Realising the benefits from your PFI/PPP contract

Good contract management by the public sector can ensure the benefits from PFI/PPP contracts are realised. A key advantage of such contracts is the risk transfer of maintenance and lifecycle replacement. Reducing backlog maintenance is a key deliverable and ensures safe, fit-for-purpose infrastructure.

At Local Partnerships we regularly support our clients to help drive value through four key areas.

A strong but measured approach by the public sector will set the tone for the whole expiry process

PFI knowledge

First is training for the contract management team. A PFI project management team often has limited knowledge of what the contract actually says. We have found with some specific, targeted training, the efficiency and effectiveness of the contract management team can be significantly improved.

Second is the payment mechanism and performance framework. One of the clearest ways an authority can get the most out of their project is to have a good knowledge of the payment mechanism and performance framework and use it to incentivise the performance of the contractor. Many authorities have the right to make deductions for poor service. However, we often see deductions are not levied when there is a clear right to do so.

Third is benchmarking, which can improve the efficiency of a project. Benchmarking is the process by which the current cost of the services is tested against similar provision across the relevant sector. This is done at regular intervals – typically five years – and is an opportunity for the parties to ensure that the price being paid for the services is appropriate.

The final area is refinancing. Projects that reached financial close during the credit crunch may be suitable for refinancing on better banking terms. This can provide significant savings. In the past three years we have delivered £25m (and a total of £64m since 2016) of savings to the public sector in street lighting, office accommodation and Building Schools for the Future deals.

We recently delivered a webinar on PFI contract expiry that really drove home the importance of active contract management. A strong but measured approach by the public sector will set the tone for the whole expiry process. As more PFI contracts expire, the ability of the public sector to network and share lessons learned will be increasingly important.

This article is also available on LGC website