Despite the absence of a dedicated legislative framework for PFI, a number of pieces of enabling legislation have been required, mainly in to order to provide comfort to the private sector in relation to specific issues, such as: • Local Government Act 2000: This made it clear that a local authority has the power to do anything which is likely to achieve the promotion or improvement of the economic well-being of their area, including entering into PFI contracts • Local Government (Contracts) Act 1997: This provides a mechanismwhereby a certificate provides confirmation that a local authority has power to enter into a particular contract, once the three month period for a legal challenge by way of audit or judicial review has passed (and provides the counterparty with compensation, if any such audit/review sets the contract aside) • National Health Service (Residual Liabilities) Act 1996: This made it clear that the Secretary of State could not exercise his statutory power to dissolve an NHS Trust without ensuring that its liabilities were assumed by a creditworthy successor entity • National Health Service (Private Finance Act) 1997: This is broadly similar to the Local Government (Contracts) Act 1997 but applies to NHS Trusts
Building contract issues The structural context of a PFI project impacts on the provisions of the design and build contract and the position of the contractor in a number of ways including: Direct agreement in favour of the lenders : see Finance above. Direct agreement with the procuring authority : The procuring authority will require the D&B contractor to enter into a direct agreement including certain collateral warranties and giving the authority the right to step in to the D&B contract if necessary, but only after the lenders have been repaid. Interface agreements :Defects in the D&B contractor’s completed works have the potential to create disruption and additional costs in the operation and maintenance of the facility in question, and to expose the project company to deductions by the authority for availability and performance failures. As indicated above, the project company will seek to pass down these risks to its operation and maintenance contractor, and – to avoid being caught in the middle of a dispute between its supply chain as to ultimate responsibility for such issues – it will normally require the D&B contractor “interface agreement” with it. This will allow the project company to allocate deductions based on an initial good faith determination, and then leave the subcontractors to seek recourse against each other in the event that they disagree with the allocation. and the operation and maintenance contractor to enter into a tripartite
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