Private & Confidential. Not for distribution. ©DWF LLP Go further Title needs degree sign (°) added from the “Insert/Symbol” menu. This needs to be added at 28pt compared to the 24pt title. North West Audit Risk and Governance Group° In Control or In Chaos? Michael Mousdale Partner 7 March 2015

Private & Confidential. Not for distribution. ©DWF LLP Title needs degree sign (°) added from the “Insert/Symbol” menu. This needs to be added at 28pt compared to the 24pt title. Major Contracts/PFIs not delivering? What do you do about it?

Private & Confidential. Not for distribution. ©DWF LLP Contractual Remedies Changing the Contract Restructuring and Refinancing Termination issues Specific problem areas Topics for Discussion 3

Private & Confidential. Not for distribution. ©DWF LLP signed PFI projects (including within BSF) –Local Government –Health –Central Government Statistics 4

Private & Confidential. Not for distribution. ©DWF LLP Do you monitor adequately? Do you really understand the payment and performance mechanism? Are you aware of your remedies? Is there a problem with the contract? 5

Private & Confidential. Not for distribution. ©DWF LLP What is your leverage? Refinancing under the contract? Benchmarking/market testing Do you need to terminate to reduce the cost? Are you simply looking to reduce the cost? 6

Private & Confidential. Not for distribution. ©DWF LLP Waste –Composition change; volume change technology change Hospitals –Technology change –Medical advances Schools –Demographics –Technology –Curriculum Issues in relation to particular PFI contracts 7

Private & Confidential. Not for distribution. ©DWF LLP Contractor Default Authority Default Voluntary Termination Corrupt Gifts Force Majeure PFI Termination Scenarios 8

Private & Confidential. Not for distribution. ©DWF LLP See relevant guidance for DCLG (or predecessor) Discretionary Grant (section 31 LGA 2003) Obligation to inform Assumption that PFI credits will continue, even after termination “Exceptional circumstances” may rebut the assumption Changing/termination of contracts – effect on credits? 9

Private & Confidential. Not for distribution. ©DWF LLP Contractor Default –if retendered, the price the bidder will pay –if no retendering, the Estimated Fair Value of the Contract Authority Default/Voluntary Termination – senior debt, equity + profits Corrupt Gifts – Senior Debt Force Majeure – Senior Debt + junior debts + costs Compensation upon PFI Termination 10

Private & Confidential. Not for distribution. ©DWF LLP Buy back of hospital by Trust Termination of PFI Contract Annual savings of £3M per year Funding provided by Northumberland County Council (£114.2M) Approval from Monitor and Government Contract said to contain early exit clause DH insist not a precedent Case Study – Hexham Hospital 11

Private & Confidential. Not for distribution. ©DWF LLP Troubled Waste PFI Facility and performance issues Consensual termination Banks and contractor paid off via Council borrowing (£284M) Potential loss of PFI Credits Case Study 2 – Lancashire County Council 12

Private & Confidential. Not for distribution. ©DWF LLP “Successful” projects should have been refinanced Are there further opportunities? Public sector should share equally any gain Public sector borrowing to refinance private sector debt Buy out of “equity”? –give control of the supply chain –assumes risk –banks probably need to agree State Aid Risk? Refinancing options 13

Private & Confidential. Not for distribution. ©DWF LLP Find your leverage Is there a break clause or option for extensions? Revisit the original risk register – it will have changed Re-consider classic risk areas Reduce cost in return for risk assumption? Who is actually best placed to manage risk? Strategies for re-negotiation (assuming no fault) 14

Private & Confidential. Not for distribution. ©DWF LLP Substantial modification of a contract means a new procurement is required Substantial modification means: –original procurement may have had different outcome –changes scope considerably –change is to economic advantage of contractor –change of contractor De minimis (10% services, 15% works) may be ignored Clear and unequivocal provisions in contract contemplating the particular change are not substantial modifications Procurement Issues 15

Private & Confidential. Not for distribution. ©DWF LLP Our firm is driven by its core Values which focus on: 16 Values Our ClientsOur PeopleOur CommunityOur Environment

DWF is the business law firm with industry insight. Our legal experts combine real commercial understanding and deep sector knowledge to help clients anticipate issues, create opportunities and get the outcomes they need. We’ll deliver the results that help you go in the right direction – wherever you are. Go further ° ©DWF LLP 2014 DWF LLP is a limited partnership registered in England and Wales with registered number OC The content of the Regulatory and Licensing Insert does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.