PFI EXPIRY What local authority surveyors need to know

Melanie Pears Maddy Byron

Melanie is the head of the Public Sector Commercial team at Ward Hadaway LLP and has been a solicitor for over 30 years. She is an acknowledged expert on PFI, procurement, complex contracting, PPP and outsourcing. She has been involved in many ground-breaking initiatives including the first managed exit of a PFI scheme; 3 Pathfinder projects, the first PFI voluntary termination in 2008, and subsequent voluntary terminations; the first and second NHS PFI terminations for default, the first post-preferred bidder funding competition, the first Appointment Business Case approval and the first and only refinancing of a bond-funded NHS PFI scheme.  Melanie has also been involved in resolving and settling many PFI disputes including for local authorities and schools PFI projects. Her team has advised on around 80% of PFI expiries in the NHS. She works with local authorities, NHS organisations, academy trusts/schools and private sector contractors.  Maddy is a solicitor in the Public Sector Commercial team at Ward Hadaway LLP. She has experience advising a variety of clients, including those in the public and private sectors across a broad scope of industries, from healthcare to local government and NHS Trusts. She is involved in a number of PFI matters and has experience in advising on project lifecycle issues and expiry and handback preparations.  Maddy's experience includes leading on a PFI expiry matter for an NHS Foundation Trust, where she has been advising on the required actions to ensure the Trust is in a strong position for expiry, including preparing a due diligence questionnaire and inputting on the scope of the joint condition survey to be commissioned. She has attended client sites to assist with PFI performance management and auditing the services against the requirements set out in the PFI project agreement. In addition to this, Maddy is assisting with a PFI dispute and has assisted with preparing strategy papers for the public sector.

In this article, Melanie and Maddie explore the importance of condition surveys in the lead up to a PFI expiry, and some key points that local authority surveyors should be aware of. Issues are not uncommon: “The risk of unsatisfactory handback of public sector assets has led to the potential of significant financial liabilities and to disputes and litigation between the public and private sectors.” 

The importance of planning for PFI expiry and handback 

It is estimated that more than 500 PFI contracts are due to expire before 2050, with many of these already underway on an expiry process (or where an expiry process/planning should be underway where the contracts are due to expire between 2032 and 2037). The National Infrastructure and Service Transformation Authority (NISTA) (formerly known as the Infrastructure and Projects Authority) recommends that planning for expiry and therefore handback of relevant assets should begin at least seven years before PFI contracts are due to expire. This recommendation is because the assets (which often form part of critical national infrastructure, such as schools, street lighting, waste facilities and so on) need to be assessed to ensure that they will be handed back in a manner which demonstrates full compliance with contract requirements and free from defects, fully life cycled, properly maintained and compliant with all statutory requirements. Defects and other infrastructure issues can take time to identify and rectify, hence the 7-year expiry process recommendation. Unfortunately, experience suggests that there are regularly issues with the condition of assets, lifecycle/maintenance issues, and fire safety defects. 

Local authority surveyors play a vital role in the handback process. The expiry of PFI arrangements may involve challenges but could also provide opportunities to the public sector, and understanding what is required for the process to be as seamless as possible from the outset is key. The risk of unsatisfactory handback of public sector assets has led to the potential of significant financial liabilities and to disputes and litigation between the public and private sectors. It is in the interests of the public sector to ensure that it is not taking on responsibility and ownership for assets which are not in an appropriate condition, and to bear the cost of rectification or replacement as a result. 

Surveyors can make a valuable contribution to the expiry process by way of assisting with the scope of independent surveys, monitoring and checking and assisting in interpreting reports, costing and programming of remediation works, therefore minimising the risks to the public sector and avoiding inheriting assets that have not been maintained properly, or that are not compliant with contract requirements, current legislation and standards. 

Commencing preparations and planning the expiry process as early as possible gives the public and private sectors more time to cooperate with one another, identify issues and resolve issues in advance of expiry. 

The importance of surveys 

Planning for PFI expiry/handback should include, among other due diligence activities, the commissioning of a condition survey. This can be joint with the private sector or standalone. NISTA recommends a joint survey where possible, provided that the scope is sufficiently comprehensive. The condition survey is usually in two parts – general conditions covering structure, mechanical, electrical and plumbing, general building surveying and so on, with fire stopping being commissioned separately. It is common for the project agreement to prescribe that some sort of survey or check is carried out 18–24 months prior to expiry. However, NISTA's advice to align with best practice is that surveys should be commissioned as early as possible, irrespective of what the project agreement says. 

NISTA may also offer an assessment known as an Expiry Health Check when a project is 7, 5 and 3 years away from expiring. However, the public sector body may have already instructed a surveyor - whether jointly or separately - prior to this, which is something that is strongly encouraged. 

Determining the scope of the surveys will require an understanding of the provisions of the project agreement, including any additional express handback provisions. Commencing the process early may allow for joint surveys to be commissioned, with the scope for such surveys to be carefully considered and agreed between the public and private sectors.

Surveyors play an important role in this essential part of handback preparations and will need to benchmark current asset conditions and current emerging PFI experience against the standards set out in the relevant project agreement. These surveys aid the public sector in assessing whether scheduled lifecycle maintenance and investment has been delivered in accordance with the project agreement, and can identify whether the project company has maintained appropriate records (for example, up to date operation and maintenance manuals and up to date plans of the relevant facilities, as well as statutory and compliance records). This information is essential to the surveyors undertaking the condition survey. 

Any issues that are identified as part of the survey will then be known by both parties where jointly commissioned, and can be communicated to the project company where individually commissioned. There can then be an opportunity to work together in the first instance to resolve these and prepare a programme for defects rectification. The public sector body can input into programming and quality assurance and then monitor the progress of any ongoing remedial works/measures, organise for further surveys, and identify rights under the project agreement (such as making deductions from the monthly payment under the payment mechanism, or exploring options for a retention sum to be withheld for remedial works to be carried out, assessing when this could happen, and whether such amount would be viable to cover the extent of known issues). 

A failure by the public sector to commission a survey in a timely manner could open it to legal, operational and financial risks, including: 

1. Inheriting substandard assets - if there is insufficient time to gain an understanding of and then plan for and ensure remedial works are carried out before expiry, the assets reverting to the public sector may require costly and complex repairs, be non-compliant with legislation and other standards, and/or require extensive lifecycle maintenance. The public sector body would be at risk of managing/meeting these costs and arranging rectification 

2. Statutory breach - public assets are often subject to specific regulatory standards and guidance; inheriting a non-compliant asset may run the risk of the public sector body being subject to regulatory action (for example, in relation to fire safety) 

3. A lack of leverage over the project company - the earlier the surveys are carried out, the better. This will mean there is more time to understand issues and enforce handback obligations. It also means that the project company is likely to have more financial resources to meet its remedial and other obligations. If there is less time, the public sector will be limited in raising challenges around the condition of the assets, incomplete lifecycle maintenance, and non-compliance at a late stage when resources and time may not be sufficient. Once the project agreement expires, the public sector's position in compelling the project company to rectify issues becomes significantly more difficult; and 

4. Disruption to critical public services - a lack of due diligence before expiry can lead to failures following expiry, such as those caused by structural issues, emergency repairs, or disruptive remedial works, which may directly affect service provision and could cause reputational damage to the public sector body. 

Common types of survey and due diligence 

A comprehensive due diligence exercise should be undertaken in addition to the following typical types of surveys: 

Survey type	When	Purpose of the survey
High level assessment/health check survey	7 years or more from expiry	To give an overview of key assets prior to a more extensive, and expensive, asset condition survey
Condition survey	5– 7 years from expiry, reassessed 3 years and 1 year from expiry	To ensure assets comply with contractual requirements including statutory and other guidance
Financial check	5 years from expiry, reassessed 1 year from expiry	To ensure the project company has sufficient funds in place to meet contractual obligations, and carry out any remedial works arising from the condition survey
Compliance survey	1 year from expiry	To identify shortfalls in meeting legal requirements and compliance with other non-statutory requirements and good practice

What should surveyors be looking for? 

Each project agreement will vary, so surveyors should familiarise themselves with the requirements of the specific project agreement prior to commencing their survey and up to date base data specific to each PFI facility, in order to understand the condition in which the building should be, and how the assets should have been maintained throughout the course of the project agreement. It is common for the project agreement to set out maintenance obligations and requirements to keep a good structural and decorative order within PFI facilities. The detail of these contractual obligations should be noted and understood by surveyors

prior to any survey being undertaken. 

The PFI Asset Condition Playbook, published in March 2025, provides guidance on condition surveys, with the aim of streamlining the survey process. This should be thoroughly reviewed by local authority surveyors. 

Key takeaways 

• planning for PFI expiry should start as soon as possible and ideally 7 years before the contract expiry date, at the latest 

• condition surveys are important for understanding the extent of any issues, highlighting defects and identifying areas of non-compliance by the project company, so the earlier these are commissioned, the more time and resource there is for remedial works to take place in advance of expiry – therefore minimising risks to the public sector; and 

• surveys should be informed by both NISTA guidance, and the specific requirements of the project agreement and advice from other professionals including legal advisers. 

If you have any questions about PFI expiry, handback and surveys, or about your existing PFI scheme, please do not hesitate to contact Melanie Pears and our PFI Team.

 [Ed – see also the overview of PFI expiries by Georgia Lewis of Local Partnerships in 2025 Spring Terrier]