Gearing up for PFI contract expiry

The Private Finance Initiative (PFI) was a scheme introduced in 1992 whereby the private sector invested in the delivery and provision of public infrastructure and services. The scheme delivered many projects across the UK’s healthcare, education, justice, transport, waste, housing and leisure sectors under long-term contracting arrangements with project terms ranging from 20 to 40 years.

The expiry of these contracts will present opportunities and challenges for both private entities and public authorities as assets and services are transitioned back into public control or alternative delivery models are pursued. This issue is becoming ever more pressing in 2026 as 5% (33 of 714 active contracts as at 31 March 2024) of the government’s PFI contract portfolio is set to expire this year. 

Key issues that arise 

Asset condition and handback

One of the most significant challenges that we are seeing arise as PFI contracts near their expiry date is ascertaining and managing the condition of the assets that are to be handed back to the contracting authority.

These disputes arise because whilst a PFI contract will typically specify the condition that assets are to be returned in, the contractual drafting is often deficient and vague and many early PFI contracts do not contain detailed provisions regarding handback standards (or any at all). Parties will need to carefully consider the handback provisions in the contract and conduct thorough condition surveys well in advance of contract expiry to identify any deficiencies in the assets and ensure maintenance obligations are fulfilled.

Service continuity

A practical challenge as a PFI contract winds down will be the continued delivery of services in this period. This is a critical issue given the context in which many PFI contracts operate, as this could involve essential public services such as healthcare facilities, schools, and transport infrastructure. Parties will need to develop comprehensive transition plans and ideally make such plans legally binding (for example via contract variations or supplemental agreements) that address staffing, operational procedures, and any potential service gaps.  

Staff transfer and employment issues

TUPE (Transfer of Undertakings Protection of Employment) regulations typically apply when PFI contracts expire, requiring the transfer of staff to new employers. This will likely raise employment law issues, including pension arrangements, terms and conditions, and workforce integration. 

Re-procurement

Where services cannot be brought in-house, authorities will need to consider the procurement of replacement contracts. Following the introduction of the Procurement Act 2023, authorities will face new rules and processes to award such contracts to new suppliers. 

The Infrastructure and Projects Authority guidance recommends that parties to a PFI contract start planning for contract expiry seven years in advance. With that in mind, for contracts set to expire in 2026, hopefully most of the potential issues considered above will have already addressed between the parties. Our experience in recent years has taught us:

• early engagement on knotty issues can help avoid disputes;
• operational issues and disputes should be addressed early and not wrapped up in the complex expiry process; and 
• parties need to dedicate sufficient resource to deal with the additional expiry burden.