Private Finance Initiatives (PFI) – disputes when long term contracts end

I entered the legal world some 20 odd years ago (more than I care to remember…) as a newly qualified solicitor whose day to day work more or less entirely revolved around advising, negotiating and drafting PFI and PPP contracts.  2022 seemed light years away and PFI was the central government’s novel way to assist the much needed investment and renewal of public sector assets and facilities.  Over the years, much has been written about the pros and cons of the Private Finance Initiative but now that many of these long term PFI contracts are coming to an end, disputes between the relevant parties are certainly on the up.  Issues which have caused particular concern include the standard of the assets being handed back to the public sector and defects, contractual ambiguity and hand back provisions, continuity of service during the hand back process and public sector resources.

It was therefore with interest that I read a judgment released on 12 October concerning the procurement of a PFI Hospital and significant defects identified within an Oncology Centre.  The case in question is St. James Oncology SPC Limited v Lendlease Construction (Europe) Limited  and Lendlease Construction Holdings (Europe) Limited [2022] EWCH 2504 and copy of the judgement is available here.

The case concerned the largest oncology centre in the North of England. The centre was designed and built by Lendlease. Those running the centre alleged that Lendlease had undertaken that task in such a way that there were nine different serious, fire safety and electrical engineering defects within a plant room which meant that a single fire or fault could remove both the primary and secondary power supplies to all medical equipment and facilities in the Oncology Centre. The judgement identifies that until shortly before trial, Lendlease’s position was one of a “a flat denial of all liability on the part of Lendlease”. At trial Lendlease modified its position, accepting that some defects existed but not others.  However, it continued to deny liability on the basis that the construction complied with a fire strategy that had been signed off by all parties prior to the PFI contract being signed.  Also, that those running the Oncology Centre had no intention of actually carrying out a remedial scheme that had been proposed to correct the serious defects which existed.

When making its decision, the TCC found that each of the serious defects denied by Lendlease did in fact exist and that Lendlease’s defence based on the assertion that the parties’ agreement of a fire strategy meant that it did not have to correct such defects should be rejected. It also rejected in strong terms Lendlease’s defence that a remedial plan to rectify the defects was unreasonable and that the public bodies running the oncology centre did not in fact intend to implement the remedial plan.

The case is an interesting example to all those involved in the construction of PFI Healthcare projects both of what can go seriously wrong during the process and of the careful and evidence based approach which Courts are likely to take when considering the competing arguments which arise between healthcare providers and contractors when allegations of serious fire and/or safety related defects are made. In particular paragraph 316 of the judgment is likely to be regarded by many as important:

“It is not an answer to a claimed remedial scheme to demonstrate that the defects could have been rectified through an alternative scheme at a lower cost (see Struthers v Davies [2022] EWHC 333 (TCC) at [29]). Lendlease must demonstrate that Project Co’s Proposed Remedial Works are unreasonable.”

Similar fire defect issues relating to exactly the same Lendlease companies are set to be dealt with again by the TCC in the case of Northumbria Healthcare NHS Foundation Trust and (2) Northumbria Healthcare Facilities Management Limited  v (1) Lendlease Construction (Europe) Limited and (2) Lendlease Construction Holdings (Europe) Limited and Others which is due to be heard shortly.