1. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk 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

2. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk 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?

3. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk Contractual Remedies Changing the Contract Restructuring and Refinancing Termination issues Specific problem areas Topics for Discussion 3

4. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk 726 signed PFI projects (including within BSF) –Local Government –Health –Central Government Statistics 4

5. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk 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

6. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk 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

7. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk Waste –Composition change; volume change technology change Hospitals –Technology change –Medical advances Schools –Demographics –Technology –Curriculum Issues in relation to particular PFI contracts 7

8. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk Contractor Default Authority Default Voluntary Termination Corrupt Gifts Force Majeure PFI Termination Scenarios 8

9. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk 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

10. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk 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

11. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk 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

12. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk 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

13. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk “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

14. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk 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

15. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk 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

16. Private & Confidential. Not for distribution. ©DWF LLP 2014 www.dwf.co.uk Our firm is driven by its core Values which focus on: 16 Values Our ClientsOur PeopleOur CommunityOur Environment

17. 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. www.dwf.co.uk Go further ° ©DWF LLP 2014 DWF LLP is a limited partnership registered in England and Wales with registered number OC328794. 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.