UK: Schools Standard Form Project Agreement Re-Issued

Partnerships for Schools ("PfS") has today published its revised standard form PFI Project Agreement. The re-issue, which is part of an overhaul of the entire suite of Building Schools for the Future ("BSF") documents, represents a major step forward in the evolution of BSF procurement.  The Management Services Agreement was published in August, and the remainder of the suite will follow over the coming months.

This review (the last one was in March 2006) of the Project Agreement takes into account the issue of HM Treasury's Standardisation of PFI Contracts, version 4 ("SoPC4") and relevant legislative and guidance changes (CDM, TUPE).  The review also considered amendments made on all closed BSF deals, along with many currently in procurement.  The result is an updated and improved document, which also contains those amendments commonly made or requested in the market.  The result should be fewer derogations being requested by bidders.

One major SoPC4 change has been the addition of a Change Protocol.  The Protocol, which makes it clear that the Contractor has a core responsibility to manage Changes for the Authority, categorises Changes into three types depending on value.  Small Value Changes follow a catalogue approach.  High Value Changes follow a longer two-stage process involving the Contractor in obtaining funding; the process is similar to that already used in the New Projects Approval Procedure under the BSF Strategic Partnering Agreement.  Between the two, the process for Medium Value Changes echoes the old SoPC3 drafting.

The Insurance provisions have been substantially amended.  SoPC4 consolidated PFI market insurance drafting and amendments reflect that.  In addition, following some consultation with the insurance industry, the Insurance drafting and Schedule is now in a form that should be more generally acceptable to the market. 

The provisions governing Benchmarking and Market Testing have changed.  Each time value testing is to be carried out, Authorities will have the right to specify which Soft Services are to be Benchmarked and which are to be Market Tested.  An Authority's decision may depend on a number of factors including the local appetite for competition through tendering and the availability of benchmarking data for the relevant Service.  It will be interesting to see how soft service providers view this move, prompted by changes in Treasury policy.

The indemnity provisions have been amended so that Authorities may decide whether to allow the Contractor to cap its liability for breach of statutory duty.  A footnote makes it clear that this is an option that should only be given by an Authority where there are clear value for money benefits.  This will be welcomed by bidders.

The risk of defective title to the sites has been dealt with by including some basic warranties.  The warranties are qualified by site-specific issues, searches and standard form replies to enquiries, disclosed by the Authority first at ITCD.  The result should be less title due diligence being carried out by bidders and their funders.  The provisions dealing with lease and leaseback arrangements have been deleted as deals tend to now use the property licence and contract debtor tax structure.

Amendments have been made to cater for conversion to Academy status.  While Academies are procured as part of the BSF programme through PfS's National Framework for Academies, a number of schools procured through a Local Education Partnership PFI may convert during the Project term.

We expect that response to the new form will be positive overall, and the result should be that negotiations focus on the all-important deal-specifics.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 04/12/2007.