Legacy Contracts in the UK, Climate Change and the Changes They Bring: The PFI Handback Challenge

For over 20 years in the United Kingdom, the Private Finance Initiative (PFI) was used in the procurement, financing and operation of many public infrastructure projects. As many of these original contracts approach the end of their 25-30 year terms, significant practical and legal consequences are emerging for the next phase.

The need to decarbonize PFI projects was explored in depth in the handbook published by the IPA on July 5, 2023, which offers good practice recommendations to PFI contracting authorities on preparing for and implementing carbon reduction interventions. The executive summary of the handbook states: "42% of the United Kingdom's total carbon footprint comes from the built environment."

Many PFI contracts were signed over 20 years ago, before the Climate Change Act 2008; therefore, it is unlikely that these contracts contain explicit provisions relating to Net Zero. Public authorities' future needs may no longer be compatible with these criteria due to net zero obligations.

The Climate Change Act (CCA) 2008 forms the foundation of the United Kingdom's long-term carbon reduction targets and binding carbon budgets. A net 100% reduction in greenhouse gas emissions by 2050 compared to 1990 levels is targeted. Since PFI contracts were largely signed before this legislation, handback criteria have not taken into account today's binding carbon reduction targets.

Public authorities must consider net zero targets in the renewal of maintenance and operation contracts after handback, as well as the asset itself and possible retrofitting works. These comprehensive legislation and policies can ensure that the PFI handback process is not just a contractual milestone, but also an important opportunity in the transition of public assets to a sustainable and low-carbon future.