UK: New Standardisation of PFI Contracts Launched

Last Updated: 11 November 2002
Article by Peter Elliott

The Office of Government Commerce (OGC) and Partnerships UK (PUK) have issued their long awaited revised Standardisation of PFI Contracts guidance. Although IT-specific guidance exists, this was designed to complement, rather than replace, general guidance. The revised guidance, which is available on the OGC website at www.ogc.gov.uk or in hard copy from Butterworths, is therefore essential reading for those involved in IT PFI procurement.

The revised guidance contains a number of significant changes, in particular in relation to: payment of termination compensation (calculation of termination compensation on termination for contractor default and option to pay termination compensation in instalments); payment for changes in service; and re-financing increasing the contractor’s profits (sadly not often an issue in IT PFI). Further guidance is due on specific alternative approaches to project specific debt funding.

One of the main problems in practice in the IT field, where the classic PFI model of a special purpose vehicle reliant on project specific debt funding is a rarity has been the lack of clarity over the extent to which the provisions of the guidance and the principles underlying them should apply to projects which use different funding models. This remains a problem. The revised guidance makes it clear that alternatively funded projects can be PFI projects for the purposes of the guidance, and that some amendment is appropriate. It does not, however, offer a great deal of advice on how this should be approached.

This may cause problems in practice because although PUK have stated that the guidance is just recommended guidance and recognise the need for intelligent assessment of what is and is not appropriate in each case, there are signs that OGC may adopt a more dogmatic approach. Working out what are and are not permissible deviations (in OGC’s terminology) will inevitably take some time and, sensibly, on-going discussion with OGC.

IT is an industry sector where the UK Government is keen to attract third party funding. OGC have made it clear that they are still considering different options in relation to a possible revised version of the IT-specific guidance and are keen to hear from those who have been involved on IT PFI deals to inform the decision on whether and how to take forward IT-specific guidance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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