerable.
The other key tenet to ensure success is having the capability, commitment and experience throughout your PEETS team to practically deliver an expiry, de-mobilisation and transition process at the end of your PFI contract.
What’s next?
We hope you find this blogpost valuable to your preparatory thinking around your own PFI expiry / expiries. If you would like to have a further conversation on any aspect discussed in this blogpost with our CURSHAW expert team, who have lived and breathed the earliest PFI expiries and the ongoing preparations underway for many approaching expiries, with first-hand experience of the complexities and nuances involved, please get in touch at hello@curshaw.com. You can read about the team and their experience here.