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									The International Comparative Legal Guide to:

PFI / PPP Projects 2007
         A practical insight to cross-border PFI / PPP Projects work

         Published by Global Legal Group with contributions from:

     Advokatfirman Hammarskiöld & Co.              Gómez-Acebo & Pombo

     Aluko & Oyebode                               Köves Clifford Chance

     Ashurst                                       Kyriakides Georgopoulos & Daniolos Issaias

     Blake, Cassels & Graydon LLP                  L'Estrange & Brett

     De Brauw Blackstone Westbroek N.V.            Matheson Ormsby Prentice

     Dundas & Wilson CS LLP                        Minter Ellison

     Freshfields Bruckhaus Deringer                Pachiu & Associates

     Chapter 4

     England                                                                                          Philip Vernon

     & Wales
     Ashurst                                                                                           Jan Sanders

       1 Relevant Authorities and Legislation                          procurement process. There is a non-statutory process
                                                                       which is generally adopted in the procurement of PFI/PPP
                                                                       projects in England and Wales which uses successive stages
     1.1   Who are the relevant procuring authorities?                 to select a winning bidder (within the boundaries of the EC
                                                                       public procurement rules).
     Dependant upon the nature of the project, there are a
     significant number of possible procuring authorities,
     including:                                                        1.4   Has any new legislation been required for the
                                                                             implementation of the PFI/PPP regime?
           central government departments and their executive
                                                                       In general, the normal principles of the English law apply to
           local government;
                                                                       PFI/PPP projects, but some aspects of English law, such as
           hospital and primary care trusts;                           insolvency, pensions, construction and tax legislation, have
           universities and colleges;                                  introduced specific exceptions or guidance to take into
           passenger transport executives; and                         account PFI/PPP projects.
           other bodies created by statute and their subsidiaries      There is also some sector-specific legislation which has
           (e.g. Transport for London, the Greater London              arisen to cater for PFI/PPP projects, including:
           Authority, Docklands Light Railway Limited).
                                                                             legislation providing for certification of the capacity
     This is a non-exhaustive list. In projects where public                 of local authorities and hospital or primary care trusts
     bodies are working together, more than one of these bodies              to enter into certain PFI contracts;
     can be the procuring authority.                                         legislation relating to the insolvency of hospitals or
                                                                             primary care trusts; and
     1.2   In which sectors has the PFI/PPP procurement                      legislation relating to railway PPPs in London
           methodology been adopted?                                         (especially the transfer of assets, leases, dispute
                                                                             resolution and administration).
     PFI/PPP procurement methodology has been adopted across           In certain sectors, in particular the transport sector, specific
     a wide range of sectors including in the accommodation,           statutory authorisation is sometimes used to implement a
     health, education, leisure, waste, transport (road and rail),     PFI/PPP project, including compulsory purchase powers and
     housing, defence, IT, fire and rescue services, street lighting   planning authorisation.
     and prisons sectors.
     Public bodies are not required to adopt the PFI/PPP               1.5   Has any new case law arisen relating to the
     procurement methodology in these sectors, but have the                  PFI/PPP regime?
     option to do so if it is the most appropriate solution and the
     project is of sufficient value.                                   As noted at question 3.1 below, there is new European Court
                                                                       of Justice case law which impacts on the procurement of
     1.3   Is there any specific legal/statutory framework for         English PFI/PPP projects.
           PFI/PPP procurement?                                        Some new case law has also arisen in the English courts in
                                                                       relation to the implementation of PFI projects, including for
     In general terms, there is no special legal or statutory          example the following:
     framework for PFI/PPP procurement. However, where                 Midland Expressway Limited v Carillion Construction
     applicable, EC public procurement rules and in particular the     Limited & others (2005)
     EC Public Sector Procurement Directive 2004/18 (as
                                                                       This is a case relating to a construction subcontract under a
     incorporated into English law) must be followed in the
                                                                       PFI project (see the structure diagram at question 2.1 below).
     procurement of PFI/PPP projects. The general EC Treaty
     principles must also be followed where relevant.                  In a PFI project, there are commonly “equivalent project
                                                                       relief” provisions in the subcontracts, which seek to match
     In many sectors, there is non-statutory guidance which
                                                                       claims of the subcontractors against the project company
     provides model documentation and advice in relation to the
                                                                       with equivalent claims of the project company against the
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public authority.                                                  The project/concession agreement (which sets out the
It was held that, under English legislation, a construction        private sector’s rights and obligations in relation to the
subcontractor could not be prevented from referring disputes       project) is entered into between the public authority and a
                                                                   project company.

                                                                                                                                            England & Wales
immediately to adjudication and that certain of the particular
“equivalent project relief” provisions in that construction        The project company tends to be a limited liability company
subcontract were ineffective.                                      which is incorporated by the successful bidder solely to
                                                                   undertake the business of the project, which typically
                                                                   comprises the use of private finance to fund the construction
1.6   Have any bodies been set up to oversee the
      PFI/PPP regime?                                              of a facility and the servicing of that facility over the project
Partnerships UK (PUK) has been created to work with the            The project company will typically pass down most of the
public sector to deliver PFI/PPP projects. It is a joint venture   risks and obligations under the project agreement to the
between HM Treasury and certain private sector                     construction and services subcontractors.
participants. Other bodies which have been set up to assist        The shareholders of the project company will normally
and promote the regime include:                                    inject sub-debt/share capital to the project company via a
      Partnerships for Health (PfH), which is jointly owned        holding company.
      by the Department of Health and PUK and whose                The lenders will provide a loan to the project company and
      remit is to set up the NHS Local Improvement Finance         will require security, as further described at question 5.3
      Trust (LIFT) programme for procurement of
      investment in premises for primary care services;            below.
      Partnerships for Schools (PfS), which is jointly funded      In certain sectors, framework agreements for the
      by the Department for Education and Skills and PUK           procurement of projects over a longer period have been put
      and whose remit is to set up the Building Schools for        in place, using a joint venture between the public and private
      the Future (BSF) programme for investment in                 sectors. Examples of this include the LIFT programme in
      premises for schools;                                        the health sector and the BSF programme in the education
      the PFI/PPP units of central government departments;         sector, as referred to at question 1.6 above. See further the
      and                                                          introductory chapter on “The Move Towards Batched
      the “4Ps” unit, which supports local authorities in the      Projects”.
      procurement of PFI/PPP projects.
The Office of Government Commerce (OGC), in its more               2.2    Do these structures give rise to any particular
general procurement role, is also involved in PFI/PPP                     accounting issues for the public or private sector?
projects, including for example its guidance on the “Alcatel”
judgement referred to at question 3.1 below.                       One of the considerations in structuring and allocation risk
                                                                   for a PFI/PPP project is its effect on the accounting treatment
                                                                   of the project for the public sector and, in particular, whether
  2 Structure of PFI/PPP Arrangements                              it is to be treated as off-balance sheet.
                                                                   The relevant accounting standard determines whether assets
2.1   What PFI/PPP structures have been used?                      are off-balance sheet for the public sector on the basis of a
                                                                   number of factors. These include whether there is a right to
The following project structure is commonly adopted for            benefit from the asset in the future and exposure to
PFI/PPP arrangements and assumes a project finance                 associated risks such as demand risk, third party revenues,
structure with a mixture of bank debt, sub-debt and share          variations arising from poor performance or non-availability,
capital funding, although clearly the exact structure will vary    changes in relevant costs, obsolescence, end of term transfer
from deal to deal and is more complicated than the top level       arrangements and residual value risk.
diagram below suggests.


Agreement                                                Project/Concession

                                         Credit                                         Share Capital
                Lender                 Agreement             Project                                                 Holding
                                                                                        / Sub Debt
                                                            Company                                                 Company
                                      Construction                                     Services
  Direct                              Subcontract                                     Subcontract

             Construction                                                                                           Services
              Contractor                                                                                           Contractor

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                       Ashurst                                                                                                   England & Wales

                       For the private sector, normal accounting rules and                   process as follows: “OJEU” notice; pre-qualification
                       principles apply and one of the considerations for the private        questionnaire; invitation to participate in dialogue; request
                       sector is also the balance sheet treatment. The factors taken         for final tenders; clarifications; and selection of a preferred
                       into account in determining whether the project is off-               bidder.
England & Wales

                       balance sheet for the project company are similar to those set        Further to the European Court of Justice’s “Alcatel”
                       out above for the public sector.                                      judgment, a ten-day standstill period is now required after
                       In the case of listed companies holding shares in the project         contract award but prior to contract signature. For PFI/PPP
                       company or holding company, the IFRS rules apply. These               projects, OGC guidance is that “contract award” occurs at
                       rules have amended the accounting standards in ways which             the point at which the preferred bidder is appointed.
                       can impact on project structuring at the shareholder level.
                                                                                             3.2   How do these differ (if at all) between different
                       2.3   Do these structures give rise to any particular tax                   procuring authorities and/or different sectors and/or
                             issues for the public or private sector?                              different PFI/PPP structures?

                       Both the public and private sector need to consider the               There tends to be little deviation from the process described
                       impact of general tax on the project, including liability for         at question 3.1, although of course a different procurement
                       corporation tax, income tax, capital gains tax, value added           regime applies to utilities as opposed to works or services
                       tax and stamp duty land tax (SDLT).                                   contracts.
                       The structuring of the land aspects of PFI/PPP projects give          However, different sectors often have their own standardised
                       rise to particular tax issues:                                        model procurement documentation which has been tailored
                              where the public authority owns the land on which a            for the nuances of the sector.
                              new facility is to be built, the availability and ability to   Public authorities tend to apply the same approach to the
                              benefit from composite trader tax treatment or capital         procurement of PFI/PPP concession agreements as to other
                              allowances by the private sector must be considered            PFI/PPP projects, despite the light treatment or complete
                              when deciding whether a lease/leaseback or licence             exclusion of these types of contracts from the EC
                              structure should be used for access by the private             procurement rules.
                              sector; and
                              there is an exemption from the SDLT regime for PFI               4 Financing of PFI/PPP Arrangements
                              land transactions. However, this exemption requires
                              certain conditions to be met, including a transfer/lease
                              and leaseback, provision of works or services and              4.1   Have the PFI/PPP structures involved the use of
                              payment of some monetary consideration for those                     private finance?
                              works or services. The land aspects of PFI/PPP
                              projects may not always adopt the requisite structure          PFI/PPP structures typically involve the use of private
                              for this exemption.                                            finance to fund initial capital expenditure on the new facility
                                                                                             which is being procured. However, some PPP projects are
                                                                                             publicly financed.
                         3 Procurement of PFI/PPP Arrangements
                                                                                             4.2   Where private finance is used, what have been the
                       3.1   Are there any legal requirements as to the                            typical sources of finance?
                             procedure for procurement of PFI/PPP
                             arrangements?                                                   Typical sources of private finance are listed below. These
                                                                                             can often be used in conjunction with each other to raise the
                       Where applicable, EC procurement rules (as incorporated               necessary finance:
                       into English law) set out the procedure for the procurement
                       of PFI/PPP projects.                                                  Equity
                       In the past, the negotiated procedure has commonly been               Share capital and sub-debt usually injected by sponsors or
                       adopted to procure PFI/PPP projects, with a structured                specialist equity investors/funds, often constituting around
                       approach consisting of successive selective stages being              10% of project cost.
                       used to choose a winning bidder. There is sector-specific
                       guidance which follows this approach and contains model               Bank finance
                       documentation which can be adopted in PFI/PPP                         Senior debt finance provided by way of a bank loan, often
                       procurement.                                                          constituting around 90% of required funding and sometimes
                       Following the enactment of the Public Contracts                       syndicated to a number of banks.
                       Regulations (2006 No. 5) with effect from 31 January 2006,
                                                                                             Bond finance
                       central government non-statutory guidance now generally
                       advises the use of the competitive dialogue procedure for             Senior debt finance provided by way of debt securities, as an
                       PFI/PPP procurement, with the negotiated procedure only to            alternative to bank debt. The debt securities are commonly
                       be used in exceptional circumstances. However, the                    marketed with the benefit of a monoline insurer guarantee.
                       competitive dialogue procedure does not exist under the
                                                                                             Mezzanine finance
                       Utilities Contracts Regulations.
                                                                                             Finance ranking between the senior debt finance and equity.
                       In accordance with Directive 2004/18, this guidance
                       contains a structured approach to the competitive dialogue
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Finance leases                                                     Corporate financing
Finance raised by the sale of capital equipment to a financial     The project structure and the terms of project documents
institution, which then leases back the equipment in return        may vary where project finance is not employed. For

                                                                                                                                          England & Wales
for a rental payment. Typically used for certain types of          instance, the use of a project company and the funder’s
capital equipment, such as rolling stock.                          security package (including direct agreements with the
                                                                   public authority and subcontractors) may be unnecessary
Corporate finance                                                  where a corporate finance structure is used.
Finance raised from the sponsors’ own internal resources as
an alternative to project financing: not a common approach.
                                                                     5 Contract Terms - General
4.3   What has typically been the currency of the
      finance?                                                     5.1   Have any standard form terms and conditions of
                                                                         contract been developed for PFI/PPP arrangements?
The currency of finance tends to be pounds sterling (£).
                                                                   HM Treasury has developed standard guidance (including
                                                                   standard required terms and conditions) for PFI/PPP
4.4   Has the source of finance typically been domestic or         projects. The implementation of this standard form
      international?                                               guidance is overseen by PUK.
The source of finance can be either domestic or                    In some sectors, sector-specific standard form documents
international. If international, the finance tends to be           have also been developed including:
sourced from a London branch of the relevant financial                   the NHS hospital PFI standard form project
institution.                                                             agreement, developed and overseen by the private
                                                                         finance unit of the Department of Health;
4.5   Have the different sources of finance given rise to                the LIFT standard form documents, developed and
      particular issues for PFI/PPP arrangements?                        overseen by PfH; and
                                                                         the BSF standard form documents, developed and
Where project finance is being used, the structure is                    overseen by PfS.
typically as set out at question 2.1 above. In this scenario, as
the recourse of the funders is limited to the cashflows of the     5.2   What are the principal risks typically retained by
project, funders will typically seek to mitigate the risks to            the public sector?
the project cashflows (as assessed by financial modelling).
Various means may be employed including:                           Principal risks typically retained by the public sector are:
      the pass-down of project risk to subcontractors with               the risk of the long-term need for the service;
      acceptable guarantors/bonding;
                                                                         any change in requirements of the project during its
      use of hedging arrangements to hedge against variable              term;
      elements in the cashflow such as interest rate or RPI;
      and                                                                long-term authority affordability of the project; and
      use of reserves or contingent finance to address                   land acquisition risk.
      contingent risks to the cashflows.                           Certain risks are also shared between the public and private
Some of the individual sources of finance noted above at           sector, such as defined “force majeure”, which is the fault of
question 4.2 can lead to certain specific finance structuring      neither party.
issues such as:                                                    Allocation of risk depends on various factors, including
                                                                   value for money considerations of the public authority,
Equity                                                             financeability for the lender and the ability of the private
The desire to optimise the finance structuring can lead to the     sector to manage risk. Where there is a requirement of the
use of equity bridge facilities, to delay the date on which        public authority for off-balance sheet treatment, this can also
equity is injected.                                                be a factor.
                                                                   The standard guidance and standard form documents
Bond finance                                                       referred to at question 5.1 have been developed against the
Bond proceeds are made available in one lump sum, rather           background of developing market practice in allocation of
than by drawdown as required. The project’s financial              risk.
modelling needs to allow these proceeds to be invested in
order to mitigate the consequential increased “carry” cost,
                                                                   5.3   What are the principal risks typically allocated to
whilst still allowing drawdown against scheduled                         the private sector?
construction works.

Finance Lease                                                      The principal risks typically retained by the private sector
The specific cash flow and taxation issues arising from
finance lease structures must be accounted for in the                   design risk;
financial modelling.                                                    construction risk and completion risk relating to
                                                                        quality, time and cost;

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                             operational risks and performance risks;                    Discriminatory or Specific Changes in Law
                             maintenance and life cycle risks; and                       The public authority generally retains the risk of any
                             financial, tax and accounting risks.                        changes in law which would discriminate expressly against
England & Wales

                                                                                         the PFI/PPP project, the project company or the PFI sector,
                                                                                         and changes in law which specifically refer to the
                       5.4   How does the private sector manage the risks which          construction and servicing of facilities for the sector in
                             it is allocated?                                            question, provided such changes were not foreseeable when
                                                                                         the project agreement was signed.
                       Some of the ways in which the private sector has managed
                       risks allocated to it are:                                        General Changes in Law
                              ring-fencing risk by use of a project company;             Changes in law which are generally applicable are normally
                              pass-down of project company risk to subcontractors,       a project company risk.
                              commonly subject to caps on liability;                     One typical exception is a general change in law which
                              maintenance of insurance in respect of insurable risks;    comes into effect during the service period and involves
                              providing in the project agreement for the re-pricing of   capital expenditure, where there is often a sharing of the risk.
                              specific services by way of periodic benchmarking/         The project company’s risk share for such capital
                              market testing;                                            expenditure is normally based on a sliding scale, with a cap
                                                                                         on the project company’s total exposure. There is also
                              indexation of some or all of the payment stream from       normally an exception for protection relating to change in
                              the public authority;                                      the VAT status of the project company.
                              limiting exposure to the public authority by way of
                              specific caps on liability;
                                                                                         6.2   Has there been any call for political risk protections
                              entering into hedging arrangements in order to                   such as direct agreements with central government
                              mitigate exposure to variable costs such as interest             or political risk guarantees?
                              rates; and
                              provision for contingencies/reserves within the            There has been no call for political risk guarantees for
                              financial modelling and availability of contingency        PFI/PPP projects in England and Wales.
                              funding.                                                   However, as noted above, the funders typically require a
                                                                                         direct agreement with the public authority.
                       5.5   Where private finance is used, what security do the         In addition, there have, on occasions, been specific issues
                             financiers normally require?                                relating to the capacity/insolvency of the public authority in
                                                                                         question, resulting in specific legislation as noted at question
                       Where project finance is used, the security normally              1.4 above.
                       required by the financiers includes:                              More recently, there has been a concern relating to NHS
                             security over all the assets (including contractual         hospitals which achieve “Foundation Trust” status, since this
                             rights) of the project company and security over the        removes them from the protection afforded by specific
                             shares in the project company;                              legislation referred to at question 1.4 above. This has led to
                             a direct agreement with the public authority, providing     the private sector requiring a direct agreement with the
                             rights for lenders to step into the shoes of the project    Department of Health, called a “Deed of Safeguard”.
                             company in the event of insolvency or other default;
                             a direct agreement with the subcontractors, providing       6.3   Are there any particular issues relating to dispute
                             rights for the lenders to step into the shoes of the              resolution with the public sector in relation to
                             project company in the event of insolvency or other               PFI/PPP arrangements?
                             guarantees or bonding of the subcontractors’                Selection of Dispute Resolution Procedure
                             obligations under the subcontracts (which may be            Standardised guidance provides for a three-stage escalating
                             provided to the project company and secured in favour       approach; consultation, followed by expert determination,
                             of the lenders); and                                        mediation or adjudication; and, if this fails, arbitration or
                             direct collateral warranties from lower tier                court proceedings. A fast track dispute resolution procedure
                             subcontractors or consultants, such as the designer of      to resolve quickly straightforward disputes can be
                             the facilities.                                             considered.
                                                                                         If a procedure such as expert determination or mediation is
                                                                                         selected, the parties need to agree how to select someone to
                         6 Contract Terms - Change of Law / Political
                                                                                         carry out the dispute resolution.
                                                                                         Inconsistent Decisions
                       6.1   How are the risks of a change in law typically              Another issue is the risk of inconsistent decisions at
                             allocated in PFI/PPP arrangements?                          subcontractor/project agreement level. The project company
                                                                                         may seek a joinder of disputes so as to avoid this, but this
                       There is typically a distinction between how risk is allocated    approach has not been adopted in the standard guidance and
                       for a discriminatory/specific change in law, as opposed to        so is not generally accepted by public authorities.
                       general change in law:                                            Where liability is being passed to subcontracts by the project
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company, there may need to be a further mechanism to             can be slow, with the outcome uncertain. It is therefore
apportion it between subcontractors. This can be addressed       important for public authorities to allow sufficient time for
in an interface agreement between the subcontractors.            this in their procurement process.

                                                                                                                                           England & Wales
As noted at question 1.5 above, the potential for mismatch       If the procuring authority is a local authority, it is likely that
between decisions at the subcontract and project agreement       it may also be the planning authority which awards planning
levels is often mitigated by the use of “equivalent project      permission. There must be adequate separation of these
relief” provisions in the subcontracts.                          functions to avoid a judicial review challenge.
Legislation contributes to the danger of inconsistent
decisions, since construction and maintenance subcontracts       7.2   Are there any particular regulatory issues in relation
are required to allow disputes to be referred to adjudication          to property/planning which arise on PFI/PPP
whilst PFI/PPP project agreements are exempted from this               arrangements?
See further the Midland Expressway Limited case referred         As noted above, normal property and planning law applies to
to at question 1.5 above.                                        PFI/PPP arrangements, subject to certain specific legislation
                                                                 exemptions, such as the specific exemption from the SDLT
                                                                 regime noted at question 2.3 above.
6.4   Is the forum for dispute resolution typically
      domestic or international?
                                                                 7.3   Are there any particular risk allocation issues in
Typically, domestic forums (including courts, arbitrators,             relation to property/planning which typically arise on
expert, mediators and adjudicators) are used for dispute               PFI/PPP arrangements?
                                                                 Set out below are some examples of property/planning risks
                                                                 which could result in increased costs, delay or failure of the
6.5   What is the normal language for the project and/or         project and which therefore need to be allocated between the
      finance documents?                                         parties:
                                                                       the risk of there being existing restrictions on the site
The normal language for all documents is English.
                                                                       requiring third party consents or releases (e.g.
                                                                       easements or covenants in favour of adjoining
6.6   What is the normal governing law for the project                 property, rights of light and existing leases);
      and/or finance documents?
                                                                       the risk of unknown factors affecting the site;
The normal governing law for all documents is the law of               the risk that site acquisition will be delayed or fail;
England and Wales.                                                     the risk of a planning application failing, being
                                                                       delayed, having unsatisfactory conditions, needing to
                                                                       be appealed, being called in or judicially reviewed;
  7 Property / Planning                                                the risk that the site is contaminated, contaminates
                                                                       adjacent land or becomes contaminated itself; and
7.1   Does property/planning law cater adequately for                  the risk of the Environment Agency requiring clean up
      PFI/PPP arrangements?                                            of contamination on the land.
The normal provisions of property/planning law apply to
PFI/PPP arrangements.                                              8 Employment / Pensions
Property Law
                                                                 8.1   Does employment/pensions law cater adequately for
Property law generally caters adequately for PFI/PPP                   PFI/PPP arrangements?
arrangements with rights of occupation in the relevant
interest in land usually being granted by leasing or licensing
arrangements.                                                    Employment Law
If a site needs to be acquired for a PFI/PPP project and         In PFI/PPP arrangements, staff are often transferred to the
negotiation is unsuccessful, in certain circumstances public     employment of the private sector further to the English
authorities may have the power to acquire land                   enactment of the Acquired Rights Directive 77/187, the
compulsorily. This process is not tailored to PFI/PPP            Transfer of Undertakings (Protection of Employment)
projects and can be slow, with the outcome uncertain. It is      Regulations (known as TUPE). Employment law caters
therefore important for public authorities to allow sufficient   adequately for staff transfers under TUPE in PFI/PPP
time for this in their procurement process.                      projects through legislation and guidance, in particular the
                                                                 Cabinet Office Statement on Staff Transfers in the Public
Planning Law                                                     Sector. Since 6 April 2006, TUPE has applied to first and
Normal planning law is generally used to obtain planning         second generation transfers. There is a code of practice
permission for PFI/PPP arrangements. However, some               dealing with how new employees who join post-transfer
PFI/PPP projects, particularly in the transport sector, use      should be treated to prevent a two-tier workforce, although
statutory authorisation which avoids the need for use of         earlier projects will not be covered by it. Where there is a
general planning law.                                            transfer of employees but technically the TUPE legislation
The planning process is not tailored to PFI/PPP projects and     does not apply (which since 6 April 2006 will be unlikely
                                                                 anyway), its principles must still be adhered to.
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                       In NHS PFI/PPP arrangements, what is known as the                       the risk of the suitability, conduct, performance and
                       retention of employment model is often applied so that                  control of staff during the term;
                       certain staff remain employees of the procuring NHS Trust               for pensions, the risk of obtaining an admission
                       (and members of the pension scheme) but are seconded to
England & Wales

                                                                                               agreement or GAD certification within project
                       the private sector.                                                     timescales; and
                       Pensions                                                                for pensions, the risk of a current/future shortfall in the
                                                                                               pension scheme.
                       Pensions law caters specifically for staff transfers in
                       PFI/PPP projects, with legislation and guidance allowing the
                       private sector to opt between keeping the staff in the public       9 Insurance
                       sector pension scheme or introducing a broadly comparable
                       private sector pension scheme accompanied by a bulk
                       transfer agreement.                                               9.1   Are insurances for PFI/PPP arrangements typically
                                                                                               the responsibility of the public or private sector?

                       8.2   Are there any particular regulatory issues in relation      The private sector typically takes out and maintains
                             to employment/pensions which arise on PFI/PPP               insurance for PFI/PPP arrangements.
                                                                                         Exceptions can apply where the public authority believes it
                       If there is a staff transfer under TUPE, then in order to         can achieve better value for money by maintaining the
                       comply with the relevant regulations there is a statutory duty    insurances itself.
                       upon the outgoing service provider or employer to provide
                       due diligence information to the incoming service provider.       9.2   Are there any risk allocation issues in relation to
                       The employers must also carry out an information and                    insurances which typically arise on PFI/PPP
                       consultation process with their own affected employees.                 arrangements?
                       For pensions, the private sector must either obtain an
                       admission agreement to the relevant public sector pension         Set out below are some examples of insurance risks which
                       scheme or obtain GAD certification for a broadly                  need to be allocated between the parties:
                       comparable private sector pension scheme.                               the risk of an increase in insurance premia;
                                                                                               the risk of excesses/deductibles and exclusions under
                       8.3   Are there any particular risk allocation issues in                insurance terms;
                             relation to employment/pensions which typically                   the risk of insurer insolvency;
                             arise on PFI/PPP arrangements?                                    the risk of limits on liability under insurances meaning
                                                                                               that reinstatement of damaged/destroyed facilities (or
                       Set out below are some examples of employment/pensions                  consequent revenue losses) is not covered; and
                       risks which need to be allocated between the parties:
                                                                                               the risk that insured risks or terms of insured risks
                             the risk of failure to comply with TUPE requirements              (including deductible levels) become uninsurable.
                             (such as consultation requirements) when employees
                             transfer to or from the private sector;
                             the risk of liability to staff which accrued prior to the   Acknowledgement
                             transfer, e.g. discrimination and equal pay claims
                             (which TUPE automatically passes to the transferee);        The authors gratefully acknowledge the assistance of
                                                                                         Pamela Hayton, also from Ashurst’s London office, in the
                             the risk of incorrect staffing information;                 preparation of this chapter.
                             the risk that if employees are seconded they could
                             claim to have been transferred under TUPE;

                       WWW.ICLG.CO.UK                                                                     ICLG TO: PFI / PPP PROJECTS 2007
                       Published and reproduced with kind permission of Global Legal Group Ltd., London
Ashurst                                                                                                           England & Wales

                          Philip Vernon                                                            Jan Sanders
                          Ashurst                                                                  Ashurst
                          Broadwalk House                                                          Broadwalk House

                                                                                                                                                      England & Wales
                          5 Appold Street                                                          5 Appold Street
                          London EC2A 2HA                                                          London EC2A 2HA
                          United Kingdom                                                           United Kingdom
                          Tel:     +44 20 7859 1705                                                Tel:     +44 20 7859 1246
                          Fax:     +44 20 7638 1112                                                Fax:     +44 20 7638 1112
                          Email:   philip.vernon@ashurst.com                                       Email:   jan.sanders@ashurst.com
                          URL:     www.ashurst.com                                                 URL:     www.ashurst.com
 Philip Vernon is a partner in the energy, transport and infrastructure   Jan Sanders is a partner in the energy, transport and infrastructure
 department in London. He specialises principally in infrastructure       department in London. She specialises in PFI, both in health,
 projects, privatisations and project financing, with particular          education and waste and is actively involved in secondary market
 experience in projects under the UK Government’s PFI/PPP initiative      transactions. Jan also has experience of energy law, particularly
 (including health, education, defence, rail, road, custodial and other   corporate and commercial-related work for oil and gas companies.
 accommodation projects), including refinancing and secondary             She has considerable corporate experience including acquisitions
 market transactions. Philip also has experience of securities issues,    and disposals and joint ventures.
 corporate finance transactions, business acquisitions and joint

         Ashurst is a leading international law firm with offices in Brussels, Dubai, Frankfurt, London, Madrid,
         Milan, Munich, New Delhi, New York, Paris, Singapore and Tokyo. With over 170 partners and 800
         lawyers we advise the world’s most leading companies and financial institutions, as well as national
         governments, on their most strategically important transactions.
         Ashurst is one of the leading firms in the PFI/PPP field. We have advised on PFI/PPP projects in the UK
         alone with a total value in excess of £12 billion and have a track record of delivering innovative, large-
         scale PFI and PPP transactions. We act for sponsors, public sector clients, contractors, equity investors
         and debt financiers, and are familiar with the concerns and objectives of all the participants in these
         We advise in all PFI/PPP sectors including: accommodation; custodial; defence; education; health;
         transport; and waste and energy from waste. Our clients are the leading organisations active in the
         PFI/PPP field, including secondary market and refinancing transactions.

ICLG TO: PFI / PPP PROJECTS 2007                                                                                     WWW.ICLG.CO.UK
Published and reproduced with kind permission of Global Legal Group Ltd., London

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