I was reminded recently that one of the first PFI concession contracts that I negotiated (and drafted at a time when standard form was but a twinkle in the eye of Partnerships UK) was due to expire in less than two years. Leaving aside the inevitable discomfort of having fresh pairs of eager eyes crawling over handback provisions drafted near the dawn of PFI time, I realised that this was the mere tip of the handback iceberg.
The UK has been a global leader in the implementation of over 800 PFI/PPP projects since the early 1990s. This means that we are already seeing the first PFI/PPP (typically with 25 year operating periods) reaching handback stage and there is a substantial wave following.
While not underestimating the complexities and issues likely to arise from the handback process itself, the more interesting question is what happens next? Obvious questions include:
- is the public sector prepared and resourced to take over responsibility for running all these projects?
- what will be the impact on the private sector investment in UK infrastructure if all these assets revert to public ownership?
- will it be attractive for the public sector to "relet" some of these concessions/service contracts?
- will any relets be on a plain outsourcing basis or will there be appetite to maintain some form of risk-bearing capital in the delivery of these projects?
Or will someone somewhere dare to think bigger? I have a hunch that bundling up batches of mature projects with a proven track record and no construction risk represents a proposition that would attract strong investor interest at very competitive long-term funding rates. If these relet projects were structured by the public sector to support sensible capital investment to bear long-term lifecycle and sub-contractor performance risk, it would be possible to raise significant amounts of fresh capital for the public sector to invest in new projects at a relatively low cost (a variant on the Australian recycling model). Inevitably, balance sheet treatment will be key – but what is inherently wrong with the cost of public infrastructure being spread over the generations of tax payers benefitting from its delivery?
In any event, let's hope that the end is seen as an opportunity to refresh and renew the partnerships between the public and private sectors as opposed to a politically expedient death knell for a methodology that (despite the public rhetoric) has, in the view of many, delivered real value and benefits across a wide range of public services.
