New Government code of conduct aims for savings on historic private finance contracts

It sets out commitments for both public and private parties to public private partnership (PPP) contracts (3-page / 49KB PDF), including those engaged in historical private finance initiative (PFI) arrangements. Around 50 organisations including investors, lenders, construction contractors and facilities management providers have already signed up, with more expected, the Treasury said.

The code was first recommended in 2011 as part of then Commercial Secretary to the Treasury Lord Sassoon's work on bringing down the cost of PFI contracts, and forms part of the Government's wider Operational Savings programme. It will apply to PPP contacts entered into under the previous PFI regime and its replacement, known as PF2, which will be used from this year.

"Having given us a vision of the future with the PF2 model, the Treasury has given us a vision of how the past should have been by providing a code to govern the way 'old' PFI projects should be administered, so as to achieve savings," said projects expert Jonathan Hart of Pinsent Masons, the law firm behind Out-Law.com.

"One of the key criticisms of PFI has always been that it represented poor value for money, especially after projects have been built and have entered service delivery. The new code won't contractually amend the agreements that have already been entered into but is intended to influence the behaviours of those entities (authorities, sponsors, lenders, contractors) that are signatories to those agreements," he said.

The code states that projects should have a single point of contact, to ensure efficiency and good communication between the parties. Private sector partners must commit to regular meetings with the relevant public sector body to discuss what savings have been made and identify further efficiency opportunities, which the public sector partner should give "reasonable and prompt" consideration to.

The code also contains a number of guidelines to increase the transparency of project arrangements. Partner organisations should be updated on day-to-day costs, such as consumables and utility costs, it says. They should also be informed as soon as possible if ownership of the project changes.

"Much of what is being suggested is good common-sense guidance: single point contacts, better reporting and emphasis on efficient management," said Hart.

"There has been widespread support to sign up to the code too, given that the major industry players are already signatories. It would be expected that any private sector contractors that are active in public contracting, wish to continue to do so and haven't yet signed up will no doubt be getting their pens out," he said.

The Government said that it expected "widespread support from the market and public sector" in relation to the new code. It will update the list of organisations and bodies that have committed to it every fortnight, it said.

PFI was introduced in the 1990s as a way of using private funding to pay for major public infrastructure projects. In a PFI agreement, the private sector obtains finance to design, build and operate a facility for the benefit of the public. In return, the public sector will grant its private sector partner a long-term contract to run the facility, and will pay a monthly fee over the life of the project to repay the loan.

The Chancellor announced a review of private financing arrangements in November 2011, citing PFI's lack of flexibility and criticisms that the programme was too slow and poor value for money. Its replacement, PF2, was announced in December 2012 alongside the Autumn Statement. Among other changes, PF2 will see the Government take on the role of a project shareholder holding a maximum stake of 49%. This will allow the public sector to recover a share of the profits made by projects in the same way as private sector investors.