The Chancellor of the Exchequer's Autumn Statement, published on 5 December 2012, included the conclusions of the governmental review of PFI and their new proposals for delivering public and private sector partnerships through a new model, to be known as "PF2". The key changes to the traditional PFI model include:
Equity - the Government becoming a minority equity investor in the project company and the possibility of funding competitions at preferred bidder stage for a proportion of private sector equity.
Accelerating delivery - the strengthening of Infrastructure UK's mandate; increased support and training for centralised procurement units; the introduction of an 18 month time-limit on the competitive tendering stage of procurements; and the standardisation of the procurement process and documentation (albeit this is not entirely a new concept).
More flexible service provision - the removal of soft services such as cleaning and catering from projects; the procuring authorities' discretion over the inclusion of minor maintenance activities (such as internal redecoration); and the additional flexibility to add or remove certain "elective" services from a project once it becomes operational.
Greater transparency - the requirement to provide equity return information for publication; the introduction of a business case approval and pipeline tracker on the Treasury website; and the introduction of financial penalties and persistent breach triggers for failures in relation to information undertakings.
Better risk allocation - in a similar vein to NPD, a change to traditional risk allocation with a greater retention and management of certain risks by the public sector (for example in relation to unforeseeable general changes in law during the operational phase, utilities consumption risk, offsite contamination, title risk, ground condition risk and insurance premiums during operations).
Future debt finance - the introduction of structures designed to facilitate access to long-term debt finance and, in particular, the capital markets.
In addition to the Autumn Statement, the government also published draft guidance for PF2 (Standardisation of PF2 Contracts). One of the first projects to be procured under the new PF2 will be the £1.75 billion privately financed element of the Priority Schools Building Programme, which will act as a pilot for the scheme.
It remains to be seen whether the Scottish PPP procurement model (known as NPD) will be aligned with the new HM Treasury principles, particularly in relation to changes to the structure that are designed to facilitate long term debt finance from the capital markets.
If you wish to see the Government's proposals following the Autumn Statement, please click on the links below:
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
