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Road Maintenance Private Finance Initiative Ends in Tears

Private finance initiatives (PFIs) seemed a very good way of raising money for public projects before the recession – but many of them have since gone sour. That was certainly so in one case where a local authority and a contractor had to resort to the High Court to resolve their increasingly bitter differences.

Country RoadIn one of the first deals of its kind, the council signed a 25-year PFI in respect of the maintenance and operation of its highway network in 2004. The contractor spent £58 million on the project in the first five years with the result that the area’s roads were probably the best in Britain and won at least two awards.

However, the contractor hoped to recoup its investment over the next 20 years and that was less warmly received by the council. It employed a consultant in 2013 who described the deal as ‘a pretty awful contract’ and calculated it would cost the council £140 million to terminate the PFI.

The council embarked on a strategy of finding the maximum number of faults with the contractor’s work in a bid to force the latter back to the negotiating table. The company responded by referring the dispute to an independent expert, who concluded that the council had acted in bad faith and unfairly.

The council launched proceedings, asking the Court to resolve issues in respect of the interpretation of the contract, which enabled the council to award ‘service points’ if dissatisfied with the contractor’s work. The Court found that such points could not be awarded above maximum limits. It also implied a term into the contract requiring that, in calculating the number of service points, the council must act honestly and on proper grounds and not in a manner that is arbitrary, irrational or capricious.