Article

PFI Expiry: Exiting Effectively and Efficiently

February 24, 2022 4 Minute Read

By Simon Tanner

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Imagine for one moment that for the past twenty years your monthly mortgage payment has included having someone clean your house; stock the kitchen cupboards; prepare your meals; mow your lawn; decorate your house, and even clean your car…

And then imagine that proud day when you pay your last monthly mortgage payment and the house is all yours; but with it comes the responsibility for cleaning it, shopping, cooking, gardening, decorating and car cleaning, but given for the past 25 years you’ve not had to do any of that; you find now you can’t cook; you don’t have a vacuum cleaner; nor a lawnmower, nor yet a bucket or a sponge…

It may be an extreme analogy but that’s precisely the situation facing hundreds, yes hundreds of public sector authorities in the not too distant future when over 700 PFI’s start to expire from 2025.

Across the length and breadth of the UK, PFI projects for schools, hospitals, libraries, courts, council offices, roads, street lighting, defence projects and prisons are starting to enter their final years. And at the end of the contract, those assets will revert to public ownership. However, it is important that the public sector knows precisely what it’s getting back, what condition it’s in, how to operate it and even whether it still needs it?

Twenty years ago, at the heyday of PFI, it was all about the F – the Finance piece. The growth of the bond market, the birth of monoline insurance, the development of mezzanine debt.

But for contract expiry, there’s no funding piece; it’s all about the asset:

  • how the public sector ensure that their private sector partner have been maintaining the asset properly;
  • agreeing what needs to be done to prepare the asset for hand-back, and how much that will cost; and
  • preparing for life after the contract has expired – ensuring continuity of services so the building will still operate effectively.

If you currently run an existing PFI project, ask yourself these five simple questions as a quick yardstick to test your own personal readiness:

  1. Do you know the hand-back provisions in your contract?
  2. Do you have the skills, resources, and governance to manage the transition?
  3. Do you know the asset condition or staffing implications?
  4. Have you planned for life after the PFI?Are you sure how much you need to budget?

If you can honestly answer yes to all these, you are in a minority of those who are fully ready for the expiry of their contract.

If, however, you’ve answered no to one or more of these questions, we can help you plot your way through the PFI expiry maze.

CBRE is uniquely placed to harness the skills and expertise of the leading property consultancy with specific PFI project experience to help you deliver the best outcomes for your stakeholders for the years long after the PFI contract has expired.

Contacts

  • Simon Tanner

    Senior Director, Strategic Advisory

    Photo of Simon Tanner