Today the Treasury has released the new Standardisation of PFI Contracts, to be known as "SoPC4". The re-issue is largely a "soft" one, in that the majority of the changes are new guidance, as opposed to drafting.
A large number of the changes made to required drafting are actually just transposed from the December 2005 Addendum, which introduced substantial new required insurance drafting.
One major change to the required drafting is the chapter on Changes in Service. Research on operational projects has shown that the parties rarely followed the procedures set out in the drafting, which was perceived as inflexible and over-complicated. The required drafting has been replaced by the concept of a Change Protocol, which should deal with different types of changes categorised by, e.g. size, origin or value. Different market sectors will need to develop their own Change Protocols.
Breakpoint termination, already under debate on some deals in procurement, is included as a non-mandatory option. Breakpoint allows an authority to terminate the agreement at agreed points and pay fixed compensation to equity holders, as opposed to the usual Authority Default/Voluntary termination calculations. It is likely that breakpoint will have more impact on some sectors than others, as breakpoints may only occur where reviews of the need for the service will take place.
Other drafting changes include enhanced rights to information (e.g. of financial defaults) for authorities, and changes to the indemnity drafting.
Guidance-based changes include new chapters on the new competitive dialogue process, bond finance (with permitted derogations from the standard form drafting), changes to the chapters covering the payment mechanism (including the use of user satisfaction surveys), and the use of early works agreements. There is also a new chapter on Contractor distress. Authorities are encouraged to monitor prospective counterparties for possible warning signs, and to ensure that sufficient support mechanisms are put in place to help deal with a distress episode.
Application of SoPC4 will be to all projects still in competitive procurement as at 1 May 2007.
