Preparing for PFI Handback: Ensuring Fire Safety and Asset Integrity
By Anthony Walker FRICS MIFireE
Press Release version of article published in Fire Safety Matters– August 2024
The Private Finance Initiative (PFI) was introduced in 1992 and ran through until 2018. Overall, in England, there are over 550 projects, with an initial capital expenditure of £46 billion1. The projects encompass a broad range of public sector assets such as schools, hospitals, prisons, and other critical infrastructure. The typical contract term for these projects is 30 years and at the expiry of the contract, the asset is returned, ‘handed back’ to the public sector – a small number of these projects have already been handed back, with many more to follow in the near future. Fire Safety will be a key consideration as part of the handback process.
A 2020 survey by the National Audit Office identified that a significant proportion of authorities felt underprepared for PFI expiry. The report that followed, ‘Managing PFI Assets and Services as Contracts End,’ 2 set out a number of key findings, including:
- 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.
- There is a risk of increased costs and service disruptions if authorities do not prepare for contract expiry adequately in advance.
- Some authorities, circa 55%, have insufficient knowledge about the assets’ condition, which risks them being returned to the public sector in worse quality than expected.
One of the main recommendations set out in the report was that the Infrastructure Projects Authority (IPA) should proactively coordinate and develop a program of support that can be made available to authorities, which can be accessed here.
The Looming Wave of Expiry
The IPA recommends that expiry and transition planning should commence at least seven years before the expiry date. Many of the PFI projects are now within this window, with circa 78 projects expiring between April 2021 and December 2027, 91 projects in 2028-30, 288 projects in 2031-37, with the bulk reaching expiry by 2043, and a small amount that run on until 2054, see figure 1 below. This will create a wave of handbacks, and construction professionals involved face a unique and significant set of challenges in managing the handback of assets to the public sector, requiring early preparation, careful planning, and collaboration to ensure a smooth transition and minimize disruption.
IPA, Managing the Risks of PFI Contract Expiry, https://assets.publishing.service.gov.uk/media/6113b3068fa8f506cbee532c/IPA_Expiry_Support_Plan.pdf
Challenges
A number of challenges may present themselves during handback, including:
- Operational challenges: Transitioning service delivery and staff from a private operator to the public sector requires careful planning to avoid service disruptions and ensure continuity.
- Resource shortages: Specialised expertise and dedicated resources will be required. The public sector, grappling with budget constraints and staff shortages, may struggle to assemble the necessary teams of legal, financial, and surveying professionals.
- The day job continues:. There is a risk that the workload involved in PFI handback may stretch existing resources and adversely impact on the delivery of key services to the public such as schools and hospitals
- Contractual disputes: Disagreements over asset condition, financial settlements, and service transfer during handback have the potential to create a cost and time risk. Navigating the labyrinthine clauses of intricate contracts and complex technical details that were originally drafted over two decades ago won’t be straightforward and adds another layer of uncertainty to the handback process.
- Documentation gaps: Incomplete or inaccurate documentation and drawings hinder a comprehensive understanding of the asset’s history and maintenance requirements. Some projects will have hard copy documents, and uncertainty on which is the current version – proactive early document and data gathering, verification, digitizing of hard copies and updating drawings will be essential.
Beyond Challenges
While there are challenges associated with PFI handback, there are also opportunities within this complex process.
- Knowledge and skills transfer: The transition period allows valuable knowledge and skills from the private sector to be transferred to public sector staff, promoting long-term operational efficiency.
- An asset handed back in satisfactory condition: Having spent almost 30 years in the public sector/civil service managing and surveying assets, I have seen first-hand many new buildings suffer from insufficient maintenance from the day they opened, as there was no budget allocated. This results in an alarming rate of deterioration, and secondary failure of elements of the building well before the expected life expectancy. PFI buildings handed back are required to be in a satisfactory condition.
- Modernisation and upgrade: Handback presents a chance to assess and upgrade assets to meet current building regulations, sustainability standards, and user needs. This could involve energy-efficient technologies, improved accessibility features, etc.
- Data-driven decision making: The asset data captured during the survey can be harnessed to inform future investment decisions, identify inefficiencies and opportunities for improvements positively impacting service delivery, and occupant comfort.
- Strategic partnerships: Opportunities arise for collaboration between the public and private sector to develop innovative handback solutions and service delivery models.
Planning and collaboration
A successful handback requires meticulous planning and collaboration between all stakeholders. Key steps include:
- Effective contract management: Proactively address contractual issues and potential disputes to avoid delays and cost overruns.
- Early and open stakeholder engagement: Open communication and collaboration with all stakeholders – public sector, private sector, consultants, and surveyors will be crucial. This fosters transparency, builds trust, and facilitates early identification and resolution of potential issues.
- Detailed handover documentation: Prepare comprehensive documentation outlining the asset’s history, maintenance records, operational manuals, and service level agreements.
- Thorough asset condition surveys: Conduct comprehensive surveys to assess the asset’s condition, identify any defects, and estimate repair costs.
- Clear service transition plans: Develop detailed plans outlining the handover of service delivery, including staffing arrangements, training needs, and communication strategies.
Fire Safety – Areas requiring focus
As part of the PFI handback process, confirmation should be provided that a comprehensive set of fire safety checks have been conducted to ensure the buildings meet all necessary safety standards and regulations, which typically would include:
- Fire Compartmentation:
- Check for any breaches or penetrations that could compromise the compartmentation of wall, floors and ceiling voids
- Check that fire dampers and barriers are correctly installed and maintained.
- Fire Stopping:
- Inspect for any gaps or deteriorations in fire stopping materials.
- Verify that fire stopping measures around pipes, ducts, cables, and other services that pass through compartment walls or floors are intact and properly installed.
- Ensure that fire stopping materials used match the required specifications and fire resistance ratings
- Fire Risk Assessment:
- Ensure a current and comprehensive fire risk assessment is available.
- Review and update the fire risk assessment.
- Fire Detection and Alarm Systems:
- Verify the functionality and maintenance records of fire alarm systems.
- Test smoke and heat detectors, ensuring they are fully operational.
- Fire Extinguishers and Firefighting Equipment:
- Check the availability, accessibility, and condition of fire extinguishers.
- Confirm that fire extinguishers are correctly serviced and tagged.
- Ensure other firefighting equipment (e.g., fire hoses, sprinklers) is operational.
- Emergency Lighting:
- Test emergency lighting systems to ensure they function during a power outage.
- Check maintenance records for emergency lighting systems.
- Fire Doors and Exits:
- Inspect fire doors to ensure they are compliant, meet the fire resistance rating and close properly and are not obstructed.
- Confirm that fire exits are clearly marked and unobstructed.
- Check the operation of door release mechanisms and emergency push bars.
- Signage:
- Ensure that fire safety signage (e.g., exit signs, fire extinguisher locations) is clearly visible, sufficient, and correctly positioned.
- Fire Safety Equipment Maintenance Records:
- Review maintenance logs for all fire safety equipment.
- Ensure that all equipment has been regularly inspected, maintained and serviced according to manufacturer’s instructions and British Standards
- Building Modifications:
- Check that any modifications or refurbishments comply with fire safety regulations.
- Ensure that fire compartmentation and barriers are intact and effective.
- Documentation and Compliance:
- Verify that all fire safety documentation is complete and up-to-date.
- Ensure compliance with relevant fire safety regulations and standards.
The above checks are the main ones to be carried out, albeit the list is not exhaustive, and they may vary project by project, as may the responsibility who performs them
PFI legal disputes
To date, only a small number of PFI disputes have progressed to court, mainly due to most PFI projects include dispute resolution procedures that deter litigation. However, evidence suggests that the number of court cases is rising and may continue to do so as more projects approach handback.
A notable case that reached The Technology and Construction Court (TCC) with a specific focus on fire safety was St James’s Oncology SPC Ltd v Lendlease Construction (Europe) Ltd and Lendlease Construction Holdings (Europe) Ltd. The project agreement and design-build contract for a new Oncology Centre at St James’ Hospital in Leeds outlined extensive technical and construction design criteria, including adherence to various NHS health technical memoranda, specifically HTM 81 (fire precautions) and HTM 2007 (electrical services supply and distribution).
Deviation from these criteria was permissible only if the design could be justified through a fire-engineering approach and met or exceeded the standards of HTM 81. The design criteria mandated 60-minute fire compartmentation for each space within the electrical plant room, which housed transformers, generators, and switchgear. However, the electrical plant room was constructed as a single fire compartment without discrete compartmentation.
The judge found that Lendlease failed to justify the plant room’s compartmentation as compliant with a fire-engineering approach and did not demonstrate how these installations met the necessary safety standards. Furthermore, the judge noted the absence of significant approval for the “as-built” design from the Hospital Trust, Building Control, or the fire and safety authority. Nonetheless, any such approvals would not have absolved Lendlease of their responsibility to comply with the design and build contract requirements at all times.
Resilience and Support
The task of handing back PFI assets will be spread over many years and require dedicated resource. Steps should be taken in advance to:
Make use of Government support and expiry toolkits: The government via the IPA will play a crucial role by providing advice to the public sector on managing PFI handback. Expiry toolkits are already available at https://www.gov.uk/government/publications/preparing-for-pfi-contract-expiry
Build in-house expertise and capacity: The Public Sector should plan ahead and invest in building internal expertise and capacity to manage PFI handback effectively. This includes training for key personnel and potentially considering joint ventures with other authorities facing similar challenges.
Seek advice: Engaging independent advisers with specialised knowledge of PFI contracts and surveying will provide invaluable guidance and support throughout the handback process.
Conclusion: Embracing the Future, One Handback at a Time
PFI handback presents both challenges and opportunities. By understanding the issues, utilising available resources, and collaborating effectively, those responsible for Fire Safety can play a crucial role in contributing to a smooth and successful transition, safeguarding public assets and service continuity.
By Anthony Walker
FRICS MIFireE, Director at Sircle
References
1 . Preparing for PFI Contract Expiry, Infrastructure Projects Authority
https://assets.publishing.service.gov.uk/media/621c877de90e0710bdc09a96/IPA_Guidance_-_Preparing_for_PFI_Contract_Expiry.pdf
2 . National Audit Office (NAO) Report: “Managing PFI Assets and Services as Contracts End”
https://www.nao.org.uk/reports/managing-pfi-assets-and-services-as-contracts-end/
