The next decade will see a steady increase in the frequency of PFI contract expiries, with the number generally increasing each year to a peak of 69 in 2036. By that time, over 450 PFI contracts will have reached expiry, with the assets handed back to public bodies such as NHS Trusts, local authorities and government departments. Leading up to expiry, the aggregated amounts payable under these contracts totals some £49 billion, and the capital value of the underlying assets is estimated to be worth over £25 billion.[1] As Ted Lowery and Rich Burton discuss, the approach of PFI contract expiry frequently generates significant friction between public bodies and project companies.
With so much at stake, it is no wonder that the government has been turning its attention to ensuring that public bodies achieve value for money on their PFI contracts. One difficulty, however, is that public bodies may not be able to assess value for money until the assets have actually been handed back, particularly where the contract imposes obligations in relation to the condition of the assets which only crystallise upon expiry (for example, obligations relating to residual life of the assets).
In May 2020, the National Audit Office (the “NAO”) identified that “the public sector does not take a strategic or consistent approach to managing PFI contracts as they end and risks failing to secure value for money during the expiry negotiations with the private sector”.[2] Since then, a raft of guidance has been issued by various well-meaning institutions, particularly the Infrastructure and Projects Authority (the “IPA”),[3] whose publications have included ‘Preparing for PFI contract expiry’ (28 February 2022), A Guide to PFI Expiry Health Checks (20 July 2023), and PFI Asset Condition Playbook (10 March 2025).
One of the central tenets of the guidance is that public bodies are advised that “expiry and transition planning should commence at least seven years before the expiry date”.[4] Despite this, on 19 March 2025, the NAO reported that public bodies were “continuing to show a lack of preparedness for contract expiry, particularly for long-term contracts”.[5]
To some extent, a lack of preparedness is perhaps unsurprising given the complexities of many PFI contracts. Indeed, in a recent report of the Committee of Public Accounts, dated 11 July 2025,[6] it was recognised that “as it stands, it is a large amount of data for authorities to digest” and that “many lack skilled contract managers”. Part of the issue is that PFI contracts were designed to be off-balance sheet, with all responsibility for monitoring and reporting compliance against the performance framework falling on the project company. Consequently, many public bodies trimmed back their contract management teams, particularly during the austerity years when they came under pressure to find significant savings.
Be that as it may, the fact remains that in almost all instances the PFI assets will be handed back to the public sector and so, as project expiry approaches, the public bodies’ interests in the maintenance and lifecycle replacement of assets should become ever more acute. This is just at the time, however, when the cash flows in the project are petering out, meaning that the project company’s ability/willingness to fund any significant repairs or replacement is likely to be substantially impeded and may well hinge on the level of funds held in any reserve accounts. Unfortunately, the contractual position as to the funding of maintenance or sinking fund reserves can vary significantly between projects, which is likely to be one of the reasons why the IPA has encouraged public bodies to begin planning for expiry at least seven years in advance.
Another part of the challenge is that the handback provisions are frequently imprecisely worded, meaning that expiry condition requirements and lifecycle replacement criteria for building elements or parts of the mechanical, electrical, or plumbing systems are open to interpretation: it is not unusual for PFI contracts to prescribe Delphic criteria along the lines that the assets must be “fully functional”, “operational” and “available when required”. One obvious difficulty with such nebulous language is that it is not always clear when an item needs to be replaced, particularly where it is possible to extend the life of the item through a cost-effective repair. There may also be uncertainty as to how performance standards apply across an estate that could include both new and retained buildings, or where certain assets are required to achieve a minimum residual life following expiry.
Historically, it may be that the public body was prepared to accept the project company’s laissez-faire performance of its maintenance and lifecycle obligations, but in the face of a project expiry, and often with the assistance/encouragement of rapacious advisers, the public body may change tack and seek to instigate a retrospective review of project delivery. This, in turn, may lead to the emergence of significant and high value disputes at the tail end of the project concerning events that occurred some 10-20 years earlier (many PFI agreements do not include an effective time-bar provision). Such disputes may then be leveraged by the public body to seek agreement to sharing the costs of an enhanced handback survey, say as quid pro quo for a temporary waiver of any potential deductions from the unitary charge payments due to the project company.
In the 18th century, the English doctor Edward Jenner pioneered inoculation having realised that a small dose of cowpox could prevent the more drastic consequences of smallpox. In the same way, with PFI handback issues, addressing some early points of difference in the run-up to handback, even if via dispute resolution procedures, procedures should help reduce the risk of a wider conflagration with far more painful, extended and expensive outcomes.
It follows that in line with IPA guidance, the best means of minimising the risk of handback becoming a melee of disputes and rancour is to encourage early dialogue between the interested parties – that is, the public body, the project company, and the project company’s FM/services subcontractor. The better-drafted project agreements will include a long-term plan that ordinarily commences several years in advance of the project expiry date and provides for a series of surveys, submissions, counter-submissions, and negotiations within a structured framework. This will not of itself eliminate conflicts, but should ensure that the scope of any disputes is narrowed and allow for constructive determinations to be obtained on a timely basis. Both outcomes should have a positive influence on the overall differences between the parties. DBFO contracts for motorways are usually a good example of this, providing for the inspection and review process to start five years before the end of the expiry date.
Other project agreements are less prescriptive and will require the parties to proactively engage to develop handback mechanisms and overcome what, in many cases, would be a natural inclination to stick their heads in the sand.
Given the inherent problems with handback noted above, and the toxicity often associated with PFI contracts (as highlighted by the White Fraiser Report issued in 2023), it is therefore not too surprising that the PFI industry is approaching the next decade with a sense of trepidation. However, lest this article begins to resemble a jeremiad, it should be noted that over the last few years, a number of PFI projects have been successfully handed back without any significant disputes – and, in some cases, with no disputes at all. With some of these projects preparation for handback began up to eight years before the contract expiry date, tending to suggest, on the basis of anecdotal evidence at least, that the principle of early engagement should bear fruit.
It can also be noted that, for in other projects, the looming threat of a handback bunfight has driven the parties to take the opportunity of arranging an early exit on commercial terms so that any anticipated squabbling at contract expiry is thereby avoided: more analogous to amputation – possibly with a cash anaesthetic – than to Dr Jenner’s curative inoculation.
[1] https://public.tableau.com/app/profile/ipa.ppp/viz/PFIDashboard2023-24/Guidance
[2] https://www.nao.org.uk/wp-content/uploads/2020/06/Managing-PFI-assets-and-services-as-contracts-end.pdf, 29 May 2020
[3] N.B. As of April 2015 the IPA has been subsumed within the National Infrastructure and Service Transformation Authority (“NISTA”).
[4] https://assets.publishing.service.gov.uk/media/621c877de90e0710bdc09a96/IPA_Guidance_-_Preparing_for_PFI_Contract_Expiry.pdf, page 15.
[5] https://www.nao.org.uk/wp-content/uploads/2025/03/lessons-learned-private-finance-for-infrastructure.pdf, page 32, paragraph 4.20.
[6] https://publications.parliament.uk/pa/cm5901/cmselect/cmpubacc/821/report.html
