Ending the use of adversarial contract advisers should be part of a new private finance initiative (PFI) model, a group representing infrastructure investors has said.
The Association of Infrastructure Investors in Public Private Partnerships (AIIP) called for a ‘reset mechanism’ in contracts for schools and hospitals so that public sector managers and firms can resolve disputes.
The group warned in a new report that the increasing use of third-party adjudicators to settle claims over PFI contracts was diverting money that should be spent on assets to legal claims, compensation and termination payments.
It claimed public sector managers, particularly in hospital organisations, have moved to “adversarial and financially motivated contract management”.
The group added that this is approach had been exploited by advisers who had “sought to apply different interpretations of PFI contracts”.
PFI contracts came to prominence with New Labour in 1997. They were formed to build schools, hospitals and other public sector projects. But they were a critical factor in the collapse of Carillion in 2017.
The AIIP argued that PFI had “supported the resilience of the public sector estate”. But without change, it said that “even a halfway successful” handing over of 150 completed PFI jobs to public authorities – expected in the next five years – could risk substantial legal fees at a “considerable cost to all” .
The association added: “It is vital the current challenges in the UK model… are directly addressed in the design of any future approach.”
The group, whose members include global capital investment firms, is tasked with engaging with the government, the Infrastructure and Projects Authority (IPA) and the construction industry.
Their report was led by former Labour work and pensions secretary Lord Hutton, who chairs the group.
The AIIP argued that a new PFI model could “spearhead the delivery of a new generation of UK social infrastructure”.
Before the July general election, industry leaders called on the incoming government to replace the PFI scheme to drive private investment into infrastructure. Contractors including Balfour Beatty and Morgan Sindall also warned that achieving net-zero emissions and improving infrastructure would not be possible without replacing the funding scheme.
