By Mark Williams, CIPFA Senior Consultant.
On 6 March 2023 the final report of the inquiry into the Sheffield street trees dispute was published.
The goals of the inquiry were to support the ongoing recovery in Sheffield from the dispute, to draw conclusions and make recommendations designed to help minimise the risk of the dispute re-emerging in future.
The dispute arose after protestors objected to Amey’s programme of removing mature trees across the city, as part of the Streets Ahead PFI (private finance initiative) contract that runs until 2037 and aims to improve the quality and safety of street surfaces. The programme would have seen the removal and replacement of 17,500 trees, but led to significant objections that saw some protestors chain themselves to threatened trees.
The inquiry commissioned CIPFA to provide advice on the Streets Ahead PFI contract, including covering how the contract was set up, run and financed, the incentives it created around tree requirements and the implications of the contract specification on the approach that Amey would take to tree replacement. CIPFA was chosen for our specialism and expertise in public sector finance and PFI.
In CIPFA’s view, the dispute could have happened under a different contract structure, or if Sheffield City Council delivered the programme themselves. The dispute has little to do with the fact it is a PFI contract structure. PFIs, like many other contract structures including council self-delivery, are complex, long-term arrangements that can be difficult to navigate.
Building on this theme and focusing on the second goal of the inquiry, CIPFA suggests that there are conclusions and recommendations that can help with many complex long-term delivery arrangements. While the dispute is around street trees, the conclusions and recommendations are relevant to a wide range of disputes that can arise at any stage in a PFI or complex long-term delivery lifecycle.
The Sheffield Streets Ahead (Highways) PFI is a 25-year deal that began in 2012. The dispute means that the arrangements and relationships between partners need to be ‘reset’ as it is important to establish a best value and collaborative arrangement for the remaining 14 years.
There is of course a lot of focus on PFI contracts that are near to the end of their term. We also suggest that some of the conclusions and recommendations are relevant to PFI expiry and the post PFI follow-on arrangement. Using its well-developed PFI efficiencies and expiry approach, CIPFA repeats the aim of a best value and collaborative PFI exit and follow-on arrangement. Any handover from an incumbent PFI supply chain to the post PFI delivery partner/self-delivery is seamless and potentially invisible to the end user.
We also draw on current best practice around business case development, programme/project management and commercial theory in responding to the questions asked of us in this dispute. It’s important to reflect on the process of ‘capacity and capability building’ guidance that has gone on across public services in the last decade, largely driven by HMT and the Cabinet Office across Central Government. The business case written in support of the Sheffield Streets Ahead PFI would look different today if drawing on HMT’s better business case approach and the updated Green Book, which supports socio-economic benefits, costs and risk analysis. For example, there is now considerable guidance and material on how to value “natural capital”.
As set out in the Inquiry report, CIPFA notes the following current best practice:
- The need for comprehensive stakeholder identification and consideration
- Identifying risks and scenarios
- Working in collaboration across organisations and sectors
- Using the business case and the contract as living documents to track the benefits, costs and risk across the lifetime of the contract
- Having strong governance arrangements and an escalation process across the lifetime of the project
- Openness, honesty and transparency
The guidance that both the business case and the contract are ‘living documents’ means that for the partnerships industry the contract must not be signed and left to sit on a shelf. This is very relevant to our work on efficiencies and expiry and there are now online tools to help manage the contract as a living document.
The same principle applies for the business case and is reinforced in HMT’s commissioned better business case training. We see the business case as a decision-making framework, a way of documenting decisions and as a live document. Therefore, with complex long-term arrangements, especially with many years left to run, where there are opportunities for doing things differently refreshing the business case is vital.
CIPFA also commented in the Inquiry report that “in our experience care is needed with respect to deductions in a PFI unitary charge. It is better to be receiving a good service and PFI deductions should not be seen as an efficiency and way of saving monies, regardless of how challenging the public body’s financial standing might be.” The underpinning principles of PFIs mean that while any private finance may be more expensive than public borrowing, the finance (and other mechanisms) are there to drive commercial incentives and project delivery. The higher cost of private finance is offset by risk transfer to the private partner, assuming the private partner is best placed to take the risk (a principle still contained in the Green Book).
There are many benefits of using a private partner including bringing innovation to the arrangement and piecing together the design, build, finance, operation and maintenance of the project. The private partner will also undertake due diligence at the start and throughout the project lifecycle. These underpinning principles and benefits will be at risk if the focus is on taking deductions rather than receiving a good service.
In the case of Sheffield Highways there are a number of important innovations that the private partner has brought and continues to bring. The streets in Sheffield, formerly termed “pot hole city”, are now in a much enhanced condition.