PRIVATE FINANCE INITIATIVE /

PUBLIC PRIVATE PARTNERSHIP:

A CONTRACTORS PERSPECTIVE
A paper given to a meeting
of the Society of Construction Law
in London on 15th October 2002

Martin Lenihan
December 2002

www.scl.org.uk

PRIVATE FINANCE INITIATIVE /

PUBLIC PRIVATE PARTNERSHIP:
A CONTRACTORS PERSPECTIVE
Martin Lenihan
This paper looks at the commercial and legal aspects of the private finance
initiative (PFI) and public private partnership (PPP) which are of particular
concern to the contractor, and considers how the contractors legal team
attempts to manage risk when drafting, reviewing and negotiating PFI
documentation. The main reason for a contractor moving into PFI is the need
to make better margins and more profit by being different and innovating, in
circumstances where there are many (often too many) construction companies
seeking a limited supply of traditional construction work. All the early PFI
projects and many of the later ones have been largely contractor driven, rather
than investor or operator driven. Over time, different trends may emerge.

PFI/PPP general context

The first major opportunity for the private sector came in 1981 with what are
known as the Ryrie Rules.1 These allowed projects to be privately funded so
long as:

they provided better value for money than publicly funded alternatives;

they were not additional to public expenditure (ie there must be an

equivalent public capital cut); and

risk was transferred to the private sector.

In the early days, projects were not known as PFI but by various other
acronyms, principally BOT (build, own, transfer), BOOT (build, own, operate,
transfer) and BOO (build, own, operate). Since early projects such as the
Dartford River Crossing the buzz words have moved on and we are now into
PFI and the perhaps more politically palatable (and indeed, accurate) term
PPP. For simplicity, the term PFI is used in this paper.
Early privately financed opportunities, following Ryrie, included the Channel
Tunnel and the Dartford-Thurrock crossing (better known as the QEII
Bridge).2 By about the mid-1990s, it was apparent from a number of earlier
BOT type projects that PFI could work and was, to some extent, tried and
tested. This said, however, there were questions as to why success on earlier
1

So called after Sir William Ryrie, chairman of the committee set up by the National
Economic Development Council to review the investment rules for nationalised
industries and to devise criteria under which private finance might be introduced into the
public sector.
The bridge linking the northern sector of the M25 to the southern sector across the River
Thames: the project had a capital value of some 180m.

projects3 was not being replicated in other sectors of government, for example
health and education, all of which have a high spend.
At about this time, as the PFI process was evolving, one of the most
distinguishing characteristics of PFI was becoming more discernable, namely
that the process is all about the purchase of services not just assets. It had to
be recognised that rather than merely talking about a 12 month construction
contract, the participants had to get to grips with agreements which were to
run for 25-30 years. Problems with transfer of risk, lack of assurance that
contracts would be honoured by the public sector, excessive transaction costs
there were still no guidelines or standard documents were real constraints
on the spread of PFI to other sectors.
Arguably, the big breakthrough for PFI came with the first Bates Review in
1997, when Sir Malcolm Bates undertook a review of how PFI was working.4
His recommendations included the following:

Stronger central direction which would determine commercial viability

of projects. This was achieved by setting up the Treasury Taskforce
with the necessary skills to assist in the selection and driving through of
projects;

Legislation to empower public sector bodies to enter into PFI contracts;

and

Standardisation of PFI documentation: prior to standardisation, all

documentation was bespoke with much reinvention of the wheel and
correspondingly excessive deal costs.
The Bates Review resulted in a number of major health schemes actually
being built and coming to fruition.
It is thought by many that this heralded a new era of sharing of responsibility
between the public and private sector, rather than the pass the buck approach
of earlier deals.
The new mantra become optimum risk allocation,
characterised by the new understanding that value for money is maximised
when risk is placed with the party best able to manage it. Risk and control go
together; the party to whom risk is allocated must have the freedom to
determine how to manage it and all risks should be identified, allocated and
priced at the outset to allow flexibility on the project.
It now seemed to be generally understood that where there is an interface
between services being provided by the private sector and the public sector,
the latter would need to have some limited obligations. For example, in the
hospital context, the hospital trust would need to sign off clinical adjacencies;
they would take the risk of occupancy and indeed decide where the hospital
was to be situated. The government also accepted the risk of project specific
legislation (for example, if a subsequent government abolished the
concessions for hospital operations this would be a government risk).

3
4

Such as the QEII Bridge and the Tagus Bridge in Portugal, not to mention the M1/A1
shadow tolls project.
Sir Malcolm Bates, The Bates Review, June 1997; see www.ogc.gov.uk/pfi.

Major legislation followed the Bates Report and greatly assisted the PFI
process, namely the National Health Service (Private Finance) Act 1997 and
the Local Government (Contracts) Act 1997.
Regarding the lack of standardisation of PFI documentation and procedures,
the position was accurately described by Haydn Cook, Chief Executive of
Calderdale NHS Trust, who said in his case study of the procurement by PFI
of the Halifax Hospital:
The Trust negotiated, almost continuously, with Catalyst from
September 1996 through to July 1998
Most meetings seemed to involve lawyers and the legal contracts
seemed to be the basic agenda for almost every meeting. The legal
contract is a means of reflecting the commercial understanding or so it
was thought! There were times when it felt like it was an end in itself
no matter if the hospital did not work, as long as the legal words were
sound
The legal negotiations went on ad nauseam, with about thirty drafts of
the contract being produced (the Trust regularly lost track of which
revision it was working on) ...
One meeting, close to financial close, had around twenty people
present. The lawyers were typically getting 300 an hour. The total
cost of the time involved must have been in the order of 3,600 an hour,
or 1 per second ...
By the last two months, it should be added that everyone was getting
tired with regular weekend working and long hours that often turned
into working through the night. Good health and stamina were key
elements to keeping the negotiators going.5
This is exactly my experience: one enduring memory I have of a PFI
negotiation in about 1998, is of the bankers representative producing a tube of
vitamin C tablets at approximately 3am one Saturday morning near financial
close on a deal to keep the meeting going to the end.
In mid-1999 the Treasury Taskforce published the first edition of its Guidance,
which provides a template for concession contracts (project agreements)
across all sectors, in most cases setting out the principles for the drafting and
then providing examples of appropriate clauses. (This has now been
superseded by the Guidance published by the Office of Government
Commerce (OGC part of the Treasury).)6 This is already bearing fruit in
that the National Health Service (NHS) has produced a standard form of
project agreement, based on the Guidance.7 It remains to be seen whether the
5
6

Courtney A Smith, Making Sense of the Private Finance Initiative Developing PublicPrivate Partnerships, Radcliffe Medical Press, 1999.
Treasury Taskforce Guidance first edition 1999 and OGC Guidance issue 3,
Standardisation of PFI Contracts, general revision 2002, OGC/Butterworths, available
from www.butterworths.co.uk and see www.ogc.gov.uk/pfi and the PFI network at
http://pfi.ogc.gov.uk; OGC help desk 0845 0004999.
NHS Executive Standard Contract (version 2) October 2000, available on
www.doh.gov.uk/pfi (help desk 01132 545487).

transaction costs will be substantially reduced but there is every reason to

expect that they will.

Where we are at present

I believe that PFI does work, principally because the process brings benefits to
both sides of the table: employers are seeking solutions to their requirements,
allowing innovation to be explored in all sorts of areas creating an
environment where freedom of ideas can flourish.
There is complete integration under the project company (which is a corporate
special purpose vehicle) of everything needed to achieve the required service,
from designers and contractors, to service provision and maintenance. The
project company will, therefore, be focussed on being able to provide the
service efficiently and economically. The project company and employer
have common goals, and the project company can:

be more innovative in configuration, design, construction, maintenance

and even the operation of the project;

create greater efficiencies and synergies between design and operation;

invest in the quality of the asset, to improve long term maintenance and
operating costs, to give value for money not cheapest capital cost.
In the past (under traditional procurement), capital has often been invested
without a clear commitment to adequate future spending on maintenance,
leading to poorly maintained assets, high running costs, inefficient service
provision and premature replacement. In contrast, PFI invests in the future
because it ensures that assets are maintained properly.
An upfront decision as to what is required is made, leaving the project
company to adopt and deliver a solution. Major capital projects in the past
have been bedevilled by massive change and variation. PFI is about focusing
on the right questions, with an emphasis not generally associated with
traditional construction methods. There is a huge incentive to work towards
the earliest provision of the service, because only then does payment start to
flow, and the financial risks of failure on the design and build contractor are
considerable. This aspect of PFI alone acts to concentrate the minds of design
and build contractors in a way almost unknown in previous Joint Contracts
Tribunal (JCT) standard forms of building contract. A big difference between
PFI and JCT is, invariably, the delivering of a completed product to time for a
pre-agreed price.
It may be that the detailed negotiations leading to financial close are one of the
reasons for the projects success. All parties have the opportunity to fully
understand what the other parties wish to achieve. The risks are exhaustively
researched and methods of controlling them determined in advance. The
design is well progressed and most, if not all, planning issues have been
resolved. Principal subcontractors have been selected and have bought in to
the key issues. To my mind, the key feature to understand about the PFI
process is that it is all about the delivery of a service or product of which the
construction of the facility/hospital/building or whatever is an (important) part.
Because of the very different risk:reward profile of PFI projects compared to

more traditional methods of procurement and the use of output specifications,

the participants in PFI must make major mind adjustments and stop thinking
JCT. Instead, they must adapt to new concepts.

The future
The government seems keen to ensure that the lessons learnt through PFI are
applied to all public sector procurement. Peter Gershorn, the then managing
director of GEC Marconi, carried out a review of public procurement and
identified a need for radical change.8 He recommended that the government
create a central body to ensure consistency of strategy and the promotion of
best practice across the public sector. A second report was produced by Sir
Malcolm Bates.9 The result of these reports is that two new governmental
bodies have been set up.
Partnership UK will effectively take over where the Treasury Taskforce left
off. The likelihood is that many different types of public/private co-operation
will develop, some of which we are already seeing, for example in a recent bid
for the new Meteorological Office building, where the construction costs will
be directly funded by the government. The OGC will act as a gateway for
decision making on government procurement (excluding military, health and
local authority procurement). It is likely to have a significant influence on
which projects go forward and whether PFI, traditional methods or some
combination of the two is used. Numerically more projects will be procured
using PFI methods. Immense potential exists for the export of UK PFI skills
as other countries begin to copy the UK model.
I believe that the future of PFI looks bright, despite recent well publicised
difficulties associated with the process. These difficulties, particularly those
relating to onerous bid costs, new accounting rules and trade union concerns
with aspects of PFI, are genuine concerns, but they can be dealt with. The
disadvantages of the PFI process are greatly outweighed by the advantages.

Role of the contractors lawyer in PFI transactions

There is no law of PFI as such but merely many areas of law which have a
bearing on the various agreements concerned. The essential requirements for
a lawyer practising in this area include:
1.

8
9

A broad experience and understanding not only of construction

contracts but of a variety of commercial agreements, as well as
knowledge of a wide range of corporate and general commercial
documentation (such as service/facilities management agreements and
their payment and availability regimes, shareholders agreements, joint
venture agreements, finance documents, property documentation and
general security documentation);

Peter Gershorn, Review of Civil Procurement in Central Government, April 1999;

available at www.ogc.gov.uk.
Sir Malcolm Bates, The Second Review, the results of which were published by the
Treasury in July 1999; see www.ogc.gov.uk.

2.

An inclination to wade through sometimes thousands of pages (and

many, many drafts) of project documentation without losing the will to
live;

3.

An ability to pick out from this mass of information the key matters and
issues which have not yet become apparent;

4.

Common sense; and a sense of humour!

The process of closing a PFI deal can typically take, these days, nine to twelve
months (and sometimes longer) of continuous work, with a final period of
three or four months hard work, of which the final six weeks or so will be
incredibly intense. In my experience, there can be little real doubt that the
excellent work on standardising PFI documentation to date has resulted in
significant time and cost savings and standardisation greatly facilitates the
process of closing deals. Although deals still take a long time to negotiate to a
close because of project specific considerations (particularly on the larger
deals), the task is now much less onerous than it used to be. On the subject of
standardisation of PFI contracts, the new OGC Guidance has just recently
been made available and is essential reading for those involved or interested in
the PFI process.10 This updates and improves upon the earlier Treasury
Taskforce Guidance.
The diagram appended at the end illustrates the spiders web of parties
involved in a PFI project. This typical structure gives rise to a mass of legal
documentation. (On one recent hospital deal I was involved in, there were
some 144 agreements appearing on the completion protocol: one section of
one of the major schedules ran to about 6,000 pages on its own!)

The project agreement

The first task for the contractors lawyer is to get involved in the project
agreement negotiations, as it is the project agreement which sets the agenda
for all the other agreements. Although the contractor is not a party to the
project agreement, it is crucial that it is drafted in terms satisfactory to the
contractor, because all the design and build construction risk is either retained
by the employer, or stepped-down into the various subcontracts (the
contractor/hard facilities manager/soft facilities manager and equipment
suppliers are, officially, referred to as the subcontractors, the project
company being the contractor).
A project agreement contains numerous provisions and requirements relating
to the provision of a service. These can look very different when one is
looking at the construction aspects stepped down into the design and build
contract. If a particular construction risk is not to be retained by the employer,
it will be stepped down and taken by the contractor (unless it is an equipment
or hard or soft facilities management issue). If matters of concern to the
contractor are not dealt with at all in the project agreement, it is likely that
they will not be dealt with in the design and build contract. Once negotiations
on the project agreement are under way, the teams will get involved in looking
10

See note 6.

at various other, related, commercial documentation such as funder/authority

direct agreements, security documentation etc.
It remains a truism that the best and most effective way of managing risk in all
its guises (legal, technical and commercial) is for the contractor to ensure that
he gets it right to begin with in terms of defining as fully as possible the
exact scope of works to be undertaken and to meticulously plan and price to
do this. This is not rocket science, I agree, but I never cease to be amazed how
often this basic principle gets overlooked. The source of a disproportionately
large number of construction disputes can be traced to lack of clarity regarding
the scope of the work, and a lack of understanding as to exactly who in the
construction process should be doing what, how, where and when. Because of
the huge amount of upfront work done in understanding the needs and
requirements of the employer and the constraints applicable to the project, and
developing solutions, the PFI process affords the parties a greater opportunity
of arriving at the best solutions to meet the employers needs.

What the contractors lawyers look out for

The NHS Executive standard form project agreement11 illustrates what
lawyers acting for the contractor particularly look out for. As mentioned, they
will end up negotiating (to varying degrees of intensity) aspects of the project
agreement which affect the contractor with a number of teams of lawyers,
principally those acting for the project company, bank and employer. In
addition to this, and depending upon the complexity of any given deal, the
contractors lawyers may also be involved in discussions with lawyers acting
for other major subcontractors, including the operators lawyers (two lots if
the operations are split into hard and soft services) and other parties too.
The NHS standard project agreement (like similar documents used in other
sectors of industry), contains a wide variety of obligations to cover everything
that is required for the ultimate provision of a service (including the building
product), of which the design and construction of the hospital is but one (very
important!) constituent part. The project agreement deals with all sorts of
matters from general, normal boiler-plate commercial contract type clauses,
to matters relating to land issues, construction issues, corporate matters such
as change in control constraints, intellectual property/confidentiality, taxation,
employment law12 and so on and so forth.
The employer wants a product that will provide the necessary services (usually
specified in an output specification) for the concession period (typically 25-30
years) to a set standard. Provided that the employer actually gets the product
and service it requires (and subject to meeting the employers minimum
required technical standards), it will not, usually, be overly concerned whether
the project company specifies and pays a high capital cost for a high
specification building from day one (which is going to be virtually
maintenance free) or whether it specifies a lower specification, lower cost
11
12

See note 7.
Especially relating to the Transfer of Undertakings (Protection of Employment)
Regulations 1981 (TUPE) or the Governments new retention of employment model.

building (requiring less of an initial capital sum but which will have a high
cost maintenance over the term of the agreement). The philosophy of PFI is
that that is a decision for the project company. The project company and
contractor are afforded significant leeway and autonomy and suffer much less
interference in terms of the detail of how the service is delivered. With the
transfer of greater risk to the private sector must go a correspondingly greater
degree of control to enable that risk to be managed.
The main role of the project companys lawyers will be to get the deal done,
and generally ensure that all risks and liabilities are identified, and then either
costed and kept within the project company (unusual) or (more usually) passed
to another party such as the contractor or the facilities manager. Project
companies are project specific and generally have little or no resources of their
own. Their income will rely upon the monthly payments they will receive
from the employer once the services have commenced. From these monthly
payments, the project company services its debt, pays the operating contractor,
builds up contingency reserves for specified matters such as replacement of
plant or equipment, and generally attempts to create a dividend for the
shareholders. Because the bank will lend money on a limited or non-recourse
basis (ie the banks usual or only recourse if things go wrong will be to the
facility asset and revenues generated by it), it will be keen to ensure that no, or
very little, risk remains with the project company.
Accordingly, the contractors lawyers, when identifying the risks which are
unacceptable to their client, must get involved in the project agreement
negotiations to ensure that any unacceptable risks are either retained by the
employer, or transferred to a more appropriate party. It is vital to understand
that, if one is unsuccessful in negotiating out a particular risk within the
project agreement during negotiation with the employers lawyers, it will be
too late to do anything about that risk when heavy negotiations start on the
design and build contract.
It is very important that a good, team-like, working relationship exists, or is
created, between the lawyers acting for the project company and the
contractor. The contractors views on the project agreement must be properly
understood by the project companys lawyers and conveyed fully and fairly to
the employers lawyers. At appropriate points in the negotiations, the
contractors lawyers will sit side by side with the project companys lawyers
in negotiations with the employers lawyers. Even on jobs where the
contractor is wearing many hats (through related companies) and is also a
shareholder in the project company, the contractors team must not forget that
it is not the role of the project companys lawyers to act in the contractors
best interests. In other words, the contractors lawyer must look after his own
clients interests as nobody else will.

NHS standard form project agreement summary

The standard form13 is laid out in twelve different parts as follows:
Part A Preliminary
13

See note 7.

Part B
Part C
Part D
Part E
Part F
Part G
Part H
Part I
Part J
Part K
Part L

General Provisions
Land Issues
Design and Construction
Quality Assurance
Information Technology
Services
Payment and Financial Matters
Changes in Law and Variations
Delay Events Relief and Force Majeure
Termination
Miscellaneous.

In addition to the 69 clauses comprising the operative part of the standard

form, there are many schedules, the exact number of which differs from deal
to deal. Key schedules include:
Schedule 1
Schedule 2
Schedule 7
Schedule 8
Schedule 9
Schedule 10
Schedule 11
Schedule 12
Schedule 13
Schedule 15
Schedule 21
Schedule 22
Schedule 23
Schedule 26

Definitions and Interpretation14

Completion Documents
Land Matters
Construction Matters
The Programme
Review Procedure15
Collateral Agreements
Outline Commissioning Programme
Equipment
Independent Tester Contract
Insurance Requirements
Variations Procedures
Compensation on Termination
Dispute Resolution Procedure.

Although the contractors team will concentrate on these schedules, they will
also review and get involved (to varying degrees of intensity) with many of
the other schedules (usually project specific). This is because of the high
degree of interfacing which occurs between the various parties and the
potential for impact on the contractors position. Lawyers acting for parties on
a PFI transaction get involved to a much greater extent in the detail of
schedules than was the case in contracts procured under more traditional
procurement routes This is almost entirely due to the different risk:reward
profile applying to PFI projects. Moreover, the devil is in the detail.
It is important to understand what I mean by the different risk:reward profile
applicable to PFI transactions. When signing a PFI construction contract, in
practice the contractor is, to all intents and purposes, signing off its final
account at the same time, in that there is relatively little scope for claims to
allow upward adjustment of the contractors contract sum. The contractor
must therefore understand what he is undertaking to do in terms of scope, and
price it properly: that is, get it right to begin with.
14
15

This is a vital schedule to look at on one recent deal, this schedule alone exceeded 50
pages in length.
Dealing with mainly reviewable design data etc.

On most PFI jobs, the project company and contractor will only be entitled to
claim additional money in the event of compensation events, which are
usually limited to such matters as employer breach, employer change/variation
and discriminatory or specific changes in law. On some occasions it may be
possible to justify additional compensation events such as, for example,
archaeology (a subject treated differently depending upon the project and the
circumstances). Unless the project company receives compensation as defined
in the project agreement, there will be no equivalent relief flowing down to the
contractor. A host of drafting devices have been invented by lawyers to
protect the position of the project company and the interests of the funder.
The PFI risk profile has resulted in contractors undertaking very significant
amounts of up front design and related work to ensure that it knows what it is
supposed to be designing and building, with the aim of achieving clarity of
scope of works. With this clarity comes greater pricing certainty and less
scope generally for disputes, as much conflict derives from lack of clarity as to
scope of obligations and generally who should be doing what, where and
when. One of the downsides of this is the vastly increased bid costs. These
arise, not only because of the involvement of lawyers, but also (and more
importantly) because of the cost of deploying sizeable resources to carry out
upfront work, all of which is usually done at risk in that these costs (running
into many millions of pounds on the bigger projects) will not be recoverable if
financial close is not achieved. This really does tend to concentrate the mind
of the contractor.
The costs of playing the PFI game are so high (especially if a deal does not
reach financial close) that contractors must be very selective in terms of the
projects they bid for. The public sector should remember that contractors do
not possess bottomless pockets in terms of bid costs and that both public and
private sectors should continue to look for ways to make the PFI process work
affordably and sensibly for both sides. It should not be forgotten that issues of
corporate governance and commercial prudence will impose constraints on the
amount of risk the private sector can reasonably take. From the perspective of
those contractors who can afford to put at risk very significant upfront bid
costs, the profit margins available on PFI projects are potentially greater than
most traditional commercial property development projects, provided that the
very real risks have been properly evaluated and the project properly managed.
Experience demonstrates that the line between turning in a reasonable profit
and a substantial loss is a fine one and ultimately depends on a skilled and
experienced management team.
The realities of the PFI process effectively create economic barriers to entry,
thus discouraging Wide-Boy Construction Limited from simply taking a
chance, as often happens in commercial property development projects.
There, the less responsible contractor (who is often not properly resourced and
who does not invest in training, health and safety, welfare etc, to the same
degree, or at all, compared with more responsible contractors) too often
achieves a resultant pricing advantage, which some employers and their
various advisers are only too happy to exploit. In essence, the risk:reward
profile of the PFI process rewards those who get it right in terms of good

10

margins and enhanced reputations. If though the contractor gets it wrong, then
the results can be disastrous and unforgiving.

NHS standard form project agreement - details

Above all, when reviewing the NHS standard form,16 the contractors team
will concentrate on those clauses and schedules which deal with the regime for
defining construction requirements (for example Schedule 8 usually contains
the
employers
construction
requirements
and
the
project
company/contractors proposals) and other related clauses, such as Clause 5
(the Project Operations) and Clauses 17-24 (dealing with design and
construction matters). The employer will be the Trust or Health Authority. In
Clause 5.2 (General Standards), the contractor should consider whether there
are any project specific reasons to amend the compliance with
laws/consents/good industry practice regime (and this is related to Clause 39
Changes in Law) where, for example, the construction period is unusually
long.
The standard form generally assumes, in terms of construction, a single
facility on a greenfield site, with a 12-18 month construction period. The
degree of foresight (crystal ball gazing) to be expected of a competent
contractor in terms of anticipating future changes in law should be considered,
as this gives rise to very real risk, costing and value for money considerations.
It is usual to request the employer to be precise as to exactly which NHS
requirements it expects compliance with (as referred to in Clause 5.2(f)).
Pinning down exact requirements also contributes to the overall certainty of
the scope of obligation which is in the interests of all participants.
Trust data and land issues
It is essential for the contractors lawyers to ensure that his client will conduct
a proper due diligence exercise regarding the trust data (having regard to the
content of Clause 10) as the employer takes little, or no, responsibility for such
information. I normally seek to ensure that under Clause 14 (Nature of Land
Interest) sufficient ancillary rights (ie access/ingress/egress to site etc) are
afforded to the project company (and thus the contractor) and that generally,
land issues are fully investigated and potential threats and constraints are
identified, assessed, priced and managed. Related to this is Clause 15 (the
Site) which places the risk of the condition of the site squarely on the
shoulders of the project company. Qualifications or carve-outs may need to
be considered regarding such issues as areas of the site not capable of
inspection, past contamination and areas retained by the employer (particularly
on a multi-phase project).
In relation to issues arising out of Consents and Planning Approval (Clause
16), it will be necessary to check these various provisions, particularly those
relating to the terms of consents and approvals, to make sure the obligations to
comply are properly understood and allocated.

16

See note 7.

11

Design, construction and commissioning process

With regard to the project company/contractors obligations under Clause 17
`(the Design, Construction and Commissioning Process), much thought will
go into drafting Schedule 8 (Construction Requirements) and the related
schedules dealing with reviewable design data, programming etc. It is usual to
provide that where documents are submitted through the review procedure
(Schedule 10), unless there are any comments to the contrary, they satisfy the
employers requirements in respect of clinical functionality.
The employer requirements (output specification) should be clear,
unambiguous, objective and measurable. With regard to design review
procedures, it should be clear what is to be reviewed and when and on what
basis the employer can object: usually only for failing to achieve compliance
with the output specification or where the design is not in accordance with
previously submitted designs.
Programme
With respect to Clause 19 (Programme and Date for Completion), I normally
check whether there are any employer damages (see the OGC Guidance on the
standardisation of PFI contracts for sensible advice17). To the extent that
programming float has been built into the programme by the contractor, then I
attempt to ensure that it is made clear that the float belongs to the contractor
and not anybody else.
Equipment
The issue of equipment (Clause 21), should be considered carefully by all
concerned and I attempt to check who is responsible for what bits of
equipment. In respect of pre-completion equipment, the contractor should
generally not be responsible for its provision, as this is normally the function
of the equipment subcontractor. The contractor will attempt to ensure that the
provision of the equipment does not interfere with his ability to achieve
practical completion. The contractor must also keep a close eye on what, if
any, impact the equipment has on the contractors design in particular
whether any of the bigger items of equipment have design implications on
already designed parts of the works. Important design/equipment interfacing
issues arise which need to be carefully thought through and addressed. This
relationship is dynamic and evolves throughout the bid process up to financial
close and beyond.
Completion
Another subject high on the contractors priority list, is the completion regime.
Completion tests, criteria and sign off procedures must be (a) achievable, (b)
unambiguous and (c) objective so that it is very clear that an item has passed
or failed sign off. Completion procedures should allow for sequential testing
(or shadow testing) with an early warning if any items are unlikely to achieve
17

See note 6.

12

the completion test criteria. The contractor should insist on completion being
determined on objective criteria and that it is achieved as quickly and
efficiently as possible. The cost of any delay to completion incurred by the
contractor will be horrendous (possibly running at up to 1 million per week,
which includes but is not limited to liquidated damages).
Often the objective completion criteria are set out, such that the independent
tester simply ticks off his list to the effect that the facility exists and has been
constructed in accordance with the reviewed design, and that (for example) the
sample of rooms inspected comply with room data sheets.18 Often, the
completion criteria are not, on the face of it, unduly strict. Hoewever, should
defects subsequently be found to exist (not picked up when completion is
certified), the contractor remains very much on the hook and liable for defects,
insufficiencies etc, in the works, because usually the contractor agrees to be
responsible for rectifying defects for a period of 12 years. This is a fair and
balanced approach to determining completion. The contractor is not
disproportionately penalised in terms of delay related loss and the employer
retains its entitlement to have undiscovered defects addressed by the
contractor.
Fossils and antiquities
In relation to fossils and antiquities (Clause 24), if this is considered a real
likelihood, then consideration should be given to seeking compensation for
time lost (currently only compensated if there is a variation to the facilities).
Payment provisions
The payment provisions (Clause 35 and Schedule 18) should always be
reviewed for adequacy and consideration should be given to any project
specific amendments that may be required.
Insurance matters
Sufficient time must be allowed for insurance advisers to liaise and advise
regarding insurance matters (Clause 36 and Schedule 21). One point always
of interest to a contractor is whether the project company is taking out advance
loss of profit insurance which, if available, can alleviate the liquidated
damages burden placed on the contractor in the event of delay (more about
this below).
The ambit of Clause 38 (Information and Audit Access) is very wide and it is
in both the project companys and the contractors interest to attempt to take
out commercial confidential documentation from the scope of this provision.
Delay events
The wording of Clause 41.11 (Delay Events) is of particular concern to the
contractor and appears to link the project companys entitlement to a
compensation event to the award of an extension time. The clause reads: For
18

Samples, because there may be up to 4,000-4,500 rooms on a large hospital job.

13

the purpose of Clause 41.10, a Compensation Event means any Delay Event
referred to in Clause 41.3(b) [Breach], (c) [Execution of Non-Project Related
Works] or (d) [Opening up of Works] for which, in each case, it has been
agreed or determined pursuant to this clause that the project company is
entitled to an extension of time. My concern is that this probably means that
the project company will be entitled to compensation if (and only if) it is
awarded an extension of time. This is manifestly unjust. The project
company (and contractor) might incur disruption losses as a result of an
employer breach of contract which does not give rise to an extension of time,
or incur delay related losses on, say, a multi-phased project where such losses
are not ultimately time critical and do not therefore attract an extension of
time.
If this interpretation is correct this clause contravenes the OGC Guidance on
the subject, the gist of which (fairly in my view) provides that the project
company should be entitled to compensation in the event of such matters as an
employer breach of the project agreement (subject to proof of
entitlement/quantum in the normal manner). Paragraph 5.2.1.1 (page 45) of
the OGC Guidance states In fact, even a delay is not strictly necessary for the
occurrence of a Compensation Event as cost increases can arise without
any timetable changes. Although this provision appears in the NHS standard
form, it has not featured in any of the project agreements that I have reviewed
on other bids in different industry sectors.
On a more general note, the contractor is usually able to negotiate extended
(more realistic) notification and procedural time periods for notifying the
employer of delays and similar matters which must be notified. A check
should always be made to ensure that time periods are not unreasonably short.
If they are, they will not make much sense or be workable when the contractor
attempts to step down these provisions in its subcontracts (which, in turn, may
have to be further stepped down). Issues like this are matters of practicality
(rather than legal point scoring) and usually there is little difficulty in
achieving realistic and practical terms with the more experienced PFI advisers.
Turning to Clause 44.1 (Project Company Event of Default), it is essential for
the contractor to check that the long stop date allows adequate time to
complete the works, assuming that the worst has happened, bearing in mind
that liquidated damages will have to cover the whole period and will include
loss of revenue stream.
Intellectual property rights
The requirement (albeit one of reasonable endeavours) in Clause 51.3, to
ensure that any intellectual property rights (as described) vest and remain
vested in the project company throughout the term of the agreement (25-30
years) is not very realistic. Design consultants, amongst others, will not
usually agree to vesting provisions in respect of their intellectual property
rights. The clause refers to any Intellectual Property Rights created,
brought into existence or acquired during the term of this Agreement as
having to vest. Can one imagine representatives of Bill Gates at Microsoft
agreeing to such a provision?

14

Dispute resolution procedures

It will be important to review carefully Clause 56 and Schedule 26 (Dispute
Resolution Procedure) as sometimes (and probably inadvertently) this
schedule contains material which might give rise to unacceptable no loss type
legal arguments which could have unintentional adverse implications for the
contractor. More generally, some employers tend to opt for arbitration as the
ultimate dispute resolution process, not necessarily because they believe in it
but because of the opportunities for avoiding the more accessible joinder
provisions available to parties who litigate in the courts.
Other provisions: finally, one should not forget to consider the commercial
implications of some of the miscellaneous boilerplate clauses, contained near
the end of the standard form, as some of these (such as entire agreement,
Clause 61 and mitigation, Clause 67) do have real commercial implications.

The design and build contract

Limits on liability
Although little or no risk remains with the project company, in the context of
the design and build contract, that statement must be modified to recognise the
practice of allowing the contractor to limit, or cap, its overall maximum
liability for any and all losses to a certain percentage of the contract sum. This
cap may be subject to limited qualifications or carve outs, usually relating to
contractor liabilities which benefit from insurance coverage (in which case,
any insured liability would not normally count towards the overall cap). This
overall cap will typically have (as a constituent part) one or more sub-caps, the
most notable being a limit on the contractors liability in respect of liquidated
and ascertained damages. For instance, one might see the contractors
maximum exposure to liquidated damages limited to 20% of the contract sum.
The issue of the liquidated damages cap has a relationship with the long stop
date. The funders lawyers will be keen to ensure that the liquidated damages
cap can be reconciled with the long stop provision such that, in the event of
delay, the project company is able to satisfy debt service via liquidated
damages from the contractor.
As mentioned earlier, it is a commercial fact that because of the high risk
nature of PFI contracts generally (with severely limited abilities to utilise
claims upstream), the contractor is, effectively, signing off his final account
from the moment he signs the PFI construction contract. This reality must be
understood, managed (and priced) for, by the contractor.
Project documents
It may be necessary throughout a design and build contract to expressly
qualify the relevance of project documents, by utilising drafting devices such
as insofar as the same relate to the design, construction, of the design
and build works . Amongst the many obligations to be complied with,
most design and build contracts require the contractor to observe and comply
with the project documents. This term is often defined very widely and
15

sometimes not all of the project documents, as defined, are made available.
Clearly such documents need to be identified, accessed and assessed.
Generally, the design and build terms must be reviewed in their entirety with a
view to deleting or limiting the often excessive use of general indemnity
provisions (some of which are above and beyond what the project
company/employer reasonably need).
Equivalent project relief
The contractor should be entitled to a fair and reasonable proportion of any
equivalent project relief to which the project company becomes entitled under
the project agreement. Furthermore, and subject to reasonable protection as to
legal and professional costs, the contractor should be entitled to require the
project company to enforce rights and obligations regarding matters which
have, or may have, an adverse effect on the construction contract and/or utilise
name borrowing procedures to refer any disputes which arise to the agreed
dispute resolution process. In terms of obtaining equivalent project relief,
most PFI design and build contracts contain provisions whereby the project
company and contractor agree that the latters entitlements upstream (which
rely on the project company establishing entitlement under the project
agreement) shall be limited to those benefits which the project company
derives from the employer: employer derived benefits.
Such provisions are often detailed and complex and are usually coupled with a
related clause setting out the regime for pursuit by the contractor of project
company entitlements under the project agreement. In order to keep the
project company financially whole (as required by the funder), such
provisions will mean that if the contractor wishes to pursue a dispute under the
contract he must fully fund the legal and professional costs of doing so (this is
where no loss type arguments might arise under the dispute resolution
provisions in the project agreement). Often the contractor can negotiate that it
will fund the costs of the project company which are properly and reasonably
incurred (as well as its own costs).
Interfacing issues
The complexity of the PFI process, especially on the bigger, more complicated
jobs (such as multi-phased large hospitals), gives rise to very complicated
interfacing issues. Such issues can, as a matter of contractual structure, be
dealt with entirely within the terms of each individual subcontract between the
project company and the relevant subcontractor (whereby interfacing issues
are co-ordinated and dealt with up and down via the project company, which
is the preference of most construction contractors). Alternatively, such issues
can be dealt with in a separate interface agreement; or a combination of these
two approaches is possible. Such agreements deal with a myriad of issues,
including inter-subcontractor disputes, design review and general coordination issues.
In practice, this is a complicated and difficult matter to deal with satisfactorily
from everyones perspective. When it occurs which in my experience, is not
16

very often it is one of the more heavily negotiated elements of the design
and build contract. It is usually preferable from the contractors perspective
for all interfacing issues to be dealt with through the project company (who
should have priced for the resource needed to co-ordinate). The project
company often brings discipline (and sometimes a calming influence) to the
treatment of inter-subcontractor disputes. The parties will tend to think twice
about bringing claims against the project company, not wishing to sour
commercial relations unnecessarily, whereas they may be less inhibited by the
prospect of launching claims against another subcontractor.
The active involvement of the project company, acting as it sometimes does as
a quasi arbitrator if you like, reduces the potential for a free for all.
Sometimes that can happen quite easily if inter-subcontractor disputes and
issues are left to be resolved directly between the parties without the active
involvement of the project company. The project company can be kept whole
and protected financially because all the individual subcontracts will (or
should) contain the type of protectionary provisions touched on above.
Related interfacing issues concern what effect (if any) an interface agreement
has on the limits of liability in construction and facilities management
contracts and security (what if a subcontractor, against whom a large claim
exists, becomes insolvent?)
Construction Act avoidance
In the context of keeping the project company whole, it is frequently a
requirement for the contractor to enter into an agreement the purpose of which
is to circumvent the protectionary provisions afforded by the Housing Grants,
Construction and Regeneration Act 1996. Part II of the Act applies to the
design and build contract with the project company but not to the project
agreement between the project company and the employer.
Such agreements are sometimes labelled loan agreement (or something
equally misleading), the gist of which is that if, for whatever reason, the
project company becomes liable to pay monies to the contractor, the latter will
only receive such monies if and when the project company receive these
monies from the employer (pay if paid). However, just in case the contractor
challenges this arrangement, the loan agreement stipulates that at the very
moment the contractor becomes entitled to receive X from the project
company, the contractor immediately becomes obliged to make a loan of that
very same X to the project company. This, in turn, is supplemented by
further interesting provisions aimed at discouraging any challenge to this
arrangement by the contractor. Other devices include loans made by sister or
parent companies and independent guarantees of loans. As far as I can tell,
nobody really knows whether the loan agreement type device would be upheld
if tested before the courts: time may tell.
Performance bonds and parent company guarantees
The OGC Guidance queries the appropriateness of bonds and parent company
guarantees in PFI contracts, suggesting that collateral warranties and/or direct
agreements, as well as the project documents themselves, should provide
17

sufficient comfort and protection for the employer.19 In practice however, a

parent company guarantee is usually required from the contractor in favour of
the project company (assignable to the bank by way of security). A bond is
not usually required and certainly not both a bond and a parent company
guarantee, in most circumstances. The terms of the bond and parent company
guarantee will be qualified to contain the usual cluster of provisions normally
required by the contractor.
Direct agreements
Any direct agreements between the contractor and the fund and employer will
also contain the usual protectionary provisions required by the contractor. In
the funder direct agreement, the most heavily negotiated issue often revolves
around the length of the suspension period by which the contractors right to
terminate the contract by reason of project company default is suspended
whilst the funder is afforded a reasonable period of time to decide whether to
exercise their step in rights, or appoint a receiver, or additional obligor, or
novate the contract. Whilst the concerns of the funder are understandable, so
too are the concerns of the contractor to be paid monies owed to it and not be
forced to wait unduly long periods before it can terminate the contract. The
longer the contractor must remain on site whilst not being paid, the greater its
exposure to losses which can, quite easily, run into tens of millions of pounds.
In practice a reasonable compromise is usually achievable.
It will be essential to ensure that the terms of the funders direct agreement
and the employer direct agreement are reconciled the funder usually gets
priority. On a more general level, any warranties the contractor gives to the
funder or employer via the direct agreement will invariably be expressed as
only applying in circumstances where the project agreement between
employer and project company is terminated and step in rights are exercised.
Even then, such warranties should not be greater in extent or duration than
those imposed upon the contractor by the terms of the design and build
contract.
Delays
Unless the contract says otherwise, the project company (and the contractor on
a pass through) will be responsible for delays to the project. Exceptions in
PFI are as follows: compensation events, relief events or force majeure events.
Compensation events are those expressly stated to be at the employers risk
and in respect of which the project company should be compensated. The
following should be treated as compensation events in all projects: employer
breach of an obligation (which includes a breach occasioned by third parties
for whom the employer is responsible, such as teachers or doctors); employer
changes; and discriminatory or specific changes in law. Experience has shown
that in certain circumstances, it may be possible to extend this list to problems
related to planning delays and possibly, also, difficulties encountered with
archaeological works. Sometimes certain types of ground conditions are
19

See note 6, section 22.4.

18

included as a compensation event, for example, on hospital projects where the

contractor has been unable, or given no realistic chance, to check the state of
the ground (eg for contamination), for instance where an old hospital building
is to be demolished and rebuilt immediately. If a compensation event occurs,
and it has an impact on the planned service commencement date, that date may
need to be postponed. Any long stop date would be similarly pushed back. If
the project agreement contains a liquidated damages provision, the project
companys liability for liquidated damages will also be relieved for the period
of delay caused by the compensation event. The project company should also
be relieved of any other liabilities or employer losses in respect of the event.
Relief events are those which prevent performance by the project company of
its obligations at any time. The project company bears the financial risk in
terms of increased costs and reduced revenue but it is given relief from
termination for failure to provide the full service. In most cases, termination
should not follow a relief event. They are best managed by the project
company (although not necessarily in its control). They are usually defined as
including such incidents as fire, explosion, lightning, storm, tempest, flood,
bursting or overflowing of water tanks etc. The financial effects of delay
caused by relief events are borne by the project company (and the contractor)
so no compensation will be paid by the employer on the occurrence of such a
delay. If a relief event occurs prior to service commencement, any long stop
date will usually be extended by a period equal to the relevant delay. If a
relief event occurs, the contractors liability to the project company in respect
of liquidated and ascertained damages will continue, even if the project
companys date is extended under the project agreement (because the
financing debt must continue to be serviced).
Force majeure events are a limited set of events which arise during the life of
the contract through no fault of either party, which are best managed by the
contractor (although not in its control) and in respect of which rights of
termination can arise.
One very notable difference between the PFI process and traditional JCT
building contracts is that under, say, JCT 1998,20 upon establishing an
entitlement to an extension of time for, say, delay caused by a fire or flood
(Specified Perils) the contractor would be entitled to an extension of time
under clause 25. The extension would give rise to relief from the liability to
pay liquidated and ascertained damages to the employer. In contrast, the
contractor in a PFI construction contract will usually not be relieved from
liquidated damages because of the fire or storm but will continue to be liable
to pay liquidated damages to the project company. This liability will be
abated only in circumstances where an advance loss of profits insurance policy
kicks in and the proceeds are used to alleviate the contracting losses. This is
all about keeping the project company whole and satisfying the project
companys continuing obligation to service its debts to the funder. This
considerable risk should encourage contractors to focus carefully on a number
of matters including the viability and reality of their proposed construction
programmes.
20

Standard Form of Building Contract, 1998 edition, The Joint Contracts Tribunal Ltd.

19

Changes
The project agreement should contain a mechanism whereby changes in
services or variations may be proposed by either party and evaluated and
approved prior to implementation. Generally, employer changes should be
limited to changes to the service requirement. If the project company is fully
protected in the project agreement against the consequences of an employer
change, including how the change is to be paid for, there should be no
objection from the project companys financiers.
As mentioned, discriminatory and specific changes in law usually constitute
compensation events, the remedies for which benefit the contractor as well as
the project company. The bigger risk for the contractor relates to general
changes in the law. The contractor must, to some extent, crystal ball gaze and
take a view as to likely changes coming into force during the currency of the
construction works. Such changes might be ascertained by reference to
published Green and White Papers and proposed changes emerging from
Europe. On a typical hospital project, the contractor might reasonably be
expected to take the risk of compliance with general changes in law which
might apply over a period of say, 18 months to 2 years. On some of the
bigger, more complicated hospital projects, where the construction contract
period is likely to be in excess of 2 years (sometimes 4 years and over) a
different (shared) approach to risk allocation may be appropriate. Although a
contractor might envisage general changes over long construction periods, it is
often not reasonably possible to foresee the exact nature of any changes and
therefore, it may be impossible for the project company or contractor to form a
realistic view as to how to price this risk. Any attempt to price such
uncertainty would be imprecise, probably excessive and would not represent
value for money.
The OGC Guidance is helpful and suggests an alternative approach: the
recognition that it may be more equitable in certain circumstances for the
employer to share costs which are difficult for the project company (and
therefore the contractor) to manage.21 One suggestion is that general changes
in law requiring capital expenditure taking effect during a typical construction
phase might be at the risk of the project company (and contractor) in terms of
time and money. On the other hand, on projects which have unusually long
construction periods, transferring risk of general changes in law for the entire
construction period (rather than adopting a sharing approach) may, in fact,
represent poor value for money and is likely to be difficult to achieve in
practice.
Termination
A project agreement will terminate either on the expiry date (typically after
25-30 years) or as a result of early termination. Early termination can be
caused by employer default, project company default, force majeure, corrupt
gifts and in circumstances of voluntary termination by the employer.22 The
21
22

See note 6, section 13.8.

See note 6, section 20.5.

20

project agreement should deal comprehensively with the consequences of all

types of termination and in particular, it must address what happens to the
asset and what termination payments (if any) are payable by the employer. It
is widely accepted that the level of compensation payable by the employer
should be determined by such factors as the reasons for the termination, which
party retains the asset, and whether those assets have any alternative use.
The objective of compensation on termination for employer default should be
to ensure that the project company and its financiers are fully compensated
(that is, no worse off) because of employer default than if the project
agreement had proceeded as expected. A footnote to the OGC Guidance states
that the compensation payable should reflect a realistic calculation of an
anticipated claim for damages, and therefore should be an exclusive remedy of
the project company leaving no residual claim for damages.23 Usually, the
drafting of compensation on employer default clauses will involve paying the
project company an amount equal to the aggregate of the senior debt,
redundancy payments (for employees of the project company that have been
or will be reasonably incurred as the direct result of termination of the project
agreement) and amounts payable to the subcontractors under the project
documents as a direct result of the termination.
Termination on contractor default should be restricted to acts involving the
severest of defaults, when all other reasonable alternative options have been
exhausted. There should be no possibility of unjust enrichment and the
remedy should be the employers last resort. The events of project company
default which may lead to termination should be objective, clear and provide
for reasonable tolerances. Such events of default should be limited to
breaches which have a material and adverse impact on the performance of the
services.
The aim with regard to compensation for project company default is to ensure
that it is dealt with within the project agreement. The level of compensation
agreed on contractor default termination should represent a balance between
protecting the employers interests and not imposing unreasonable deductions
on the project company for its default.
Land issues
It is usual for the project company to procure a certificate of title to the land
upon which the project is to be built. The due diligence undertaken will result
in a report which will highlight the nature and extent of interests held by third
parties which could impact on the contractors ability to perform its
obligations. In particular, the contractor should look out for unduly onerous
restrictive covenants, easements or constraints on the site. Do not overlook
tower cranes and the need for tower crane licences to be negotiated with
neighbours. If the issue of tower crane licences has not been properly thought
through (and priced for) before commencement of construction, the contractor
risks being faced with potential ransom licence fee demands. The same
worry applies to scaffolding licences, where applicable. The due diligence
23

See note 6, section 20.1.3.1.

21

exercise should also pick up and disclose any existing section 60 or 61 Control
of Pollution Act constraints which may apply to the site.24
Design
The level of design responsibility in the design and build contract will usually
mirror the equivalent obligation in the project agreement. In the case of the
NHS standard form, this is set out in Clause 17.2 as follows: The project
company warrants that it has used and will continue to use the degree of skill
and care in the design of the Facilities that would reasonably be expected of a
competent professional designer experienced in carrying out design activities
of a similar nature, scope and complexity to those comprised in the Works.
There is some debate as to whether this wording would be sufficient to
displace the implied term of fitness for purpose.
Much effort will go into the preparation and negotiation of consultants terms
of appointment and subcontracts and these must, as far as possible, be
compatible with the risk profile of the project agreement and construction
contract. In terms of administering these contracts, procedures and time
periods (upstream) should be sensible, otherwise they will not work when
stepped down into subcontract conditions. This is a fact sometimes
overlooked in the drafting of project documentation. On a positive note, the
PFI regime allows much more scope than exists in traditional procurement
methods for main contractors to develop meaningful long term relationships
with subcontractors and suppliers. This is done by way of framework
agreements with key subcontractors and suppliers. Such relationships reduce
the scope for wasteful conflict and give rise to win:win relationships, which
means value for money for everyone involved in the process.
Assignment
Save for circumstances where the project company can assign or charge the
benefit of the design and build contract to the funder (or funders agent) in
connection with the funding of the project, the contractor will be keen to
prevent any further or other assignment without its express written consent.
Collateral warranties
Sometimes (but not always) the contractor is asked to procure collateral
warranties from its subcontractors in favour of various beneficiaries. The
contractor may well not accept this. In my view, they are (in a PFI context)
both unnecessary and expensive and are contrary to the value for money
aspirations of PFI projects. In contrast, however, it is quite normal for direct
agreements to be provided by the contractors major design consultants in
favour of the funder and the employer.

24

Control of Pollution Act 1974.

22

Conclusion
Does PFI work? In my experience so far, yes it does. The public private
partnership represents an optimum means of procurement, which invariably
gets the best out of the private sector. Primarily, this is because the private
sector takes a stake in the process and is therefore incentivised to make it
work. This, in my experience, rarely happens in traditional cut-throat
contracting. Innovation by the private sector, accompanied as it usually is
with a reduction in conflict between the participating parties, gives rise to
value for money for everyone and real meaning to the concept of partnership.
The potential to extend the process beyond current limits seems to me an
exciting prospect with very real chances of success because of its success to
date. In the real world, economic constraints apply to any governments
ability to build enough new hospitals and schools to satisfy societys needs
and demands. PFI/PPP allows more hospitals, schools and other necessary
infrastructure to be constructed or upgraded (by utilising private finance) than
would otherwise be the case.
Despite taking on greater risk when compared to most methods of traditional
procurement, the contractor has the potential to earn better profit margins if it
manages to get it right in terms of delivering the product the employer wants
(an aim the PFI process lends itself to). I believe PFI as a means of
procurement gives real meaning to the term partnership when used in the
public private partnership context. When the process goes well (and most
projects, in my experience, do go well for both sides), a true win:win situation
arises. The employer generally gets what it wants in terms of a product and
service with relatively strong certainty of price, time of delivery and quality,
giving real meaning to the term value for money. In turn, the contractor gets a
fair and proportionate return commensurate with the risk:reward profile
applying to the PFI procurement regime.
One of the most striking benefits of the PFI process is that as more projects
come on stream, people up and down the country are witnessing something
real happening within their communities: the construction of more new
schools, hospitals and other necessary projects which will be of direct benefit
to us all in our everyday lives. These projects are, in numerous instances,
replacing demoralising, crumbling, often Dickensian hospitals, schools and
other structures. In all likelihood this would not be happening but for PFI.

Martin Lenihan BA (Hons), LLM (Lond), ACIArb, barrister, is legal

adviser to the Skanska Construction Group Limited.
Martin Lenihan and the Society of Construction Law 2002.
The views expressed by the author in this paper are his alone, and do not
necessarily represent the views of the Society of Construction Law or the
editor, neither of whom can accept any liability in respect of any use to which
this paper or the information in it may be put.
23