PPP Projects Handback – what can we learn from projects reaching handback?

In my previous article on PPP projects handback, it was highlighted that a number of projects will be reaching expiry over the coming years and that the issue of handback therefore will be brought into sharp focus. Handback is one of the final key milestones in a PPP contract and how it works in practice will likely be heavily scrutinised to see if PPP delivers the benefits it promised to bring such as value for money through risk transfer to the private sector and the “whole life” approach.

Scottish Futures TrustInfrastructure Projects Authority are advocating that an early, pro-active approach is taken by Authorities towards managing projects that are reaching expiry in 7-8 years or, in the case of complex infrastructure assets, 10 years. Starting preparations for expiry early should allow plenty of time for parties to deal with what can be complicated and ambiguous handback provisions. A number of early PPP projects were closed before the more standardised project agreements we see in later projects were introduced and therefore have bespoke and unique contractual terms relating to handback which has created and will create an array of challenges.

and the

It will therefore be interesting to see what challenges handback brings over the coming years but from what we know so far, is there anything that can be learned and put to use in new and existing projects?

• Contract requirements for handback –some older PPP contracts lack any detail around what handback requirements are to be met therefore meaning disputes around what condition the asset needs to be handed back in may be more likely to arise. Clearly defined handback requirements will assist parties in understanding their obligations. However, there is a balance to be struck between clarity of requirements and overly demanding requirements. If handback requirements are overly demanding then it is likely that the private sector will price that risk into the contract therefore potentially resulting in poorer value for money.
• Construction phase – there is no better place to start than at the beginning of an asset’s life. If an asset is well constructed then, assuming proper maintenance (which we will come on to), it should stand the test of time. PPP projects tend to use an independent tester who certifies the build as complete however we are seeing more often now provision for the works to be inspected during construction and commissioning (and as recommended by the Cole Report) meaning any major construction issues should be flushed out during the build period rather than further down the line. The use of BIM and other such technologies will also likely assist with testing the asset condition.
• Services Specification – handback requirements are often linked to compliance with the services specification. It is therefore important to ensure that you have a services specification tailored to the particular asset. As with handback requirements, an overly onerous services specification is not likely to result in value for money therefore it is again a balancing act to ensure the services specification is appropriate for the asset and the condition it is to be handed back in without being too arduous.
• Contract Management – too often contracts are forgotten about and never looked at until something goes wrong. Contracts are to be used as day to day operational tools and the payment mechanisms should be used as envisaged and as a driver to ensure the asset is maintained in the condition it is meant to be. Any variations (however done) to the contract throughout the life of the project must also be clearly captured and available as this will be important when identifying what assets are subject to the handback requirements.
• Condition Surveys – don’t leave these until the last minute. It may take some time to arrange the survey, have it conducted and for the report to then be completed. Thereafter, time will be needed for the parties to agree a plan in terms of the handback works, programme and costs. You don’t want to be fighting about matters as the contract expiry looms. If there is a new FM provider post expiry then the condition survey will also be important when agreeing any related contracts.

Harper Macleod has already successfully advised on the handback of 2 PPP projects and is actively engaged in relation to handback arrangements on other PPP projects. All our experience is being applied to new projects and developments we are working on to the great advantage of our clients.