An update on PFI handback and expiry

March 2025 saw the keenly anticipated release from the Infrastructure and Projects Authority (IPA) of its PFI Asset Condition Playbook, intended by the IPA to form a key piece in its suite of guidance materials for PFI handback and expiry.

PFI Asset Condition Playbook - March 2025

The playbook builds on the general guidance released in February 2023, but focuses in particular on condition surveys to be undertaken on PFI facilities. Notably, the guidance has been developed with the input of an industry working group, including those drawn from the PFI investor, asset manager and FM provider communities. The goal is stated as to "deliver a common understanding and baseline position regarding asset condition", and to provide a "market standard" for surveyors, so as to make the whole survey process "more predictable and consistent", and to take away the need for local authorities to "reinvent the wheel" every time a survey is required.

The general guidance comes with supporting materials and appendices (some of which have yet to be published), including a template scope of services for surveyors and example/template reports.

There're a number of points of interest, but of particular note is the suggestion that the surveyor undertakes a "compliance review" in addition to the asset condition survey itself. The compliance review is intended to be an audit of Project Co’s data and systems, with particular regard to health and safety and risk management generally. Our expectation is that one area of focus will be fire safety, and indeed one of the promised areas of guidance yet to be published is to be on fire safety reviews.

Turning to the condition survey, the appointment is intended to be jointly made by the Authority and Project Co, with the costs to be borne on "an equitable basis". It's likely that this is deliberately phrased to leave this potentially "thorny" issue to be negotiated on a project by project basis. Due to ongoing pressure on public sector finances, the public sector counterparty will likely insist that Project Co cover the costs.

Notably, the recommendation is for the survey to assess asset condition vs (i) the standard required by the Project Agreement and also (ii) "relevant industry standard condition gradings and condition indicators". We presume this feature is intended to assist Authorities and the IPA with assessing and comparing asset condition across a range of facility-types, projects, ages and geographies. In the health sector, this may take in a reference to NHS “Condition B”. We note that further guidance on this point is promised – possibly in recognition of the fact that there is is no equivalent "industry standard" specified for public buildings generally.

The guidance also recommends that parties following a "code of conduct", which includes features drawn from the Nolan Principles.

PFI distress guidance and materials

In addition to the playbook, the IPA has also released a series of materials intended to support operational PFI projects experiencing distress. This includes a standalone piece on insurance premia benchmarking exercises and disputes, but more notable is a suite of materials on PFI distress which is said to form part of the IPA’s response to the White Fraiser Report of July 2023. The materials include an introductory piece, "what contracting authorities should do and when", and go on to include specific guidance and support for Project Co financial distress and insolvency, contract early termination, and the role of direct agreements. These materials are expressed to be aimed at public sector PFI contract management teams, who may not be familiar with distress issues arising on their particular projects, although private sector teams will be interested in these materials also.

Our team at Mills & Reeve has extensive PFI experience, including lawyers with over 20 years experience advising on early/pathfinder PFI projects. Team members are actively advising clients on a range of operational support issues and also preparations for handback and expiry.

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