Public sector equity participation in PF2 projects – final documents published

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In July 2013 the Government opened a consultation on the terms on which the public sector (through the Treasury PF2 Equity Unit) would invest public money into public-private partnership projects (known as PF2 projects) going forward.  On 16 October it published its response together with the final form of the Shareholders Agreement, Articles of Association and Loan Note Instrument (Standard PF2 Equity Documents) that will be used.  These can be found here.

The final approach is broadly the same as that set out in the consultation and the new documents will be used first for the privately-financed element of the Priority Schools Building programme.  The Education Funding Agency has already issued them to shortlisted bidders for the first two batches of schools.

When an authority begins its procurement for a PF2 project, it will advise prospective bidders whether the Government wishes to make an investment and, if so, what percentage it will invest.  The transaction must satisfy the Treasury PF2 equity unit’s eligibility criteria (yet to be published) and bids will be assessed against the eligibility criteria by ‘primary’ due diligence following submission of final bids, with ‘final’ due diligence taking place before financial close.

Unlike SOPC4, the Standard PF2 Equity Documents are not a prescribed suite of documents, so no formal derogations arrangements will apply, and interested parties can seek informal guidance from the Treasury PF2 equity unit at any time regarding proposed amendments.  The documents will be customised by the Treasury PF2 equity unit in conjunction with the procuring authority before they are issued, to reflect the specific issues of each project.  They will allow flexibility for the bidders to suggest alternative drafting, for example relating to taxation issues or voting rights.

These new documents aim to give the public sector a stronger voice in the management of the PF2 project company and receive a share of the financial returns.  The Government appears to have carefully considered the responses to the consultation and (it is hoped) come up with a suite of documents that will minimise the time and costs of dealing with standard commercial and legal issues regarding the investment structure.