PFI Expiry: What Happens to Staff When the PFI Contract Ends?

As the first wave of Private Finance Initiative (PFI) contracts approach their end, a key question is: what happens to the employees? Enter TUPE - the Transfer of Undertakings (Protection of Employment) Regulations 2006. Often, when a PFI expires, TUPE kicks in, meaning staff working on the project may automatically move to a new employer, whether that’s the public authority or another contractor. But, as always, it depends on the specific terms of the PFI contract and the circumstances around its expiry.

What is a PFI?

PFIs were introduced in the 1990s as a way of funding major public infrastructure - think schools, hospitals, and roads - through partnerships with the private sector. Under this model, a private company designs, builds, finances, and maintains an asset, with the public sector repaying over the life of the contract, typically 25–30 years.

Now, many of those PFIs are winding down. With that comes a host of legal, logistical, and employment-related challenges.

Who Do the Employees Transfer To?

Every PFI contract, no matter the size, involves a workforce delivering a service. As these contracts come to an end, the big employment law question is: where do those employees go?

Typically, the staff - usually employed by the facilities management (FM) contractor - transfer either:

• Back to the public sector, if services are being brought in-house, or
• To a new contractor, if the service is being re-tendered.

This is where TUPE comes into play.

How Does TUPE Work?

TUPE protects employees when the business or service they work for changes hands. If there’s a "relevant transfer" then:

• Employees automatically transfer to the new employer.
• Their existing employment contracts, including terms and conditions, move with them.
• The new employer steps into the shoes of the old one, inheriting all associated employment rights and obligations.

However, TUPE won’t apply in every case. Before expiry of the PFI, as assessment should be carried out on whether TUPE will apply or not. In addition, the PFI contract must be reviewed carefully. It may have detailed provisions on how TUPE is to be handled.

What If TUPE Doesn’t Apply?

If TUPE doesn’t apply, employees remain with the FM contractor. In those cases, the contractor must decide whether it can redeploy affected staff elsewhere within its business. If not, redundancy may be the only option - although this should always be the last resort.

PFI Contract Restrictions

PFI contracts often contain clauses that restrict what the FM contractor can do with staff in the lead-up to expiry. These might include:

• No changes to employees’ terms and conditions
• No increases or decreases in headcount
• No shifting of staff in or out of the service without approval

These limitations are designed to stabilise the workforce before any handover, making the transition smoother for all parties.

Don’t Forget Pensions

Pensions can be a significant issue in PFI handovers. Many employees will have originally transferred from the public sector and may have been offered:

• A broadly comparable private pension scheme, or
• Admission to public sector schemes like the Local Government Pension Scheme (LGPS) or NHS Pension Scheme.

It's essential to check what pension rights these staff members have and whether they can continue in their existing scheme post-transfer. Specialist advice here is crucial.

Planning Ahead: TUPE and PFI Exit Strategy

The key to a smooth PFI expiry? Preparation. From a TUPE perspective, that means:

• Carrying out an assessment as to whether TUPE will or won’t apply on expiry
• Reviewing the PFI contract early
• Understanding the TUPE provisions it contains
• Identifying the employees affected
• Planning for consultation, information-sharing, and potential transfers or redundancies

With the right planning, a complex contractual expiry can become a well-managed transition - for everyone involved.

This article is part of our Legally FM article series, to read more from this series please click here.