PFI Contract Disputes Risk Disruption to School and Hospital Operations, Warns Labour Peer - Latest Global News

PFI Contract Disputes Risk Disruption to School and Hospital Operations, Warns Labour Peer

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Labour peer Lord John Hutton warned that NHS hospitals, schools and other public services were at risk unless the next government acted quickly to stem the flood of litigation over contracts under the Private Finance Initiative.

In an interview with the Financial Times, Lord Hutton, chairman of the Association of Infrastructure Investors in Public Private Partnerships (AIIP), said there were “red lights flashing” on around 150 PFI contracts due to expire in the next parliamentary term.

“If we carry on as we are, we risk services being disrupted due to disputes over liability,” he said. “It’s a waste of public money because lawyers are not cheap and if you go to the Supreme Court you face significant costs. It’s not on the politicians’ radar, but if they don’t get it right, it could be their undoing.”

Hutton held various cabinet posts during the last Labour government between 1997 and 2010, a period that saw a sharp increase in the use of private finance to build public infrastructure such as schools and hospitals.

The AIIP was set up by investors including Dalmore Capital and Equitix Investment Management to address the increasing number of PFI cases being heard in the Supreme Court before assets are returned to the public sector upon contract expiry.

Relationships between several public authorities and the private sector over expiring PFI contracts have become “toxic,” a Treasury report said last year.

Most disputes concern the maintenance and condition of properties. The AIIP calls for the Ministry of Finance to play a more active role in tackling the problems on behalf of public authorities so that they are resolved before they end up in court.

Disputes that have already come before the High Court include a case over liability for a 2018 fire at Whittington Hospital in north London, a dispute over service failures and deficiencies at Tameside & Glossop Integrated Care NHS Foundation Trust, and a dispute over service failures at North Kent Police Station.

PFI was abolished for central government use in 2018 after the National Audit Office said it did not provide sufficient value for taxpayers.

But there is growing optimism among investors that a Labour victory will usher in a new era of private investment in infrastructure. Hutton said Labour was “open” to a redesign of the PFI in some form.

“We are conducting a dialogue with [Labour] and they were very open to us,” Hutton said, adding that PFIs had been unfairly vilified and that there was a “misunderstanding about whether they were worth the money”.

However, Hutton warned that the new government could scare off investors if it does not act to prevent a wave of litigation. “If the UK does not resolve the issue, there is a real possibility that the country will get a reputation for being too litigious and that will drive away investors,” he said.

“It is ironic that Britain [public private partnerships] Yet we are the only country that does not have a model for the future,” Hutton added.

Last month, Shadow Chancellor Rachel Reeves promised to set up a new government-backed National Wealth Fund to attract “tens of billions of pounds of private investment.”

The regulator Ofwat is also encouraging water companies to set up PFI-like schemes to deliver new infrastructure, including reservoirs and pipelines.

Max Curzon-Hope of consultancy Curshaw Commercial and founder of the AIIP said: “Given Labour’s adherence to the Treasury’s strict budget constraints, public-private partnerships are the only option.”

The Cabinet Office declined to comment but pointed to the Infrastructure Projects Authority’s establishment of a contract management programme in 2020 to manage the risks associated with operational PFI projects.

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