Defaulting PFI partners face the sack

Link: PFI reform will lead to more debt

In a format statement to MPs the department stated: ‘Where private sector providers do not meet their contractual responsibilities and all reasonable attempts have been made by all parties to resolve, the government will be prepared to terminate such contracts in accordance with its legal rights, even if this means a loss to the financial participants in the scheme.’

The announcement came in a formal response to a critical report from the Commons Public Accounts Committee, which complained that in several cases departments have hesitated to use termination provisions in PFI contracts for fear of counter-claims by the contractors.

The MPs said: ‘Departments need to make contractors aware that termination is a very real threat. They should not always regard it as the most difficult and risky option.’

The Treasury Minute in response said this would apply to ‘a small proportion’ of deals but it was important that contractors realised that in extreme circumstances termination is an option.

They said the government would examine what additional steps are needed to prevent ‘excessive termination costs’ and have ordered departments to ensure that effective risk management arrangements are in place to secure continuity, with one option being contractual means under which lenders can take over schemes in difficulties.

The Treasury said department staff are to have more training to enable them to spot refinancing arrangements by contractors so they can demand the government receive 30% of the benefit under existing PFI arrangements and 50% under new deals.

Related reading