Is MIM a step up?

Absolutely.  MIM has been a natural evolution as lessons have been learnt on historic contracts.  There have been a number of improvements, of particular interest and key to any future model in England: 

• Public sector having a more active role, with an equity stake – resulting in a public sector nominated Director taking an active role in the delivery company; a role that needs to be by experienced individuals with the ability to influence behaviours ensuring best value is achieved for the public sector.
• Embedding transparency – a commitment to increased sharing of information through enhanced reporting provisions for the delivery company and builds confidence for the public sector in terms of performance ; and
• Clerk of Works to replace the Independent Certifier role – enhancing confidence of building works being completed to the correct specifications and standards.

Members of the P2G team played an active role in the development of MIM and its eventual use, and have first hand experience of the benefits these elements have brought to the model.  

Further refinement is needed to enhance the model

P2G has been working with the NHS since 2012, providing over 80 Trusts with a range of support from monthly performance monitoring through to the resetting of contracts, involving complex commercial negotiations, and more recently expiry support.  We are seeing problems repeating across projects which we believe can be addressed by further refinements to project structures and behaviours.  Some of the enhancements and issues to consider that we have been discussing with Central Government Departments include:   

• Contract Management standards – required enhancement by both the public and private sector; the current provision is highly variable across projects therefore investment in training is a must.  Public sector provision could be provided at ICS or regional level to achieve consistently high standards of contract management whilst also driving economies of scale savings to the public sector.

• Simplification of Service and Performance standards – exploring routes to address current complexities in the standards that lead to different interpretations by parties.
• Enhanced survey requirements – including a mandatory and detailed  [condition / asset] survey, based on current industry best practise, prior to the expiry period of the latent defect liability period, with further surveys at regular intervals to provide the basis for the planned works and lifecycle investment programme.
• Improved variation clauses – including setting out a manageable framework for implementation of variations, requiring senior lenders to be bound to the requirements of the Project Agreement, intended to address current issues where delays occur obtaining senior lender consent  supporting the perception of inflexibility in current projects.
• Enhanced Asset Data requirements – including a requirement for Public Sector access to CAFM and base data will build confidence from a public sector perspective.
• Excess profit retention clauses – a complex area, not least given balance sheet implications, but examining a route for a proportion of profits (over and above the original modelled position)  to be retained in Project Co until expiry to ensure all liabilities on handback can be met.
• Recourse v non-recourse model – consideration of other Government contracting approaches including the benefits / drawbacks of a recourse model as the current non-recourse model limits the risk to Equity to their invested funds and allows them to walk away from problem projects, whilst their stake in profitable projects remains unaffected.
• Alternate Investors – Encouraging alternative investors such as Local Authority Pension Funds and Charities has the potential to change behaviours with a better alignment to public sector values.

Affordability remains a concern

One further issue that needs to be addressed is affordability. 

Its not just the Capital regime that is broken in the NHS, revenue performance is also at breaking point so key considerations will need to include:

• Appropriate hedging of RPI implications – historic NHS contracts have in recent years seen the % of PFI spend as a total of their overall spend increase as they are fully indexed putting additional pressure on clinical services to deliver further efficiencies. Future contracts should follow other sectors and the most recent of Health contracts which limit the total exposure to CPI. 
• Mixed funding model – where possible capital contributions from the public sector should be used to reduce costs
• Efficiency needs to be built in – the NHS has been, and continues to be, under significant pressure to deliver efficiencies on an annual basis and the private sector, if it wants to play a part in delivering public services, should be bound by these requirements. 
• Understanding the PPP vs Public Sector comparator – PPP is more expensive, the argument has been that this is offset by the transfer of risk to the private sector.  Given the maturity of the market better empirical evidence should now be available to demonstrate that the additional cost is justified (and affordable!)

The link to expiry 

As many in the market are aware, securing the successful expiry of the existing portfolio of PFI contracts is proving challenging. 

To build UK Government (and the general public) confidence in restarting PFI style solutions we would argue that significant focus needs to be placed on the current expiry challenge:  

• Sufficient resources are put in place to successfully manage the expiry of existing projects – this will require significant investment in recruitment and training of people to provide the necessary capacity. 
• Existing projects are returned to the public sector at a standard that demonstrates that value for money has been achieved. 
• The expiry process is used by the sector to showcase the positive impact of the model and demonstrate long term commitment on the part of private sector investors. 

Investment is required but work is needed to ensure that future model(s) drive and deliver the right behaviours

P2G look forward to reading the NAO report “Lessons learned: Private finance for infrastructure” due in Spring 2025 which we expect will provide further clarity to the debate.  

P2G is committed to continuing its support to the public sector entities managing existing contracts and to helping UK Government develop a sustainable model for the future.