PAC issues warning on expiry of PFI deals

The PAC’s report – Managing the expiry of PFI contracts – looks at the risks facing the public sector from the unwinding of the PFI, which was used to build public infrastructure assets from the early 1990s until it was dropped by the government in 2018.

There are currently more than 700 operational PFI contracts worth around £60bn and with future costs of around £170bn. While the earliest contracts have expired, some 200 will expire in the next 10 years, with this accelerating from 2025.

Government figures from 2018 show that the Department of Health and Social Care has the biggest portfolio of projects by capital value – worth £13bn – covering more than 120 schemes.

The report raises concerns around the transfer of assets from the PFI company back to the public body. By minimising expenditure on maintenance in the final years of the contract, PFI investors can pay out higher dividends and walk away with limited threat of recourse, the committee warned.

The government has started to deal with the issue, with the Infrastructure and Projects Authority (IPA) developing a PFI contract management programme and health check tool to evaluate expiry risk – but sector specific expiry guidance has yet to be published.

The IPA has estimated that it takes seven years to adequately prepare for expiry, making the issue increasingly urgent for public sector bodies. Despite this urgency, the report highlights a lack of skills, expertise and capabilities in public bodies to successfully deliver PFI contract expiry and identifies locally managed contracts as those most at risk.

There are also concerns about authorities working in silos rather than collectively. And the report also points out that public bodies often do not have access to the same level of information on performance of a contract as the PFI company and some PFI investors can be deliberately non-co-operative.

Chair of the committee Meg Hillier (pictured) said the PFI contracts needed ‘careful and advance challenge’ to ensure they are handed back to the public sector in good order. ‘The taxpayer could end up with a huge bill if PFI companies are not challenged and held to account,’ she said. ‘Crunch time is approaching and taxpayers need to be alert to the risk. Public bodies and the Treasury need to be on top of this issue now.’

Among a number of recommendations, the committee called for the Treasury and the IPA to set out, within three months, a plan for providing support to all PFI contracts, especially the 80% that are outside of central government. This should cover the support that will be made available plus how additional funds will be provided to authorities with limited resources or those with the most challenging contracts.