PFI Seminar Tuesday 15 th May Newcastle | Leeds | Manchester 2 - PowerPoint PPT Presentation

Ward Hadaway Guest WiFi Email: guest@wardhadaway.com Password: F1rew0rk$ PFI Seminar Tuesday 15 th May Newcastle | Leeds | Manchester

2 Housekeeping Ward Hadaway Guest WiFi Email: guest@wardhadaway.com Password: F1rew0rk$ Newcastle | Leeds | Manchester

Your speakers Melanie Pears Lucy Probert Partner | Solicitor | Public Sector Head of Public Sector Tim Care David Taylor Solicitor | Public Sector Partner | Public Sector Newcastle | Leeds | Manchester

4 Agenda 1.00pm Registration & refreshments 1.30pm Presentations 3.00pm Refreshment break 3.30pm Presentations resume 5.00pm Networking and close Newcastle | Leeds | Manchester

Introduction Melanie Pears Newcastle | Leeds | Manchester

Case Study 1 – Insolvency of a subcontractor Lucy Probert and David Taylor Newcastle | Leeds | Manchester

The Facts 7 » In 2000, the Home Office entered into a PFI contract with Chainsandbars Ltd ("Project Co") to design, build, finance and maintain 4 prisons in the north of England. » The prisons were completed and opened in 2002. » Project Co subcontracted the maintenance and other FM Services (including cleaning and catering) to a specialist provider, Porridge FM Co Limited ("FM Co"). » Earlier this year, FM Co's parent company issued a profits warning and there are rumours in the press that creditors are pushing for both companies to go into liquidation. Newcastle | Leeds | Manchester

Possibilities for FM Co – things that might happen 8 » Scenarios for FM Co » Parent Co insolvent but FM Co continues » FM Co into administration » FM Co into liquidation » Administration » Contract between FM Co and Project Co continues subject to Project Co's rights to terminate the FM Contract » FM Co run by administrators for benefit of creditors » Administrators attempt to sell as a going concern. » Replacement of FM Co » Liquidation » Contract with Project Co terminates automatically » FM Co ceases to exist – requires a replacement FM Co….. BUT » The Carillion situation (more on that later….) » What can the Home Office do? Newcastle | Leeds | Manchester

Contract Structure 9 » Contract is between the Home Office and Project Co, not FM Co. » Contract is between the Home Office and Project Co, not FM Co. » Project Co is on the hook for the delivery of the Services subcontracted » Project Co is on the hook for the delivery of the Services subcontracted to FM Co to FM Co Home Office Project Co FM Co » Provisions for relief / remedies on FM Co insolvency? Unlikely…. » Provisions for relief / remedies on FM Co insolvency? Unlikely…. » Sole remedy clause - Performance Regime » Sole remedy clause - Performance Regime » Steps Home Office can take are against Project Co » Steps Home Office can take are against Project Co Newcastle | Leeds | Manchester

Replacement of a subcontractor 10 10 Project Co's only real option » SOPC clauses » Project Co should bear the risk of poor performance by FM Co as part of risk transfer » Home Office should not be disadvantaged by change and performance regime should not be interrupted » Impossible to find a replacement if very minor default could cause a termination so…. » Relief for a short period » Bedding in period in Payment Mechanism? » Cancellation of warning notices and accrued SFPs » Limited to x no of times under the Contract » Consent of the Home Office required – reasonableness obligation, technical competence and financial standing Newcastle | Leeds | Manchester

Failure to Provide the Services 11 11 » i.e. what happens if FM Co is liquidated and /or the administrators fail to provide the Services in the meantime…. » Project Co's problem! » Consequences for Project Co under the Payment Mechanism – no relief » Warning notices and accrual of Service Failure Points » Possible grounds for Project Co Event of Default i.e. termination » Possibilities for the Home Office » Is Authority Step-In available? » Contingency planning by the Authority » Recovery of costs – but remember sole remedy » Take services in house? i.e. Authority replaces FM Co (require consent of Project Co) Newcastle | Leeds | Manchester

Tricky bits 12 12 » Price / tendering exercise » No renegotiation – material variation » Staff – applicability of TUPE? » Pensions » Transfer of assets / equipment / licences » Continuity of services » Risks to the Home Office if they take Services in house » TUPE » Transfer of liability / risk » Balance sheet treatment Newcastle | Leeds | Manchester

The Carillion situation 13 13 » Liquidation » BUT government intervention » Unique situation » Contracts run in short term by Official Receiver » Contracts are being sold » TUPE may not apply but some staff are transferring » Fettering the rights of the Authority to object? » Affecting the risk transfer? Newcastle | Leeds | Manchester

The Home Office – some advice 14 14 » Monitor closely and discuss with Project Co » Enforce the Performance Management Regime to ensure access to remedies » Consider contingency arrangements / step in should FM Co fail without warning » Insist on adherence to consent Newcastle | Leeds | Manchester

Questions? 15 15 Lucy Probert Solicitor | Public Sector lucy.probert@wardhadaway.com 0191 204 4286 David Taylor Solicitor | Public Sector david.taylor@wardhadaway.com 0191 204 4247 Newcastle | Leeds | Manchester

Case Study 2 – Resolution of construction defects Lucy Probert and David Taylor Newcastle | Leeds | Manchester

The Facts 17 17 » In 2007 the Local Authority entered into a PFI contract with Make Schools Great Again Ltd ("Project Co") to design, finance, build and maintain 10 schools. » Each of the schools followed the standard BSF PFI contract. » The schools were built by the construction subcontractor, Construction4U ("BuildCo") and were mostly completed in 2009. » They have since been maintained by the FM subcontractor, GrangeHill FM Co ("FM Co"). » Large cracks have appeared in the ceilings of one of the schools. » What can the LA do? Newcastle | Leeds | Manchester

Contract Structure 18 18 Local Authority Project Co Build Co FM Co Newcastle | Leeds | Manchester

Remedies against Project Co 19 19 » Breach of the Authority's Construction Requirements » Breach of maintenance obligations » Breach of Availability Conditions » Rectification of construction defects » Performance Regime - Deductions and Service Failure Points » Availability of retrospective Deductions » Failure to Report » Sole remedy clause – availability of damages? » Termination? » Project Co is a non-asset holding shell company Newcastle | Leeds | Manchester

What can Project Co do? 20 20 » Against Build Co and FM Co for breaches of subcontracts » Pass down of performance regime » Pass down of defect rectification obligations » Limitation of liability clauses? » Limitation? Newcastle | Leeds | Manchester

Multi – party dispute 21 21 » Dispute Resolution Procedure » Availability of Court Action » Conduct of claims clauses » Involvement of subcontractors in proceedings » Confidentiality? » Dispute between the Project Co Parties » Where do the failures sit? » Not the Authority's problem – remedies are against Project Co Newcastle | Leeds | Manchester

What should the Authority do? 22 22 » Report all defects to Helpdesk as soon as they are noticed!!! » Request information from Project Co – how long has it known about the defects? Should these have been picked up under maintenance? Has Project Co been carrying out maintenance as required? » Gather its own evidence – structural survey? » Crystallise the dispute » Initiate the Dispute Resolution Procedure » Consider withholding disputed amounts » If ultimately agreed or determined that disputed amount should have been paid, pay forthwith with interest » Consider any claims under collateral warranties – protective issue of claims against subcontractors? » Consider step in Newcastle | Leeds | Manchester

Questions? 23 23 Lucy Probert Solicitor | Public Sector lucy.probert@wardhadaway.com 0191 204 4286 David Taylor Solicitor | Public Sector david.taylor@wardhadaway.com 0191 204 4247 Newcastle | Leeds | Manchester

Case Study 3 – Removing Services from a PFI Melanie Pears Newcastle | Leeds | Manchester

The Facts 25 25 » In 2008 Northern Hospital NHS Foundation Trust entered into a PFI contract with Healthy Hospitals Limited ("HHL") to design, finance, build and maintain a new £300m hospital. » The FM services include a full range of soft services, including cleaning, patient and visitor catering, portering and pest control. » The contract followed the then DoH standard form. » The soft FM services are all sub-contracted to Soft and Stable FM Co. » The Trust needs to instigate major efficiency savings and believes that it can achieve some of its target by taking the cleaning, catering and portering back in-house. » In order to achieve that it will have to vary the PFI contract. » What are the issues? Newcastle | Leeds | Manchester