The Government recently published the 'White Fraiser Report', its name deriving from its authors Barry White and Andrew Fraiser – both of whom are longstanding contributors to the UK's PFI landscape.
The authors were commissioned by the Infrastructure and Projects Authority (IPA) to prepare an independent report on:
- The status of behaviours, relationships and disputes across the PFI sector, together with recommendations for how to improve them moving forward;
- Recent industry proposals for a “conduct charter” and an “expiry and handback resolution council”; and
- The extent to which negative working practices are being adopted across the PFI sector, together with the reasons why.
In total, more than 160 individuals representing approximately 90 organisations were interviewed by White and Fraiser. More than 50% of the organisations that provided feedback were Public Sector Stakeholders.
A positive finding of their Report is that the majority of operational PFI projects continue to benefit from reasonable relationships between the respective public and private sector parties, with widespread acknowledgement from both public and private sector consultees that "effective management and delivery of PFI Contracts requires a degree of goodwill and flexibility…and that this will become increasingly important on the journey to hand back and net zero".
The Report also notes, however, a current trend towards increased disputes, particularly in the PFI health sector where it was identified that relationships have deteriorated and goodwill has been lost on a number of projects. Cited concerns from the private sector include "overly draconian (if not forensic) enforcement" of the PFI Contract – often in an attempt to maximise the level of Deductions that can be made against the Unitary Charge rather than a genuine attempt to improve performance. Instances of how this approach has had a negative impact on the wellbeing of individuals were also reported by consultees.
In turn, public sector consultees cited concerns in particular over whether their private sector partner has "invested sufficiently in the systems and resources necessary to ensure that self-reporting works reliably". Concerns around delays in the resolution of issues and the deliberate withholding of e.g. critical health & safety information were also reported by consultees.
Interestingly, the authors came up with a broad classification of 'SPV Owners' as what they call either “industrial” or “financial” "with the former typically managing their assets more proactively than the latter". They go on to recommend the adoption of the “industrial” owner approach "and move away from using cordial relationships with Public Authorities as a proxy for contractual compliance".
To that background, and with relationships on some projects – and in some sectors in particular - deteriorating and the commencement of formal disputes seemingly on the rise, the Report makes a number of recommendations on better / best contract management practices. Most notably, these include:
- Self-Reporting and Self-Monitoring: whilst PFI Contracts are self-monitoring, which means the PFI company is responsible for reviewing performance and reporting back to the contracting authority, the Report notes that there needs to be more active performance monitoring, auditing and assurance on performance by the contracting authority in managing its PFI project.
- PFI Dispute Resolution Forum: the establishment of a PFI Disputes 'Council', consisting of leading adjudicators/arbitrators with experience of PPP and PFI Projects (with the ability to draw on support from accredited non-legal PFI experts, such as financial advisors), to whom any type of dispute can be referred by agreement of the parties. The aim is to ensure consistency in the determination of disputes, improve the quality of decisions and to develop a publicly available body of 'PFI common law'.
- 'Reset' approach. This is the Report's overarching recommendation. This approach is intended to be used proactively and would typically involve:
- A systematic review of assets and services: SPVs and their supply chain being incentivised to identify and declare every issue they know about, in order to benefit from 'amnesty'.
- Survey commissioned to identify issues – joint appointment and jointly agreed scope, paid for by the private sector.
- A rectification plan prepared using the output from the jointly commissioned survey, with any Health & Safety issues being prioritised.
- A period of relief from Deductions to allow the SPV to carry out programmed rectification of issues in the plan and incentivise comprehensive action.
- Fast-tracked dispute resolution for issues where the parties disagree.
It will take pragmatism and collaboration to successfully implement the 'reset approach' and the other recommendations of the Report, but the concept is a welcome step in providing all parties with an opportunity to improve performance of PFI Contracts and where necessary restore the goodwill and trust required for the management of long-term operational PFI schemes. As is often the case, the devil will be in the detail and further work is required to further define the process and the approach to agreeing and documenting the terms of the 'reset'.
DAC Beachcroft’s Infrastructure & Projects lawyers advise a range of contracting authorities, SPVs, FM contractors, and investors, on operational PFI projects. We are currently advising clients on the 'reset approach' under their operational PFIs.
If you require advice on implementing the recommendations of the Report, please contact our PFI experts Alison Martin and Ioan Davies.
