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tightening the purse strings

1 October 2010

A major criticism of PFI contracts is that they are lengthy (typically around 25 years) and inflexible. Against this background, the government recently targeted second tier contracts as ripe for savings and a Treasury source has this week revealed that PFI/PPP contracts are next in line.

Although the capital element of a project is largely set in stone and underpinned by the rights of funders, the service elements of a PFI or PPP should be as amenable to change as any other services contract.

Good contract managers will already have been looking for efficiencies within the terms of existing contracts – cuts or no cuts – but increasing government focus on reducing PFI charges will lead to actual renegotiation. Particularly where the authority feels the contractor is under-delivering or that the project was over-specified at the outset, and the relationship between the parties (good or bad) means that the authority has the appetite to tackle their contractors.

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