By Greig Fenton, regional director, Thomas & Adamson – part of Egis Group
PRIVATE Finance Initiatives – or PFI, as the programme was better known – were a huge topic of debate when they began to be used as one of the main means of funding public infrastructure projects. Whatever the pros and cons, until 2018 this financial instrument underpinned a lot of investment in important public infrastructure, ranging from government offices and roads to hospitals and schools.
Now, more than two decades on from PFI’s heyday, these assets are returning to public hands, with the majority of expiries falling between 2025 and 2043. The combined capital value of outstanding PFI contracts amounts to £57 billion across the UK and £9 billion in Scotland, which are significant additions to the public sector balance sheet.
With such a large transfer of building stock and public finances in a tight spot, it is imperative that the process of bringing these buildings into public ownership is handled in the right way. The major risk is that these assets could end up being liabilities, if they are not properly assessed.
Firstly, early engagement with the contractor is critical, getting off to a collaborative start. Official guidance recommends commencing the process at least seven years from handover, with further inspections at five and three years – but ensure you check what the contract says with regards to final inspection dates, as these may be a year before the actual handover.
Another basic, but highly important, step to take is consulting the original plans to check everything is in order. There may have been new additions to the building or changes to its fabric that could be problematic – particularly the use of aluminium composite materials, or other forms of cladding which were popular in the late 1990s and 2000s, that now need to be replaced.
In addition, be thorough in your due diligence when it comes to dilapidations. Go room by room, checking floors, ceilings, and everything in between and make sure it ties back to the original contract requirements. Contract clauses will specify that the overall building, as well as its individual component parts, need to be maintained to a justifiable standard handed over in that state.
Perhaps most importantly, speak to expert technical advisers who will be holistic in their approach. In our experience of managing the handover process of major PFI assets on behalf of private and public bodies, we understand that it’s imperative to not just take a snapshot in time – you need to understand the maintenance regime that has been in place, whether it has been adequately followed, and what upgrades need to be made to bring the asset up to the right standard for handover.
Finally, it’s worth remembering that these buildings were designed and constructed well before net zero targets were a consideration. Besides the financial implications of dilapidated buildings, there is also the risk that public organisations could inherit assets that do not meet contemporary sustainability standards and end up detracting from their plans to reach net zero.
However, with the right support, what initially could be seen as risk can be turned into an opportunity. The default response would be to make any replacements required on a like-for-like basis or the cheapest equivalent. But, thinking ahead and being willing to invest could reap longer term rewards.
If, for example, a building’s heating system needs replaced for it to reach agreed operational standards, it could make more financial sense to opt for an air heat source pump solution rather than going like-for-like. The sum that would have been paid by the contractor for an equivalent product could instead be put towards the new system, meaning a substantially lower outlay for the public body to modernise its asset.
Public bodies are about to take on billions of pounds-worth of building stock in the next few years – and any handover of assets comes with a degree of risk. However, with the right process, checks, and technical partner in place to take these assets off contractors’ hands, they can turn the risk of inheriting a financial liability into an opportunity to accelerate their ambitions to reach net zero instead.
