For anyone managing or advising on PFI-style contracts, the recent Court of Appeal decision in Buckinghamshire Council v FCC Buckinghamshire Ltd [2025] EWCA Civ 921 is well worth a read.

This case involved income-sharing provisions, which are not uncommon in these long-term Public-Private Partnership contracts. Income/profit sharing might sound straightforward in theory, but it is often built into complex formulae within the payment mechanisms. In practice, the slightest uncertainty in drafting can be a breeding ground for ‘pay mech’ disputes. We have experienced:

• Contracts where payment mechanisms and specifications are open to interpretation (and therefore disputes) in key areas;
• parties who have departed from contractual terms but have not formally (and/or carefully) recorded these changes through a deed of variation - an oft-cited issue with PFIs; and
• authorities who have not asserted their rights under the project agreement, including making legitimate deductions from the unitarity charge. 

The Court of Appeal decision

For Buckinghamshire Council, such issues resulted in litigation between 2020 and 2025. The proceedings centred around their Project Agreement dated 2013, which concerned the construction and operation of three waste facilities over a 30-year term. 

The dispute that reached the Court of Appeal in summer 2025 was around what ‘directly incurred’ costs the contractor could deduct from the Third Party Income (earned through, for example, disposals at other waste facilities) before sharing it with the Council. The court was also asked to decide whether an arrangement with one such third party (Luton Borough Council) counted as ‘third party income’ at all. 

The Court of Appeal made findings in the following areas:

1. Only costs directly incurred could be deducted – there needed to be ‘some immediate relationship between the winning of the income and the outlay’;
2. Income from Luton was 'associated with the project' and so fell within the definition of ‘third party income’; and
3. A clause excluding certain costs was interpreted broadly, covering off-site haulage and handling.

Contract interpretation

Buckinghamshire shows just how contract-specific these disputes are. Cases like this turn on the precise wording of bespoke contractual provisions, read against a unique factual position. Nonetheless, this is a helpful reminder, and it is worth repeating paragraph 52 of the Court of Appeal judgment (per Newey LJ):

“Interpretation of a contract involves, of course, assessment of “the objective meaning of the language which the parties have chosen to express their agreement” (to quote Lord Hodge in Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173, at paragraph 10) or, in the words of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912, “ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.”

It follows that, when construing relevant provisions, the court was not persuaded by the wider tender documents or other external factors such as wording from WIDP (Waste Implementation Development Programme) and SoPC4 (Standardisation of PFI Contracts version 4, March 2007). This is an important reminder for parties to ensure their contracts include what was intended and objectively has the meaning that was intended.  

Some key learnings

For Buckinghamshire Council, this was a significant victory and a strong message on transparency; the Council had to apply to the court for specific performance to obtain the records it needed to verify its income share, and the court upheld its right to do so.  The following learnings from this case come to mind:

• If your contract has audit or disclosure provisions, these should be enforced to obtain the information you need, to understand the income you are entitled to. The dispute resolution procedures in the contract will set out the enforcement route, whether this be adjudication, expert determination, arbitration or litigation.
• In the absence of agreement over the interpretation of key provisions relating to payment or how the project will be run, seek declarations from a court or tribunal (as appropriate). The expedited Part 8 process could be suitable.
• Always ensure that any variations to terms (including procedures) are properly documented as variations to the project agreement.

Please get in touch if you would like to explore any of these issues further, to keep your long-term projects on track.