Whilst we are watching what happens with the pipeline of new infrastructure Public Private Partnerships (PPPs) – see our colleague Jon Coane’s blog – many issues remain with the UK’s legacy PFI (Private Finance Initiative) contracts. 

The UK faces the complex task of managing the expiry and handback of around 600 PFI contracts over the coming years. These are high-value, long-term contracts involving public assets and services. How the expiry process is managed and how disputes are handled is coming into sharp focus. 

Mediation, embarked upon at the right time, is underused. Depending on the Dispute Resolution Procedure (DRP) in the contract, parties can be sent down an adjudication route (with provisions sometimes borrowed from the Construction Act Scheme), or maybe an Expert Determination route. Although these are meant to be quick and cost-effective processes, they often become complex. They can also escalate further into litigation, meaning that, if mediation does eventually take place, it can be after incurring significant legal costs and many hours of officer time in managing the dispute.

Those familiar with PFI will recall that the White/Fraiser report (July 2023) is critical of the private nature of adjudication where ‘significant public and private fund have often been spent disputing the same issues time and time again.’ Whilst mediation does not resolve this, it does seek to facilitate a more collaborative approach between the parties, which is befitting of a PFI relational contract. White/Fraiser recommended the promotion of mediation, as well as a PFI Dispute Resolution Forum. It highlighted the need for behavioural change, early issue resolution, and collaborative problem-solving to help reset relationships.

Despite this, our experience is that mediation can be a consistently underused tool. Yet it has such an important role to play. A moment to take stock, and to consider risks, costs and objectives. 

There is also increasing policy and legal backing for this modality.  Recent changes to the Civil Procedure Rules¹ create a landmark shift in legal culture: mediation is now central to dispute resolution. The updates have extended the court’s duty from ‘encouraging’ the parties to use ADR (such as mediation), to expressly giving the power to order it.  Parties have it in their gift to agree to mediate at an earlier stage.

This sits comfortably alongside the evolving public contracts landscape, where dispute resolution is part of good governance. For public bodies managing PFI (or any) contracts, there are statutory and fiduciary duties to consider, such as:

• securing value for money across the contract lifecycle;
• acting fairly, proportionately, and transparently; and
• protecting public confidence and long-term outcomes.

Mediation offers a process that is faster, less adversarial, and more cost-effective than formal legal proceedings. It also helps preserve working relationships that will still be needed during the winding-down phase of a PFI contract. As PFI contracts reach their end, disputes often surface around various issues:

• Asset condition and maintenance
• Lifecycle obligations
• Latent defects
• Payment mechanism, settlement and liabilities

Mediation allows parties to address clusters of issues together, rather than tackling them in isolation through costly legal processes. It supports creative solutions, reduces legal spend, and can unlock agreement where formal mechanisms might prolong conflict.

We have seen this work very well recently, with a PFI contract that was in dispute three years before expiry. Discussions at mediation helped the parties to pull back from costly legal proceedings and to seek win/win solutions that a court would have no power to order; for example, creative solutions around decommissioning that will save the contractor money in the final years of the contract and simplify re-procurement for the public body.

There’s an opportunity here for public sector clients to lead by making mediation the default step before escalation of legal processes. It is a tool that can be used proactively to manage expiry risk and to fulfil duties of care to the public purse through cost-effective dispute resolution. The public sector has the chance to set the tone: one of collaboration, stewardship, and forward-looking leadership. 

Mediation is increasingly the responsible choice, and one that we would encourage both legacy and future PFI/PPPs to embrace. 

If you would welcome a conversation around PFI disputes, please contact Andrew Lancaster or Emma Beynon. Stay tuned for further PFI blogs coming over the summer too! 

¹1 October 2024 (Amendment No.3) (SI 2024 No.839) to the Civil Procedure Rules