City firm warns of risks in rushing to sign projects before Spending Review

Public sector bodies and private sector businesses could end up with significant additional costs or find they are locked in disputes if they rush to sign PFI or PPP deals before the Comprehensive Spending Review, a City law firm has warned.

Shapna Roy, head of projects at Wedlake Bell, said: “The uncertainty over where the cuts will fall is being shared by everybody. As a result public sector bodies and private sector sponsors in the process of negotiating new contracts will want to get them over the line quickly, as the Spending Review may mean that projects that haven’t closed could be at risk of being cut or being scrapped altogether.

“Funders and sponsors will be seeking greater certainty, conscious of the expense of having projects cancelled.”

But Roy warned that the danger with rushing the process was that the contract entered into by the parties “may not be quite there commercially, and the documentation may not quite reflect the deal the parties intended to do.”

She added that bypassing the finer details to save time could mean that the parties have to revisit the deal and documentation subsequently to avoid disputes.

This could be a costly and time-consuming process, Roy said. “The extra cost could substantially eat into any savings the deal may have achieved.”

The Wedlake Bell lawyer added: “Agreements that are not properly documented aren’t an option. Elements such as risk profile and risk allocation need to be as comprehensive as possible to deter serious failures. A push now to get the deal done is understandable but it should not be allowed to jeopardise the future success of a project.”