Bringing disputes to a head before PFI expiry

The Infrastructure & Projects Authority’s advice to contracting authorities is to prepare for the expiry of PFI contracts as early as 7-10 years beforehand. Prudent FM contractors should also make sure they are ready for scrutiny of contracts and their performance and any potential disputes arising ahead of PFI expiry.

Some contracts, particularly in early PFI projects, can be quite vague about the parties’ roles and responsibilities on expiry, while others include detailed handback procedures. If there are gaps in the provisions that one would expect, it may be advisable to start discussions early to agree on processes before getting too close to expiry. In other cases, parties would be advised to carefully consider whether to raise potential issues with ambiguous contractual terms if that might result in increased liability or remove an argument to use in future negotiations.

Generally speaking, organisations should make sure they fully understand the contracts. Legal advice may be necessary to interpret unclear provisions.

A likely source of disputes prior to PFI expiry will be the extent of rectification works and who is responsible for paying for them – whether they arise out of a maintenance issue, fall to lifecycle, or relate to a construction defect. With the builder’s defects liability period being long since expired by the time the 20-30 year PFI contract is close to its end, it is important to understand which party is responsible for works arising out of defects. The risk defaults to the main contracting SPV in some contracts whereas the FM contractor has taken responsibility for defects in others.

Many other issues in the lead up to contract expiry could also give rise to disputes, such as the contracting authority’s rights or requirements relating to surveys, its ability to inspect records, the extent or ownership of intellectual property rights and employment issues.

The main thing contractors should do to minimise risk is to ensure they comply with their contractual obligations and – crucially – document this. It would be prudent in advance of PFI expiry for contractors to review the state of their records. With some authorities minded to employ consultants whose fee structure may mean they are incentivised to identify deductions to be levied before expiry, this exercise may be usefully addressed early on. If there is for example a gap in maintenance records to prove proper performance of maintenance obligations, is this due to a misfiling that can be rectified? If the records cannot be located, can the evidential gap be plugged by seeking the assistance of individuals with relevant knowledge before they move on to a different organisation?

On the other hand, care should be taken not to create documentation that might be unhelpful in circumstances where litigation is not contemplated nor legal advice sought. Such documents would not attract legal professional privilege and may therefore be disclosable in subsequent court proceedings, potentially undermining a party’s position.

If a potential dispute arises, it is sensible for an organisation to know where it stands before deciding on a strategy – legally, factually, evidentially. Legal advice should be sought sooner rather than later, to ensure that nothing is said and no action is taken (particularly openly, as opposed to on a without prejudice basis) that could undermine a case later down the line. That advice should be based on a thorough understanding of the factual position, which will require input from those with direct knowledge of the issue and the key documents and correspondence.

Contractors should ensure that they understand the financial caps that apply to their liabilities under a contract – including the amount (often index-linked), which liabilities are included and which exclusions apply (for instance in cases of wilful default or breaches of law). The cap could have a major impact on how to deal with an issue, if for instance a potential liability is likely to exceed it.

An understanding of the potential risks and liabilities is key to seeking to resolve a dispute, ideally through a commercial agreement so as to avoid the risks and cost of more formal processes, in particular court proceedings. A consideration towards the end of a contract might include the extent to which the authority may wish to seek retender or a contract extension as part of its commercial objectives. Finally, parties should ensure that they understand the dispute resolution provisions that must be followed should a dispute arise.

Devonshires has significant experience in resolving disputes under PFI contacts through negotiation, mediation, adjudication, arbitration and Court proceedings. Dispute resolution strategies depend on the specific facts, evidence, contractual terms and commercial context that apply to a situation.

This article was originally published in the Facilities Management Journal, the number one for the latest facilities management news, comment and in-depth analysis for facilities managers.