Abstracts: August 22nd, 2017

The Government’s announcement of an independent review of building regulations and fire
safety following the Grenfell Tower fire in June has caused concern about the impact on PFI projects. This S & P report assess the impact on public finance initiative projects.

The main conclusion of the report is that accommodation-based PFI projects are likely to be effected to a limited extent, because such projects are generally structured to pass the risk of changes in building laws and regulations on to the revenue counterparty, or because protection is provided through a change-in-law reserve.

The report highlights a greater risk from fire safety standards falling short of current regulations. The complexity of fire safety conformity exposes social infrastructure projects to potential defects, the liability of which could fall to the project company. However, assets built under the PFI framework are mostly compliant with current fire safety regulations due, in part, to the stringent contractual construction scope, the relative newness of the assets, and the thorough operations and maintenance requirements.

The Grenfell Tower fire has focused the attention of public bodies, universities, project company boards, investors, and insurance companies on fire safety. There is also great public concern about fire risk. This attention is not likely to lead to demands for capital expenditure, but it will result in greater demands on time and resources of management teams responsible for PFI projects.