How to prevent your long-term agreement from crumbling

Plaster falling off the walls, holes in the ceiling and damp walls – does this sound like the fulfilment of a successful maintenance contract to you? For a group of schools in Stoke-on-Trent, UK, the problems they are experiencing at the end of a 25-year Private Finance Initiative (PFI) contract covering school maintenance highlight the need for best practices for all negotiated long-term agreements.

The contract was agreed upon between the council, a management company (representing a major services company) and the end users (and payers) – 88 schools. A very typical ‘piggy in the middle’ situation.

This 25-year contract has seemingly been beset with problems, which include high costs, low standards of repair, crumbling walls and long waiting times. As the contract nears completion, the schools have allegedly been told that there is not enough money left to make all necessary repairs and that the remaining scope of work needs to be re-prioritised. With nearly 600 similar public sector deals for schools, hospitals and other buildings across England, how this is resolved may have massive implications for local government.

To avoid issues like these when negotiating and managing long-term agreements, key points should include:

• Specificity

The contract must contain a comprehensive, specific and measurable scope of work, covering all the important aspects. Timescales are often one area left open to misinterpretation. With clarity in place, it’s easier to define and agree on realistic targets and penalties for non-compliance. In the above situation, although a penalty system had been put in place, it is questionable how enforceable it was, as in most years, the amount held back was less than 1% (a seemingly insignificant amount)

• Power shifts over time

The National Audit Office (NAO) has highlighted that as these contracts are wound down, there is a greater disincentive for the private companies to spend money before they hand responsibility back to the local authority. In other words, the power has shifted to the private companies.

Contracts need regular milestone reviews. This way, the power balance continues to be assessed without a dramatic, unexpected shift to one side later. Events that cannot be predicted throughout a contract's life will always occur. Raising these issues early (while it’s still in both parties’ interests), structuring expectations, and proposing ways to mitigate the problem is proactive in maintaining integrity throughout the contract.

• With change comes opportunity

Even when the power balance is skewed, some things can be done. Several years ago, I was engaged by a county council that had problems with private care homes in its region. Care home fees were increasing exponentially year on year for adult care services. A contract was already in place, and social services (the department responsible) were adamant that no changes could be made to the contract. I decided to explore this further - I asked if the care homes ever made requests outside the contract scope. “All the time” was the immediate response. “Well then, you can always ask them for something in return then”, was my response (Trying not to sound sarcastic).

When the other party wants to change something within an existing agreement, this presents an opportunity to negotiate for something we want in return. Whether we decide to do so or not is another matter, but before you do decide, ask if the foundations of your agreement might start to crumble later if you don’t negotiate.

13th February 2025

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