Direct agreements in PFI/PF2
Direct agreements in PFI/PF2

The following Construction guidance note provides comprehensive and up to date legal information covering:

  • Direct agreements in PFI/PF2
  • What are direct agreements?
  • What is the difference between a direct agreement and a collateral warranty?
  • What direct agreements are typically given?
  • Why step-in?
  • Anatomy of a direct agreement

This Practice Note considers the purpose of a direct agreement specifically in the context of a PFI or PF2 project. It looks at the different direct agreements that will typically be given and how a direct agreement works (including looking at step-in rights). It also explains the difference between direct agreements and collateral warranties in PFI and PF2 projects.

Note that, in the 2018 Budget (delivered on 29 October 2018), it was announced that the government will no longer use PF2 on new projects (see News Analysis: Budget 2018—what does it mean for infrastructure and housebuilding?). However, existing PFI and PF2 projects will continue to run, and given the typical lifespan of such projects this is likely to be for many years.

What are direct agreements?

A direct agreement is a relatively short tripartite agreement. The main purpose behind a direct agreement is to allow the beneficiary under that direct agreement to step-in to the shoes of Project Co (either themselves or by a nominated substitute) in circumstances where Project Co has defaulted under the key project contract to which the direct agreement relates, or, in the case of the Funder Direct Agreement, Project Co has defaulted under the finance documents. Direct agreements form part of the suite of security documentation required by funders in connection with PFI and PF2—as well