Niggling and nagging

Very few PFI/PPP disputes have hit the headlines to date. Of course, we’ve had some biggies: the M6 Expressway and the National Physical Laboratory for instance, but generally PFI/PPP has been bad news for contentious lawyers.

But is this the full story? Is the long-term relationship and complexity of the process masking serious underlying problems? We’ve noticed a worrying increase in minor issues arising during the operational phase of projects, which gnaw away at the fabric of PFI/PPP. Seemingly minor issues can lead to wasted costs, poor service to the public and, ultimately, irreconcilable differences.

In simple terms, the provider’s incentive for providing a well serviced and maintained building is to avoid deductions being made to its monthly unitary payment. Deductions are made for any areas that are not available for use by the authority or are sub-standard. This is a straightforward system in principle, but one that has become complex, misunderstood and misapplied.

Take, for example, the PFI grouped schools project where the provider had not allowed for mowing the playing field frequently enough. The facilities management (FM) provider refused to mow the grass more often as that would cost additional money. Deductions were not levied because the FM provider did not record the problem as a fault on the helpdesk since, in its view, it was complying with its contractual obligations.

On another schools project, the report that “the cleaners have not turned up today” was incorrectly recorded as a complaint rather than a fault because the staff did not understand the procedure. The output specification stated the facility should be clean but did not stipulate that cleaners had to actually turn up, so recording the fault in line with the letter rather than the spirit of the contract resulted in no deductions.

One cause of these problems is the procedure for reporting and rectifying faults. In a PFI/PPP project, a helpdesk is set up to log faults and problems, and procedures are put in place to rectify these. But often helpdesks are not set up correctly, so valid deductions are not made. Many deduction calculations are poorly implemented or poorly calibrated, so deductions are too low to act as proper incentives. This means that appropriate action is not taken to resolve minor faults, which then take on a life of their own.

Seemingly minor issues can lead to wasted costs, poor service to the public and, ultimately, irreconcilable
differences

The dispute resolution procedure (DRP) in the contract is generally not used for minor issues, since the cost of the procedure can outweigh the amounts in dispute. But without recourse to the contractual procedures, the issues simmer on both sides and can lead to a breakdown in communication.

The answer lies in refreshing the lines of communication through joint, externally facilitated workshops rather than formal negotiations under the DRP.

A well set up helpdesk must be backed by monitoring procedures with calibrated deductions that give the provider an incentive to improve performance. Once communication is established, consideration should be given to the following remedial actions:

• An independent review of the deductions should be made.
• Training should be provided to all parties so they understand the payment mechanism.
• The helpdesk should be examined and modified to reflect payment deduction requirements and helpdesk operatives and users should be trained to report faults correctly.
• Pragmatic monitoring procedures and standards should be agreed upon.
• If the level of deductions in dispute are significant, then use of DRP procedures should be considered, particularly when the issues are continuing.

Small, day-to-day problems can be resolved without using DRP procedures. PFI/PPP is a long-term commitment, which means communication is the key to resolving issues.

Tim Tapper is the head of the legal support team and Victoria Glover-Ward is a PFI/PPP specialist at Cyril Sweett