PFI Handback and Expiry: A Better Way Forward

As the UK’s first wave of Private Finance Initiative (PFI) schools contracts approaches expiry, the question of how to manage handback has become one of the most discussed and, at times, contentious issues between public-facing organisations and private sector consortiums. 

Much of the legal battle focuses on risk, cost, and compliance. Yet, beneath the contractual detail, there’s a human challenge. How do multiple interested parties, all with different incentives, navigate the final chapter of a long-term partnership in a way that’s fair, efficient, and genuinely collaborative?

Two sides of the same PFI coin

You could see the public and private view of a PFI contract as being two sides of the same coin. The growing perception, in the private sector, is that the public sector’s approach to expiry is overly cautious, overly prescriptive, or simply unrealistic. While many public bodies feel they’re inheriting under-maintained assets and are being forced into last-minute disputes just to secure what the contract entitles them to. Neither of these narratives is entirely wrong. But neither is it the whole story.

That’s because PFI contracts don’t just involve two sides. There are many different players. Think of it more as a heptagonal 50 pence piece. If we look at a typical schools PFI contract, you’ve got the school or academy trust, the main contractor, the Special Purpose Vehicle (SPV), the Facilities Management (FM) company, the Management Services Organisation (MSO - acting on behalf of the PFI shareholders and the SPV), the Local Authority (including individual councils) and the Department for Education (DfE). So, at least seven sides. And they all have their own agendas, with their own conflicting needs.    

Local authorities are often lost in the history and administration so end up playing technical catch-up, while academy trusts are simply worried about what they will inherit and how much it will cost to put things right.  

           

The challenge is to find a better way to manage PFI expiry - one that serves all parties and avoids a “public sector under the bus” outcome while still delivering commercial clarity and fairness.

Expiry is a shared problem, not a zero-sum game

PFI handback is not a zero-sum event, where what one side gains, the other loses. Instead, expiry needs to be viewed as a 25–30-year transition in service delivery, rather than a one-off happening. And collaborative expiry needn’t be seen as a concession on the part of the private sector. 

Poorly handled handback leads to:

● Reputational damage

● High legal costs

● Delayed transitions

● Operational risk. 

By contrast, a well-coordinated, transparent expiry process offers:

● Lower dispute costs

● Clearer expectations and fewer surprises

● Smoother transfer of staff, data, and operational knowledge

● Reduced risk of deteriorated relationships with public bodies 

All parties need to come together for an open, transparent discussion about what is possible. And there needs to be a genuine commitment to delivering quality outcomes.

An internal battle 

Many PFI contracts were written at a time when expiry was a distant horizon. Today, that horizon is real, and the public sector is keen to receive assets “in good condition” without excessive remedial costs or operational disruption. This has led to an assertive approach - large surveys, strict timetables and rigorous contract interpretation.

But the public sector inner battle can often be as much of a problem as the private sector. Academy Trusts inherit the performance of the Local Authority, which in turn is only as effective as the Council’s understanding of the impact of expiry. 

However, the failures of the past are now having an impact on the present. In Inscyte’s experience, we’ve seen local authorities side with Special Purpose Vehicles (SPVs) and Facilities Management (FM) push back against schools and academies. This can result in increased costs, lack of transparency and conflicts of interest. 

In other cases, we’ve even seen FM contractors walk away from any level of lifecycle commitment and simply focus on the Department for Education’s (DfE’s) condition survey. That may not be surprising when the survey allows for interpretation and “like-for-like replacements” that often don’t exist, instead of a collective desire to do the best for the schools. The DfE is focused on playing fair to protect the future infrastructure plans of the Government who in turn are afraid that the private sector will walk away from public-private partnerships with their attractive off-book capabilities.

A new dawn 

There needs to be a new environment of clarity, transparency, and joint ownership around PFI handback. We recommend a more constructive model of expiry that would include:

● Early and shared planning – start expiry preparations at least ten years before the contract end so both sides can align on standards, interpret contract obligations jointly and avoid last-minute arguments. 

● Honest condition assessments - encourage private partners to proactively share data, digital asset registers and planned maintenance histories rather than wait for the public sector to commission surveys.

● Joint risk and cost avoidance - get all parties to follow a process that prioritises pragmatic resolution and well-evidenced decision-making so as to avoid expensive litigation

● Fair interpretation of the contract - adopt a balanced approach where public authorities are entitled to expect their assets back in a contractually compliant condition while the private sector is allowed to manage lifecycle obligations proportionately. 

● Celebration of success - recognise that many PFI contracts delivered good quality infrastructure during the years when capital budgets were tight so mature partnerships can deliver long-term public value. 

Early planning is absolutely critical. As highlighted by the recent BBC article, the problem with the Stoke schools was that nothing was done until two years before the end of the contract, so it was impossible to deliver anything meaningful and this was at the heart of the expiry failures.

The key is to learn from the mistakes of the past and put those lessons into future planning. Interested parties need to be asking, “What can we expect to spend over the next five years?” and “How does that fit with our business goals?”

The private sector’s role: leadership, not capitulation

Convincing the private sector to adopt a more collaborative approach does not mean asking them to absorb unplanned costs or compromise contractual rights. Instead, showing leadership in expiry enables the private sector to demonstrate their reliability as a long-term delivery partner and builds trust in them for future public-private partnership (PPP) models. 

Expiry doesn’t need to be an adversarial showdown. It can be the culmination of decades of joint effort.

A better way is not only possible - it’s necessary

The UK is entering a period where hundreds of PFI contracts will expire. The market will remember how these expiries were managed. And the approach taken today will influence partnership models for the next generation of public–private collaboration.

All parties - public and private sector - schools, academy trusts, SPVs, FM contractors, MSOs, local authorities and the DfE need to work together towards the best possible outcome.

The choice before the private sector is not “fight”, “give in” or “go to ground” but is about whether they focus on protecting their short-term positions or step into a leadership role that secures long-term credibility.

There is another way forward one based on clarity, fairness and shared goals. And it benefits everyone.