Guidance change may mean contractors have to stop charging fees for all but major installations

A Balfour Beatty consortium has repaid thousands of pounds in fees on a £70m Blackburn Hospital PFI after it was accused of overcharging.

The unprecedented repayments emerged following a report into operational PFI projects by parliamentary watchdog the National Audit Office (NAO). The £17,000 repayment by the Balfour Beatty-HSBC consortium is believed to be the first of its kind in the sector.

Now more contractors may be required to pay back clients for maintenance work on PFI schemes, and lawyers are warning existing contracts may be revised to scale back future rewards for contractors, costing them thousands of pounds in potential earnings.

The audit office report found many PFI consortiums have used a legal loophole to charge a management fee for all alterations on projects, on top of the cost of the work.

Many contracts were set up before the Treasury issued its latest PFI guidance, which recommends no extra charges for alterations worth less than £5,000. Changes below this make up 82% of all alterations to PFI projects.

Rupert Choat, partner at solicitor CMS Cameron McKenna, said existing project agreements were unlikely to be affected by the new guidance, so contractors may be able continue charging for minor alterations for now. However, he added that authorities may take advantage of benchmarking periods in contracts to revise terms.

Choat said: “Where proper change mechanisms haven’t been allowed for at the outset, they may be allowed for at a later renegotiation stage.”

The NAO report said the public sector spent £180m on alterations to operational PFI projects in 2006. It also found wide variations in charges – the cost of replacing an electrical socket varied from £30.81 to £302.20.