Out-Law News | 17 Oct 2013 | 10:48 am | 2 min. read
It has published standard legal documents setting out the proposed terms of the Government's investment in projects funded using the new PF2 model, which replaces the previous Private Finance Initiative (PFI) regime. Under PF2, the public sector will take on the role of a minority shareholder in the project. It will have a seat on the board of the project company and will be able to recover a share of the profits in the same way as private sector investors.
"We've consulted extensively to make sure we get a workable model that services both the public and private sector as it should," said Danny Alexander, chief secretary to the Treasury, at an industry event in London.
"As a shareholder, the public sector will have a stronger voice in the management of the PF2 project company and receive a share of the financial returns. This is a fundamental reassessment of the old PFI and it will provide better value for the taxpayer, better public services, and a better infrastructure," he said.
The new legal documents are ready for use in public private partnerships (PPPs). They have already been issued to shortlisted bidders for the first two batches of schools that make up the privately-financed element of the Priority Schools Building Programme (PSBP), which is being managed by the Education Funding Agency.
Announced at the end of last year, PF2 is intended as a "faster, more transparent" approach to using private finance to fund public infrastructure. PF2 projects will be run by joint venture companies, into which the public sector will invest on the same terms as the private sector. Each company will be majority owned by the private sector, with the Government's stake limited to 49%.
The decision to invest public sector equity will be taken by an Investment Committee made up of senior Treasury officials and two independent members, which will examine bids to make sure that they meet government investment criteria. Public sector shareholdings will then be managed by a new PF2 Equity Unit, which will also evaluate prospective investments and regularly review their performance.
Other changes to the procurement process will include the introduction of a maximum time limit of 18 months from issuing the tender document to the appointment of the preferred bidder. Projects procured under PF2 will still be run by private companies, but services such as cleaning, catering and security will be removed from the management contract and instead procured separately, under shorter-term contracts.
The suite of documents published by the Government builds on drafts published for consultation in July, and includes a standard shareholders' agreement and standard articles of association for the joint venture. These documents set out the terms of the public sector investment including details of voting arrangements, the right of the public sector to appoint a director to the joint venture and the types of information that private sector investors will be expected to disclose.
The Government has made some changes to the draft documentation to incorporate its new policy regarding tax compliance and public procurements, as well as requiring private sector investors to disclose the 'beneficial owners' of their investments in PF2 projects. The terms of the agreement also ensure that the Government will receive detailed information on the performance and financial position of the PF2 joint ventures, including profits made.
Procurement law expert Barry Francis of Pinsent Masons, the law firm behind Out-Law.com, said that the amendments to the standard documents "make sense, as one would expect".
"I do not see that, overall, the market is going to have difficulty with the documentation," he said. "The key to the success of PF2 will be the timely and pragmatic execution of the equity participation arrangements themselves."