Lawyers have warned that PFI project finance arrangements will have to change after the High Court ruled that PFI contracts that restricted the right to adjudicate were illegal.
The court last month rejected an attempt by the motorway company Midland Expressway to prevent the joint venture that built the M6 toll road taking a £10m dispute to adjudication.
The joint venture, which is called CAMBBA, includes Carillion, Alfred McAlpine, Balfour Beatty and Amec. It successfully argued its contract with Midland Expressway, the PFI project company, restricted its right to adjudicate under the Construction Act.
PFI contracts between project companies and contractors commonly contain restrictions on the contractor’s right to recover sums and to resort to adjudication. This is because PFI project companies, or special purpose vehicles, do not want to be exposed to the risk paying large sums in adjudications as they have no assets during the construction phase of a scheme.
Many lawyers have suspected that these arrangements are contrary to the Construction Act.
Stephen Kenny, a PFI partner at solicitor Wragge & Co, which represented CAMBBA, said the court ruling gives the contractor greater leverage against the project company, and in theory it could go bust if contractors insisted on payment. However, he said the PFI market would not grind to a halt because equity providers and funders would find “innovative ways of securing the finance on PFI projects".
One possibility is that equity providers will insist on “parallel loan agreements” whereby if a contractor wins an adjudication it is obliged to immediately lend back the money to the project company.