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Renegotiation is possible

Joe Papineschi

Some waste sector PFI deals have delivered good value for money to councils, but with few yet having reached the halfway point of their lifespan, far more are faring less well.

Some contracts have failed and others are in genuine distress, but many are facing problems due to being long, complicated and expensive to change.

Difficulties have arisen for a number of reasons. In some cases, the choice of technology has been a factor. Several of the contracts that have foundered were those that incorporated mechanical-biological technology that has either faced less favourable economics or not worked as expected.

In other cases, such as integrated waste management contracts, PFIs have sought to do too much. Where recycling and residual waste treatment have been managed under a single contract, the pricing mechanisms can give rise to perverse consequences – or certainly consequences that are difficult to justify politically or environmentally.

Relatively simple incinerator-only arrangements are generally faring best but, from a price perspective, even these are distinctly variable.

While councils may often be the ones feeling the pinch, the contracts can be inflexible for all parties. Recognition of the problem is growing in the private sector, and the big players recognise that it may be necessary to offer flexibility now to protect their income streams in the long term.

Despite the complexity of many PFI contracts, our recent experience of some positive processes shows that renegotiation is possible, provided that a sufficiently sophisticated negotiation strategy is in place.

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