This Practice Note, produced by Mathias Cheung in partnership with LexisNexis, provides comprehensive and up to date legal information covering:
- UK infrastructure projects—relevant sources, government bodies and guidance
- Note on Public Procurement Post-Brexit
- Scope of this Practice Note
- HM Treasury
- National Infrastructure Commission
- Commission’s objectives
- Commission’s responsibilities
- Infrastructure and Projects Authority
- Local partnerships
- Other government departments and schemes
- UK regions
- Northern Ireland
- Retained EU—derived legislation relating to PPP
- Relevant guidance for operational PFI/PPP contracts
- Code of Conduct for operational PFI/PPP Contracts
- Guidance Note on supporting vital service provision in PFI /PF2 (and related) contracts during the COVID-19 emergency
This practice note was first published on LexisPSL Banking and Finance on 8th March 2021. To view the article on Lexis®PSL, please click here (login needed).
Reprinted with permission of LexisNexis, all rights reserved.
UK infrastructure projects—relevant sources, government bodies and guidance
Note on Public Procurement Post-Brexit
The Implementation Period under the EU-UK Withdrawal Agreement came to an end on 31 December 2020 at 11:00 pm GMT (IP Completion Day), and all the changes introduced under the Public Procurement (Amendment etc) (EU Exit) Regulations 2020, SI 2020/13/19 to the existing EU-derived public procurement legislation have now come into force (with the exception of the amendments set out in Regulations 7, 9, 11 and 16). This Practice Note has been updated to take into account these post-Brexit changes.
In addition, the UK government has published high-level guidance on public procurement post-Brexit, which has been updated after IP Completion Day: Public procurement policy and Public-sector procurement.
For further information, see Practice Note: Brexit—the implications for public procurement.
Scope of this Practice Note
This Practice Note considers institutions and government departments responsible for the delivery of infrastructure projects in the UK (in particular, public private partnerships (PPP or P3), private finance initiative (PFI) and Private Finance 2 (PF2), PFI’s successor model) and relevant legislation and guidance.
It is noteworthy that in the 2018 Budget (delivered on 29 October 2018), it was announced that the government will no longer use PF2 on new projects (see News Analysis: Budget 2018—what does it mean for infrastructure and housebuilding?), and the government has reconfirmed in its National Infrastructure Strategy of November 2020 that it will not reintroduce the PFI/PF2 model in new infrastructure projects. Nevertheless, the institutions and government departments considered in this Practice Note continue to be relevant to future infrastructure projects, irrespective of the precise procurement model adopted.
HM Treasury (HMT) is the UK government’s economic and finance ministry, maintaining control over public spending, setting the direction of the UK’s economic policy and working to achieve strong and sustainable economic growth. HMT drives PPP, PFI and PF2 policy primarily with the advice and support of the National Infrastructure Commission and the Infrastructure and Projects Authority.
National Infrastructure Commission
The National Infrastructure Commission (Commission) is an executive agency of HMT, established on 24 January 2017 to provide impartial and expert advice to make independent recommendations to the government on economic infrastructure. Notwithstanding its relationship with HMT, it is intended to operate independently and at arm’s length from government. Its role is to advise the government on all sectors of economic infrastructure (namely, energy, transport, water and wastewater (drainage and sewerage), waste, flood risk management and digital communications), consider the potential interactions between its infrastructure recommendations and housing supply and make independent recommendations to the government on national infrastructure priorities. The Commission carries out its work in line with a remit set by government but, within the context of that remit, has sole responsibility for its reports and recommendations.
The Commission’s objectives are to:
- support sustainable economic growth across all regions of the UK
- improve competitiveness, and
- improve quality of life
The Commission’s core responsibilities are to produce:
- a National Infrastructure Assessment (NIA) once in every Parliament, setting out the Commission’s assessment of long-term infrastructure needs with recommendations to the government
- specific studies on pressing infrastructure challenges as set by the government taking into account the views of the Commission and stakeholders and including recommendations to the government
- an annual monitoring report, taking stock of the government’s progress in areas where it has committed to taking forward recommendations of the Commission
The Commission works collaboratively with relevant bodies in Scotland, Wales and Northern Ireland, including the National Infrastructure Commission for Wales and the Infrastructure Commission for Scotland, although its primary focus is on England and non-devolved UK-wide areas of economic infrastructure.
The Commission’s publications can be viewed on its website: National Infrastructure Commission.
In National Infrastructure Strategy of November 2020, the government announced its plan to appoint several additional Commissioners, in order to help strengthen the Commission’s expertise in key areas (including local government and environmental issues) and increase the diversity of the Commission. Further, the government intends to review the Commission’s role and responsibilities in 2021, including updating its Charter and Framework documents if necessary, so as to ensure that the Commission can continue to shape and support the government’s infrastructure ambitions.
Infrastructure and Projects Authority
The Infrastructure and Projects Authority (IPA) was formed on 1 January 2016, by a merger of Infrastructure UK (IUK) and the Major Projects Authority (MPA), as the government’s centre of expertise for infrastructure and major projects. It is accountable to HMT and the Cabinet Office. The IPA enables the long-term planning encouraged by the National Infrastructure Commission’s work to be translated into successful projects. It does not deliver projects directly but rather works with government and industry to ensure projects are delivered efficiently and effectively and takes responsibility for the overall project delivery system, ie the projects, people and processes.
The IPA published the first National Infrastructure Delivery Plan in 2016 (covering the five year period to 2021). This updated and replaced the National Infrastructure Plan previously published annually from 2010 to 2014 and outlined £483 billion of investment in projects and programmes spread across the UK.
The IPA works alongside government and industry to improve performance on projects to deliver both the intended benefits of the project and value for money for the taxpayer. As at 2020, it oversees around 125 major projects with a value of £448bn. It published the eighth annual report on the Government’s Major Projects Portfolio in July 2020.
To ensure projects are delivered efficiently and effectively, the IPA focuses on:
- prioritising the most complex and high risk projects, ensuring that they provide value for money for the taxpayer and deliver their intended benefits for society
- developing the skills and capability of people who deliver projects, leading project delivery and project finance professions across government, offering leadership programmes and contributing expertise in all aspects of project delivery and project finance
- setting the processes, standards and tools that are required for industry to deliver infrastructure and major projects, considering the whole project lifecycle including policy development, project initiation, project financing, project execution and delivery and project operations
The IPA is divided into five core teams and activities:
- the Project Delivery Adviser Team provides expert advice to policymakers on deliverability implications of emerging government policy, and advice to HMT and the Cabinet Office on the appropriate organisational, governance and assurance regimes required to enable specific projects and programmes to be approved. The team also directly deploys project professionals to work alongside Senior Responsible Owners and project teams to support their successful set-up, governance and subsequent delivery
- the Commercial Adviser Team provides a commercial and delivery perspective on policy formulation to Ministers, and commercial and financial advice to HM Treasury to support decision-making on policy and on the business cases for specific projects. The team also conducts external market engagement, and deploys commercial specialists to significant projects and programmes to provide expert commercial advice
- the Strategy, Performance and Assurance Team sets the strategic direction for the project delivery system in government for the IPA, with the aim of improving project delivery performance
- the Function, Profession and Standards Team sets and drives continuing improvement in functional standards of project delivery, builds professional capability and capacity, and leads/builds engagement in the project delivery profession across government, and
- the Finance Team provides expert project finance advice to the Departments, builds contract management capability and expertise across the public sector, provides Ministers with a financial markets and project/corporate finance perspective on policy formulation, manages the UK Guarantees Scheme, provides expert finance advice to HM Treasury, and monitors the IPA’s budget. The Team also conducts external market engagement and exports the UK’s financial and project delivery expertise internationally
Local Partnerships is a joint venture between HMT and the Local Government Association (LGA). It provides support to the public sector to deliver projects and change at a local level and provides an interface between central government policy and local delivery. It provides support in the following ways:
- developing and reviewing strategic business cases and business plans
- service transformation and change
- modelling and legal frameworks for alternative service delivery models
- options’ appraisal and assurance of your chosen approach
- forming effective partnerships
- sourcing and commissioning, contract negotiation and management
- economic development and planning, and
- delivering infrastructure
It provides expertise across the following areas of work:
- Commercialisation and Reorganisation
- Climate Response
- Assurance (Gateway Reviews)
- Re:fit (energy efficiency) Programme, and
- Health & Social Care
Other government departments and schemes
The UK Guarantee Scheme (see UKGS) supports private investment in UK infrastructure projects by offering a government backed guarantee to help projects access debt finance where previous attempts to raise finance in the markets have been unsuccessful. Following extension in 2016, the scheme is to remain open to 2026 and can issue up to £40bn of guarantees.
The Planning Inspectorate (see Planning Inspectorate) deals with planning appeals, national infrastructure planning applications, examinations of local plans and other planning-related and specialist casework in England and Wales. The Planning Act 2008 sets out a threshold above which a project will be considered nationally significant in energy, transport, water and waste—once the Planning Inspectorate determines that a project qualifies as nationally significant infrastructure, the application will be examined by the Planning Inspectorate and the relevant Secretary of State, with the intention that the planning process should be complete in 15 months.
The Centre for the Protection of National Infrastructure (see CPNI) protects national security of national infrastructure by ‘helping to reduce the vulnerability of the national infrastructure to terrorism and other threats’. Their advice also extends to the protection of nationally important assets or events, including high-profile iconic targets.
The National Infrastructure Strategy of November 2020 announced the establishment of a new UK infrastructure bank to co-invest alongside the private sector in infrastructure projects. The bank will operate UK-side and support the government’s plans on levelling up and net zero. The bank will also be able to lend to local and mayoral authorities for key infrastructure projects, and advise them on developing and financing infrastructure.
PPP, PFI and PF2 are approached differently across the UK. PPP is a devolved matter in Scotland, Wales and Northern Ireland, with defence being the only exception.
In Scotland, infrastructure projects are administered by the Infrastructure Investment Unit (IIU) (see IIU) was established in 2010 to take an executive role in infrastructure guidance, working alongside individual portfolio investment boards. Its remit is mainly to:
- advise on the strategic direction for infrastructure investment (especially to respond to Brexit and ensure Scotland’s competitive advantage)
- review projected capital requirements
- maximise sustainability and resilience with improved capital utilisation
- review alternative financing models and sources of finance, and
- provide strategic oversight of the key risks to the delivery of major projects
Further, the Infrastructure Commission for Scotland (see ICS) was established in 2019, in order to support the delivery of the National Infrastructure Mission and the development of Scotland’s Infrastructure Investment Plan. In particular, the ICS published its recommendations on the vision, ambition and strategic priorities for infrastructure in A Blueprint for Scotland in January 2020, and it further published its advice on the delivery of infrastructure in the Delivery Findings Report in July 2020.
The ICS is currently consulting on the Draft Infrastructure Investment Plan which covers the financial years 2021–2022 to 2025–2026 and outlines a coherent approach to delivering our National Infrastructure Mission and demonstrates the vital role infrastructure has to play in enabling inclusive, net zero and sustainable growth.
The Wales Infrastructure Investment Plan (WIIP) (see WIIP) is the Welsh Assembly’s key vehicle to drive collaboration, increase visibility and deliver strategic capital investment decisions. The latest WIIP providing a project pipeline update was published in November 2019.
The infrastructure investment plan sets out a new approach where the WIIP is:
- clear about priorities for infrastructure investment to stimulate the Welsh economy and support jobs, increasing transparency to delivery partners through a detailed project pipeline for the next three years and providing a ‘direction of travel’ for the longer-term
- clear about how infrastructure investment will be paid for, via more efficient use of existing resources and exploring and implementing innovative finance approaches, and
- clear about policy and approach in developing and delivering proposals that optimise public value through the use of best practice
In Northern Ireland, infrastructure projects are administered by the Strategic Investment Board (SIB) (see SIB). The SIB was established in 2003 to bring high calibre investment skills into the public sector in order to accelerate the delivery of major infrastructure programmes and to ensure a good deal for the public purse. It remains fully owned by and accountable to the Office of the First Minister and deputy First Minister.
The SIB is tasked with four main roles:
- to prepare and oversee the Investment Strategy for Northern Ireland, the Executive’s 10-year plan for infrastructure investment across the region, and advise Ministers on effective implementation
- to support the procurement and delivery of major projects and programmes at the request of sponsoring departments in order to help accelerate delivery timetables and obtain better value for the taxpayer
- to operate the Asset Management Unit to help make best use of their asset base and develop effective asset management plans to achieve the Executive’s targets for raising additional capital for re-investment, and
- to champion reform in systems and processes across the public sector through investment in better infrastructure
Retained EU—derived legislation relating to PPP
PPP represents a method of public sector procurement and EU legislation is pertinent to certain aspects of PPP (see PFI/PPP Procurement and Contract Management Guidance).
The EU has three principal procurement directives:
- the Concession Contracts Directive (2014/23/EU) which prescribes the procedures for the award of contracts for works or services, the consideration for which consists (at least in part) in the right to exploit the works or services, with the transfer to the concessionaire of a more than merely nominal operating risk relating to supply, demand or both
- the Public Contracts Directive (2014/24/EU), which prescribes the procedures for the award of works contracts, public supply contracts and public service contracts, and
- the Utilities Contracts Directive (2014/25/EU), which prescribes procurement procedures for entities operating in the water, energy, transport and postal sectors
The procurement directives were incorporated into UK law by The Concession Contracts Regulations 2016, The Public Contracts Regulations 2015 and The Utilities Contracts Regulations 2016 (with equivalent regulations applicable to Scotland). These have all been preserved under the European Union (Withdrawal) Act 2018 and continue to apply as retained EU-derived domestic legislation after the IP Completion Day, subject to the limited amendments made by the Public Procurement (Amendment etc) (EU Exit) Regulations 2020, SI 2020/1319.
In addition to complying with the Directives (which are directly applicable on most public sector bodies) and the procurement regulations, the directly effective principles of the Treaty on the Functioning of the European Union (including transparency, proportionality, equal treatment and mutual recognition) form part of the retained EU law and must still be considered when a public body awards contracts for certain works or services to a third party.
Two important practical points under the Public Procurement (Amendment etc) (EU Exit) Regulations 2020, SI 2020/1319 should be noted:
- the procurement thresholds announced by the European Commission on 31 October 2019 (which set the value of public contracts above which the full requirements of the procurement regulations apply) are preserved post-IP Completion Day, and so they continue to apply until 1 January 2022, and
- UK contracting authorities have to publish notices for new projects in the ‘Find a Tender’ e-notification service, which applies to procurements commenced after the IP Completion Day. It replaces the role of the Tenders Electronic Daily and the Official Journal of the EU
Relevant guidance for operational PFI/PPP contracts
Code of Conduct for operational PFI/PPP Contracts
PFI/PF2 contracts have come under a great deal of scrutiny, with questions asked about whether they provide good value for money to the authorities involved. Before the abandonment of the PFI/PF2 model for new projects in 2018, a code of conduct was developed and published by the government for all operational PPP contracts (including PFI/PF2 contracts).
Published on 12 June 2013, the non-legally binding voluntary code (Code) (see Code of Conduct for Operational PFI/PPP contracts) sets out the basis on which public and private sector partners agree to work collaboratively to make savings in operational PPP contracts.
Both public and private sector signatories have committed to:
- a single local point of contact
- engage constructively and in a timely manner
- meet regularly with relevant managers
- identify operational improvements
- reasonable and prompt consideration and to engage responsively on variations, waivers and changes
- provide resources and skills
- understand costs incurred, and
- ensure constructive engagement—reasonable interpretation of existing rights and obligations set out in project documents to allow benefits and costs of efficiency opportunities
Approximately 260 organisations (including sponsors, lenders, builders and facilities management providers, as well as central government departments) have signed up to the Code according to the list of signatories on the government’s website.
There has been widespread criticism of the Code, with some industry professionals branding it as ‘toothless’ because of its non-binding nature. Others have commented that the Code is a modest attempt to influence behaviour rather than a robust reform framework; it will not affect those who have not tried or have no desire to try to make savings. Time will tell how proactive the signatories will be when it comes to delivering efficiencies and savings as a result of signing up to the Code.
Guidance Note on supporting vital service provision in PFI /PF2 (and related) contracts during the COVID-19 emergency
On 2 April 2020, the IPA published the Guidance Note on supporting vital service provision in PFI /PF2 (and related) contracts during the COVID-19 emergency (COVID-19 Guidance Note), followed by a set of frequently asked questions published in June 2020 (see: Private Finance Initiative contractors ‘part of public sector response’ to coronavirus—LNB News 03/04/2020 23).
In essence, the COVID-19 Guidance Note emphasises that PFI/PF2 contracts provide vital services and support to public services across the UK (including the NHS). These services are expected to continue with the cooperation and best efforts of all parties, and that the government does not regard COVID-19 as an event of force majeure.
The government recognises that contractors may not be able to achieve full performance under the PFI/PF2 contract due to the on-going COVID-19 emergency, and parties should try to agree locally to moderate contract requirements and standards and payment and performance mechanism arrangements where practicable, but contract requirements and performance standards cannot relaxed to the point where health and safety is put at risk.
There may be instances of increased performance requirements and therefore increased costs (eg additional cleaning), in which case unitary charge payments may need to be adjusted. Further, where an asset is to be temporarily closed (eg schools), the asset must be kept in such a condition that it can immediately be brought back into use once the current emergency is over.
The COVID-19 Guidance Note represents the government’s attempt to strike a balance between the parties’ interests, and it encourages parties to have open and reasonable dialogues and work together collaboratively, in order to agree suitable adjustments to the contractual requirements and mechanisms to ensure the continuation of services under PPP contracts as much as possible.
It is expected that these guidelines will continue to be applicable for some time, in light of the ongoing pandemic and the continuing disruption to day-to-day activities across the country.