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Brexit, PFI Contracts, and the Way Ahead

24th May 2018

Nicholas Maciolek discusses Brexit and the way ahead for PFI projects:

  • PFI contracts are potentially under pressure from Brexit due to, amongst other things, the loss of funding from the European Investment Bank and amendments to the Solvency II regulations.
  • Nevertheless, PFI contracts have long been plagued by the commercial risks inherent in PFI contractual arrangements, as demonstrated by a number of recent cases decided by the courts.
  • Ultimately, the continuing viability of PFI projects hinges on a sharper focus in the contractual and technical documents on the key goals of the project, in order to avoid difficult and costly disputes.

At present, as with many areas of the construction industry, PFI contracts are under pressure from Brexit in the realm of conjecture rather than because of anything immediate and tangible. In terms of pressures upon funding, the two most obvious sources of risk lie in relation to funding provided by the European Investment Bank (EIB) and the Solvency II regulations.

It appears likely that public infrastructure spending derived from the EIB will fall after Brexit (although the EIB does invest in extra-European projects, it may be assumed that a departing United Kingdom may not be the first on the list for receiving such largesse). In 2017 the EIB spent just over €1 billion on infrastructure in the UK. The ONS suggests that in 2015 the UK government spent around £16 billion on infrastructure, so the loss of EIB funding will have a noticeable effect, albeit that in late 2016 the UK government launched an ‘infrastructure investment pipeline’ intended to spend £300 billion by 2020: 50% of this is intended to be derived from public sources of funding.

By an amendment to the Solvency II regulations, insurers’ and reinsurers’ capital charges for infrastructure spending has been reduced, which should encourage further direct investment. There are also the usual questions of the availability of skilled labour and so on. Yet, ultimately, these risk factors hinge upon the continued desirability of investment in PFI contracts from large players in the sector, many of which are international conglomerates.

Much consideration has been given to the basic commercial risk that PFI arrangements represent to stakeholders in light of the collapse of Carillion. Yet recent cases dealing with PFI contracts, one directly and the other tangentially illustrate the legal difficulties in organising a fair distribution of risk and obligation in PFI schemes. Perhaps the key point is the cumbersome nature of PFI arrangements. In Sheffield City Council v Fairhall [2017] EWHC 2121 (QB), a case concerning freedom of expression in protests responding to tree felling works carried out under a PFI contract, Males J made clear in his factual summary that he accepted that if any arrangement other than a PFI one would have been available, that would have been taken up by the Council. In Amey LG Limited v Cumbria County Council [2016] EWHC 2946 (TCC), HHJ Stephen Davies described the contract documents as ‘voluminous’ and tried as much as possible to be selective in his quotations from them.

The clearest example of these difficulties can be seen in the decision of the Court of Appeal in Amey Birmingham Highways Limited v Birmingham City Council [2018] EWCA Civ 264, which concerned the interpretation of a contract in relation to the extent to which the contractor under a PFI scheme to repair roads in Birmingham was obliged to update its record of the road network (and thus carry our repairs to the updated road map). The contract in question was 5,190 pages long, including over 200 pages of definitions. Jackson LJ called Amey’s argument – that it was not obliged to maintain the updated road network – both ‘bizarre’ but also ‘formidable’, and it is implied in the judgment that those paradoxical qualities came about in part because of the intense complexity and length of the contract. The length of relationship mandated by PFI contracts, the need for tight metrics to quantify cost, and the associated indigestibility of the contract in question, all put strain on the standard method of interpretation: at the end of his judgment Jackson LJ went so far as to mention in passing the need for parties to take a reasonable approach in dealing with the infelicities and oddities of the contract, and briefly raised the concept of a ‘relational’ long-term contract.

Spaghetti junction Birmingham

Fundamentally, even if public support for infrastructure spending is encouraged, and contractors are given appropriate inducements by government to participate in PFI projects, if the contractual focus cannot be kept narrow and the technical documentation not sharply focused on the key goals of the project, more difficult and costly disputes in the vein of the Cumbria and Birmingham cases will continue to arise and put pressure on the good functioning of the industry.

Nicholas Maciolek

Nicholas Maciolek Portrait

Nicholas Maciolek’s practice covers all areas of chambers work, including construction, engineering and infrastructure, energy and utilities, IT and professional negligence.

In addition to these specialist areas, he also acts in respect of a range of other general commercial disputes.

Nicholas has experience of all the stages of litigation, adjudication, and arbitration. He has worked with a variety of bespoke and standard form contracts, and is familiar with the FIDIC, JCT, NEC, and ACA forms. Recent examples of Nicholas’ work include advising on the contractual status of an algorithm developed for a long-term pavements maintenance contract, drafting adjudication submissions in a ‘single-payment’ construction contract, and appearing as a junior in an international fraud claim involving proprietary claims in equity and unlawful means conspiracy. Nicholas also appears regularly in the County Courts. He works closely and collaboratively with solicitors and has undertaken a secondment with a large City law firm, where he worked on a range of construction disputes within the property litigation team.





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