Can PFI really reset itself?

The White Frasier Report 🔗 published by the Infrastructure & Projects Agency in July 2023 was commissioned as a follow-up to the Public Accounts Committee’s report on Managing the Expiry of PFI Projects from March 2021.

Rather than further exploring the technical and contractual specifics of the PFI arrangements, this report focussed on attitudes and behaviours.  It identified that the increasing prevalence of disputes within PFIs was not in the public interest.

The overarching recommendation is that a ‘“reset”’ approach should be taken to improve assurance of performance in the context of historic under management of PFI projects by both the public and private sectors.

This briefing note offers a Litmus perspective on the recommendations, drawn from our personal experiences and a suggestion that, without a facilitated approach, the “reset” proposed by White Frasier will not happen.

Authors of the White Frasier Report interviewed representatives from a wide selection of PFI stakeholders and presented their findings under four broad headings – Behaviours, Contract Management, Disputes and the impact of Unexpected Outcomes.

The headline issues, as we see them, are summarised below.*

Behaviours – whilst many contracts have reasonable relationships, there are tensions and examples of poor behaviour across the board. The emergence of ‘contingent fee’ funded consultants and advisors can drive an overly aggressive approach to deductions. This has a negative impact on the operational teams to attract and retain staff with the PFI environment being perceived as becoming more toxic. The public sector reported frustration that information is not provided willingly and that they experience prevarication and delaying tactics. Disagreements are left unresolved, instead of being dealt with via the dispute resolution procedures. And finally, the parties perception of performance usually differ.

Contract Management – over reliance on self-reporting and self-monitoring. Public sector being reassured rather than assured leading to a lack of trust. A lack of understanding of what the contract requires and a lack of consistent recording of variations. User requirements now are often out of step with what is required to be provided under the PFI. A perception from the public sector that the SPV and its supply chain would rather ‘fight than fix’. Some SPVs run very ‘thin’ looking to their supply chain to own issues. There has also been a ‘hollowing out’ of public sector capacity and capability to manage the contracts.

Disputes – where they occur take up too much time & money. This can mean that the parties are reluctant to use the mechanisms and disagreements go unresolved. The report highlights an increase in the level of disputes, particularly in healthcare with service providers becoming increasingly nervous that this will spread to other sectors. Disputes can become personal and undermine future relationships – the desire to ‘win’ overtakes the desire to resolve the dispute. A further frustration reported by the public sector is that where disputes are resolved, the outcome is deemed confidential therefore not shared.

Unexpected Outcomes – some of the challenges reported under the previous headings are reported to be as a result of a change in approach or even a change of personnel. What may be seen by one party as mechanism to improve performance may be seen by another as a means to secure higher deductions – especially where contingent fee advisors are brought in. Different individuals may have different interpretations of the contract. Where disputes do arise, it is reported that the public sector lacks clarity of vision as to what a successful outcome might look like – what is ‘wanted’ may not be what is ‘needed’. The priority becomes to ‘win’. Even where a dispute is resolved, it is likely to have a negative effect on relationships.

White Frasier go on to make recommendations for improvement associated with these themes and conclude that a ‘“reset”’ is required.

They argue that this approach represents an opportunity for a fundamental overhaul of relationships across the PFI sector.

Our own observations and experience support most of the findings, and the proposal that there is an opportunity to “reset”. Though, if a “reset” is to be meaningful and sustainable, all parties need to be involved and incentivised.

Against a backdrop of under resourcing, delivering a “reset” will be challenging.

Our experience suggests that the levels of trust described by White & Frasier may be optimistic. Is there one party to the contract that is trusted by the others to lead a “reset”? That is likely to be the exception rather than the rule.

In our view, there is a role for a facilitator – independent, jointly appointed and able to navigate and engage stakeholders but with the credibility and real world PFI experience to add value.

A project management approach is required and expecting the organisations and individuals tasked with operating and managing a live PFI project to also lead a ““reset”” is unrealistic.

Can PFI really reset itself? We’d suggest that it might need a little help.

For more information about Litmus PFI transition services – please contact us.


The LitmusFM Team

Add Comment