“(1) … if the CMA has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom.”
“(2) …any reference to a feature of a market in the United Kingdom for goods or services shall be construed as a reference to— (a) the structure of the market concerned or any aspect of that structure; (b) any conduct (whether or not in the market concerned) of one or more than one person who supplies or acquires goods or services in the market concerned; or (c) any conduct relating to the market concerned of customers of any person who supplies or acquires goods or services. … (3) In subsection (2) ‘conduct’ includes any failure to act (whether or not intentional) and any other unintentional conduct.”
“(1) The CMA shall, on an ordinary reference, decide whether any feature, or combination of features, of each relevant market prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom. […].”
“… there is an adverse effect on competition if any feature, or combination of features, of a relevant market prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom.”
“(5) For the purposes of this Part, in relation to a market investigation reference, there is a detrimental effect on customers if there is a detrimental effect on customers or future customers in the form of— (a) higher prices, lower quality or less choice of goods or services in any market in the United Kingdom (whether or not the market or markets to which the feature or features concerned relate); or (b) less innovation in relation to such goods or services.”
“(2) The CMA shall, within the period permitted by section 138A, in relation to each adverse effect on competition, take such action under section 159 or 161 as it considers to be reasonable and practicable— (a) to remedy, mitigate or prevent the adverse effect on competition concerned; and (b) to remedy, mitigate or prevent any detrimental effects on customers so far as they have resulted from, or may be expected to result from, the adverse effect on competition. (3) The decisions of the CMA under subsection (2) shall be consistent with its decisions as included in its report by virtue of section 134(4) unless there has been a material change of circumstances since the preparation of the report or the CMA otherwise has a special reason for deciding differently.”
“(a) dismiss the application or quash the whole or part of the decision to which it relates; and (b) where it quashes the whole or part of that decision, refer the matter back to the original decision maker with a direction to reconsider and make anew decision in accordance with the ruling of the Competition Appeal Tribunal.”
“The provision of Airwave Network Services relies on a dedicated infrastructure comprising the transmission network, regional switching centres, 3,800 radio transmitters (also known as base stations) providing the TETRA radio voice and data coverage, as well as various network management centres, control systems and specialist technologies…”
“2.51 The PFI Agreement was initially envisaged as an overall framework contract for an estimated period of up to 19 years. That period was determined by: (i) the 15-year service contracts under which services would be provided to individual police forces (see below), which had different commencement dates and at the end of the last of which the PFI Agreement would itself end; (ii) the time needed to build the network and then to decommission it at the end of the service contracts; and (iii) the network having become fully operational from 2003. The applicable procurement regulations had the effect of setting an expectation, by the OJEC notice, that the contract would not be extended. Unlike the current procurement regulations, the applicable procurement regulations did not specify whether it was necessary for any possibility of an extension to be included in the OJEC notice. However, the OJEC notice specifically provided that the service would be completed after the 15-year period after 2003 (and what emerged from the procurement process was the PFI Agreement which provided for a fixed-term arrangement that would end at a point to be determined in 2019 or 2020 without terms relating to, or contemplating, its extension.”
“(h) The asset transfer provisions in the PFI Agreement are an irrelevant consideration. Motorola said that the CMA asserts that, had those provisions been drafted differently or were more effective, the Home Office could have acquired the Airwave Network and ESN would never have been procured. However, the Home Office had no interest in acquiring the network in 2016 and was completely focused on ESN, which it pursued for reasons including the desire to replace the Airwave Network with a new network offering enhanced functions. (i) There is, nonetheless, no uncertainty today that would prevent the Home Office from exercising its option to acquire the transferable Airwave Network assets (for example, on expiry of the PFI Agreement in December 2026). Motorola also said that the asset transfer provisions ‘… were simple, were effective and could have been applied … at any time by the Home Office….,’ and that the Home Office had the option to acquire the Airwave Network assets, and could have done so, in 2019 and still can. (j) Motorola also said in connection with the possible transfer of the Airwave Network assets after 2019 that: ‘… the Home Office evidence … makes clear however, the Home Office was not seeking a long-term solution after 2019 which might involve competition for the market or the use of the asset transfer provisions to bring Airwave into the Home Office. Instead, the Home Office was seeking only short extensions and against this commercial objective the subject of asset transfer was irrelevant to the Home Office since it would make no sense to take over the assets for such a short period. Had the Home Office made (or would now make) a different contractual choice, the asset transfer provisions were (and are) available and effective. The CMA is not entitled to deduce from the Home Office preference not to organise a competitive tender that a competition problem exists. Any problem of an absence of competition is caused solely by the Home Office refusal to invite bids.’ (k) Additionally on the same issue Motorola noted that ownership of the Airwave Network assets has transferred three times with no impact on the operation of the network. The most recent transfer was in 2016, when Motorola acquired Airwave Solutions. At that time, the contract to provide the network services only had a minimum period of four years to run. Any notion that future dependency on Motorola precludes an asset transfer was, it said, ‘without foundation,’ and there are no technical or operational reasons that present obstacles to such a transfer.”
“1. It is critical that emergency services staff are able to communicate effectively with each other, with staff at base and with other organisations involved in tackling an emergency. That is essential for them to do their job and to protect their safety and that of the general public. 2. The emergency services require communication network services that are reliable 24 hours a day, 365 days a year; that enable them to communicate across regional boundaries and organisations; that provide coverage even in remote and hard to reach locations; and that include specialist features such as high speed call set up, emergency buttons, encryption, group calls and ambient listening. 3. In Great Britain, those communication services are provided through a bespoke integrated network called the Airwave Network. It uses Land Mobile Radio (LMR) technology developed specifically for public safety and is fully dedicated to serving the emergency services and organisations which need to communicate with them. 4. The Airwave Network’s users belong to one of five customer groups, each with its own specific set of requirements. They are: 44 police forces; 50 fire and rescue services; 14 ambulance trusts; the National Police Air Services; and 165 other organisations (described as ‘Sharer’ organisations), such as the Maritime and Coastguard Agency, who need to communicate with the emergency services. 5. The Airwave Network was set up under a Public Finance Initiative (PFI) Agreement made with the Police Information Technology Organisation (subsequently replaced by the Home Office) in 2000 following a public procurement exercise. That agreement was originally set to end after 19 years, around 2019. Services are provided under the terms of separate agreements that were entered into with individual emergency services user groups in subsequent years. The network is owned and operated by Airwave Solutions (which was acquired by Motorola in 2016). 6. As a bespoke integrated network fully dedicated to emergency services communications covering the whole of Great Britain, the Airwave Network is operated by a single supplier. No alternative network providing similar services exists. 7. In 2014/15, the Home Office conducted a further procurement exercise for the provision of a new upgraded network, with enhanced functionality, to replace the Airwave Network, called the Emergency Services Network (ESN). That replacement was originally intended to happen in or around 2020, but it has not yet taken place.”
“The supply of communications network services for public safety and ancillary services in Great Britain.” (paragraph [9]). Because the system was bespoke and there would necessarily be a single supplier to the market, and because the successful supplier would be secured via a tendering process, the procurement exercise would be “for the market”: “10. We have considered how competition can occur in that market. Building a bespoke integrated network of the kind required meant that a single supplier would be best placed to meet the emergency services’ needs under long-term contracts. Under such contracts, the supplier could recoup the large upfront investment required to build the network, and have the chance to earn an estimated rate of return, over the life of the contracts. 11. Competitive constraints on suppliers in this market, therefore, typically arise through ‘competition for the market’. It can occur when long-term contracts are first tendered and when they expire (or, more specifically, in anticipation of their expiry when a replacement network or a retendering of the existing network is competed for).”
“12. In a well-functioning market, we would expect one set of competitive arrangements to be replaced by another when such long-term contracts come to an end. That could, for example, be the replacement of the existing arrangements by: (a) a competitively priced continuation of the operation of the existing network infrastructure (secured, for example, under a retendering process facilitated by the transfer of the assets to the Home Office, or by the threat of such a process); or (b) a competitively priced new network (for example, one tendered under a new process), that could use new technology and offer enhanced functionality.”
“We have therefore assessed whether this has occurred and, if not, why not.” (a) a competitively priced continuation of the operation of the existing network infrastructure (secured, for example, under a retendering process facilitated by the transfer of the assets to the Home Office, or by the threat of such a process); or (b) a competitively priced new network (for example, one tendered under a new process), that could use new technology and offer enhanced functionality.”
“14. In our assessment, the terms of the PFI Agreement under which the Airwave Network operates resulted from the type of process – tendering – that we might expect to provide competition for the market. In relation to the original period of the PFI Agreement, the Home Office had the opportunity to run an open competition for a supplier and, as a result, to agree terms that constrained the price of the provision of the network. In such a competition, the winning supplier would reasonably have been expected to set the price at a level that would enable it to cover its expected costs and give it the chance to earn a reasonable return for the period of the contract. 15. The PFI Agreement that resulted from the original procurement exercise was for a fixed term ending in 2019. It provided for a contract price designed to recoup the supplier’s upfront investment in building the network and offer it the possibility of earning an estimated rate of return over that period, but not beyond. It contained provisions which sought to deal with the end of the contract and the transfer of assets to the Home Office (or a third party). It did not contain terms relating to or contemplating its extension. The relevant provisions were therefore generally the type of terms we might expect to find in a well-functioning market up to 2019 (albeit that they were not all necessarily fully effective in achieving their objectives). 16. The position now that the original period of the PFI Agreement has ended, however, is materially different. Our assessment is that the terms on which the Airwave Network is provided after 2019 are better characterised as reflecting a virtually unconstrained monopoly position on the supplier’s part rather than the result of a competitive process.”
“17. Instead of being set through a competitive process, prices are established (or maintained without significant variation from previous levels) in bilateral negotiations between Airwave Solutions (the monopoly supplier) and its owner, Motorola, and the Home Office relating to the extension of the PFI Agreement. In those negotiations the Home Office has no credible alternative option in terms of its choice of supply or supplier.”
“We use the term credible’ to describe options which the Home Office would be in a position in practice to pursue or threaten to pursue, and / or which Motorola would regard as a threat to its ability to set prices, such that the price is likely to be constrained to the competitive level.”
“18. The terms on which the network is supplied, particularly the price, have not materially changed as we would expect in a competitive market to reflect that, now the original period of the PFI Agreement has ended: (a) The costs of providing the Airwave Network will have fallen significantly compared with the previous period where the supplier had to incur the substantial set-up costs of building the network; and (b) the risk borne by the supplier is much reduced after 2019 because the network is built and is operating as a reliable income stream. 19. In other words, after 2019 the terms of the (extended) PFI Agreement do not result in a price or a level of profitability that would be expected in a well-functioning market. This is reflected in the generation of supernormal profits after the original period of the contract. 20. Key reasons for the present position, in our assessment, are that: (a) The network for emergency services communications is critical national infrastructure providing services on which lives ultimately depend, so the Home Office and the emergency services users must have continuous and reliable access to a high-quality integrated network that meets their operational needs, without disruption or degradation; (b) the asset transfer provisions in the PFI Agreement have not resulted in the transfer of network assets to the Home Office, Airwave Solutions continues to own them and acquiring them is not an option the Home Office could credibly pursue or threaten; and (c) the government’s chosen replacement for the Airwave Network, ESN, is taking considerably longer to implement than was contemplated: (i) when it was procured; and (ii) in 2016 when the parties first negotiated terms that relate to the provision of the Airwave Network after 2019. 21. As a result, the Home Office and the emergency services in Great Britain are ‘locked in’ to a monopoly provider, Airwave Solutions, and will be in that position until at least 2026, likely until 2029 and possibly longer. 22. Our judgement is that Airwave Solutions and its owner, Motorola, now have considerable market power. In the negotiations between Airwave Solutions and the Home Office relating to the continued provision of the Airwave Network beyond 2019, there is a lack of constraint or pressure on the price that would result in it being set at the competitive level. The Home Office is in a particularly weak bargaining position. Airwave Solutions / Motorola can set and maintain a price substantially above the level we would expect in a well-functioning market. 23. Other factors reinforce Airwave Solutions’ and Motorola’s market power and the weakness of the Home Office’s bargaining position: (a) The fact that, in any negotiations, they are negotiating against the default option of the price agreed in 2016, which is very advantageous to Airwave Solutions and Motorola and correspondingly disadvantageous to the Home Office; (b) the Airwave Network’s dependence on Motorola for equipment and upgrades for its ongoing operation; (c) the asymmetry of information between the parties; and (d) the likely ineffectiveness of the original contractual provisions relating to price benchmarking (and the lack of reliable comparators that make any benchmarking exercise practically very difficult (if possible at all)). 24. As well as being dependent on the continued provision of the network by Airwave Solutions / Motorola, without disruption or degradation, the Home Office’s ability to challenge the terms they propose or maintain is very substantially limited. The Home Office is not in a position to assess the profitability of any price and effectively to challenge its reasonableness. Not only does the Home Office lack bargaining power in the negotiations, but it is not in a position reliably to determine whether, or the extent to which, Airwave Solutions is charging or maintaining (or seeking to charge or maintain) prices that result in supernormal returns. 25. A further issue adds to the competitive distortions in the market. During the period (estimated to be at least 27 months) in which the transition between them will gradually take place, the Airwave Network and ESN will need to be linked. 26. The development of an interworking solution relies on Airwave Solutions’ and Motorola’s active cooperation. As a result, they have the ability to delay, hamper and/or make more costly the development of any such solution and the transition process. The competition issues described in paragraphs 12 to 24 above in particular, and the high profits they can make if the transition from the Airwave Network is delayed, meanwhile, dull their incentives effectively and efficiently to help to deliver such a solution.” (a) The costs of providing the Airwave Network will have fallen significantly compared with the previous period where the supplier had to incur the substantial set-up costs of building the network; and (b) the risk borne by the supplier is much reduced after 2019 because the network is built and is operating as a reliable income stream. (a) The network for emergency services communications is critical national infrastructure providing services on which lives ultimately depend, so the Home Office and the emergency services users must have continuous and reliable access to a high-quality integrated network that meets their operational needs, without disruption or degradation; (b) the asset transfer provisions in the PFI Agreement have not resulted in the transfer of network assets to the Home Office, Airwave Solutions continues to own them and acquiring them is not an option the Home Office could credibly pursue or threaten; and (c) the government’s chosen replacement for the Airwave Network, ESN, is taking considerably longer to implement than was contemplated: (i) when it was procured; and (ii) in 2016 when the parties first negotiated terms that relate to the provision of the Airwave Network after 2019. (a) The fact that, in any negotiations, they are negotiating against the default option of the price agreed in 2016, which is very advantageous to Airwave Solutions and Motorola and correspondingly disadvantageous to the Home Office; (b) the Airwave Network’s dependence on Motorola for equipment and upgrades for its ongoing operation; (d) the likely ineffectiveness of the original contractual provisions relating to price benchmarking (and the lack of reliable comparators that make any benchmarking exercise practically very difficult (if possible at all)). Findings on “features” giving rise to an Adverse Effect upon Competition (“AEC”): The earning of “supernormal profits”
“Taking all of the above points into account, we find that features of the market for the supply of communications network services for public safety, individually or in combination, prevent, restrict or distort competition in connection with the supply of LMR network services for public safety in Great Britain. There is, in our view, an AEC in that market.”
“(c) The Airwave Network assets have not transferred to the Home Office under the terms of the PFI Agreement, Airwave Solutions still owns them (and the related business) and the transfer of those assets is not a credible option that the Home Office could either pursue or threaten to pursue.”
“Customer detriment 30. Our estimate is that the AEC we find means that Airwave Solutions, and Motorola, can be expected to make total supernormal profits from the operation of the Airwave Network of around£1.27 billion between1 January 2020 and31 December 2029 . This is equivalent to charging almost£200 million per year more than we would expect to see in a well-functioning market. 31. These supernormal profits are a reflection of Airwave Solutions’ and Motorola’s ability to set and maintain prices very substantially above the competitive level. The Home Office and the emergency services in Great Britain are paying a much higher price than we would expect were the market competitive. That enables Airwave Solutions to contribute around 21% of Motorola’s global pre-tax profits while accounting for only around 7% of its global revenues. 32. The supernormal profits are, in our view, a reasonable measure of the transfer of welfare from the emergency services, and the taxpayers who fund them, to Motorola shareholders that results from the AEC we have identified. They indicate that a significant detrimental effect on customers results from that AEC.”
“… an economically meaningful assessment of the profitability of the Airwave Network should: (a) be split around 2020, with a separate assessment of profitability for the period from 2001 to 2019 (PFI period), and for the period from 2020 onwards (post-PFI period). In our view, the PFI Agreement represented an economic ‘bargain’ between the Home Office and Airwave Solutions, wherein the latter was provided with significant, long-term certainty over revenues and downside protections in return for it assuming the costs (both capital and operating) and risks associated with building and operating the network for the period covered by the PFI Agreement; and (b) reflect the balance of risks and rewards in each period. In this case, we consider that the economic logic of the PFI Agreement was that in the PFI period Airwave Solutions was provided with a reasonable opportunity to recoup the initial investments in the Airwave Network, with the various protections provided to Airwave Solutions as set out above. Therefore, in any extension to that initial fixed-term period, it follows that those investments should not be remunerated again since such an outcome would result in customers paying twice for the same assets. In our view, that would not represent a reasonable benchmark for a well-functioning market. …”
“… given the large up-front capital costs associated with the network and the relatively lower on-going maintenance capital costs, we note competition for the market can only be expected to produce a competitive price over a timeframe that is clear and agreed ex ante. It cannot be expected to produce a competitive price over an indefinite period.”
“6.66 Our approach was based on our assessment that the sunk costs of the network, which had already been paid for by customers, should not influence pricing during an extension period that was not planned for. Put another way, we were not minded to consider that in a well-functioning market customers would, in effect, pay twice for the same assets if the life of the network were extended beyond the term originally envisaged when the LMR network was commissioned. We noted that the (new) replacement cost approach, which Motorola put forward as the appropriate benchmark, would result in such an outcome.”
“… we would expect pricing during such an extension period to be constrained at a level at which the supplier was, broadly, only able to recover the incremental investment in the network required to extend its life, its (efficient) operating expenses, and a reasonable return on its capital, taking into account the (much reduced) risks assumed by the supplier over the extension period. This result could be achieved via different mechanisms, including, for example the contract providing effectively for the transfer of the network assets at the end of the contract period. This would allow for the re-tendering of the provision of services using that already built-and-paid-for network.”
“A different alternative could be for the contract to require that the original supplier reduce prices during any extension period to reflect the fact that the network assets had already been ‘paid’ for over the original contract term.”
“The Tribunal erred in law because it should have found that the failure by the CMA to take any account of dynamic, long-term competition between the Airwave Network and the Emergency Services Network in the competitive assessment in section 4 of the Decision constituted a failure to take account of a material consideration.”
“The Tribunal erred in law because it failed to find that the CMA’s profitability analysis in section 6 of the Decision was irrational, and/or failed to take account of a material consideration, and/or was internally inconsistent with other fundamental reasoning in the Decision.”
“Section 3 of the Decision therefore found that the longer-term, dynamic effect on competition was sufficiently real and material to justify a finding that the Airwave Network and ESN competed in the same market. It follows from this finding that, even before ESN actually comes online, the fact that it will do so is capable of exercising a competitive constraint on the Airwave Network.”
“It seems to us that the assumption that underpins Motorola’s submission is that because the Decision found that competitive constraints can, in principle, operate whilst ESN is under development and before it is operational, there is a finding in the context of the consideration of market definition that they did, in fact, do so and (it follows) that Motorola was in fact incentivised to improve its offering in particular in terms of price. We do not accept that there is any finding to that effect. We agree with the CMA that the question of whether or not ESN did, in fact, act as a competitive constraint in the negotiations between the Home Office and Motorola is what is then considered in Section 4: the competitive assessment.”
“3.75 Motorola has submitted that there cannot be a competitive interaction between the two networks because ESN has been designed to replace the Airwave Network, and the transition has been agreed within contracts and does not depend on the relative attractiveness of each network. Our view is that there is potential for competitive interactions between ESN and the Airwave Network. In particular, although ESN is still in development and therefore is not available in the short-term, a central incentive for ESN’s suppliers to develop ESN in a timely manner comes from winning new customers from the Airwave Network. We also note that the prospect of ESN being developed as a replacement for the Airwave Network could, in principle at least, affect the incentives of Airwave Solutions to maintain or improve aspects of its offering with a view to delaying customers transferring to ESN. 3.76 Static competition refers to competitive efforts taken by firms that results in customers being won or lost in the short term (for example, within a year). This might include reducing the prices offered in a negotiation. Dynamic competition refers to competitive efforts that lead to winning customers sometime after the competitive effort is made (for example, investments made today may result in winning new customers several years in the future). Both dynamic and static competition are relevant in this market. A supplier may face different constraints when competing statically than when it competes dynamically. Therefore, when considering the appropriate product market, we have considered demand-side and supply-side substitutability through both lenses. 3.77 Substitutability in the short run may be different from substitutability in the longer term. In the short run firms compete using the products in their existing portfolios. In the longer term, firms may compete by improving their product portfolios. In this case, as discussed in paragraph 3.63, competition in the supply of LMR network services for public safety takes place over the longer term. … 3.81 Accordingly, while market definition would often take account of short run competition, in this case our focus on longer-term substitutability is appropriate.”
“However, there is no finding in the Decision that the failure to provide for transfer of the Airwave Network assets at zero value in the original PFI Agreement, or for a reduction in prices during any extension period, constituted an AEC. As recorded in §28 of the Summary section of the Decision … the CMA found that numerous features of the market constituted AECs – but there is no such finding in relation to the actual terms of the PFI Agreement. Whilst the Decision at §28(c) found that the fact that the Airwave Network assets have not transferred to the Home Office under the terms of the PFI Agreement constitutes an AEC, there is no finding that the asset transfer provisions in the PFI Agreement themselves constituted an AEC.”
“Both Macquarie, when it owned Airwave Solutions, and later Motorola, took the view that this meant network assets were only transferable if they were used just to provide services to a single customer. Consistent with this interpretation, the draft Service Transfer Plan prepared by Airwave Solutions (see further below) excluded from the list of transferable assets, among other things [particular assets covered by the confidentiality agreement].”
“… facilitate an effective handover – under a Service Transfer Plan (also specified in Schedule 15) – of the responsibility for the provision of the network services from Airwave Solutions to the Home Office (or to the individual customers or to a replacement contractor or contractors)…”
“If effective, those clauses, and such an outcome, would be consistent with the nature of PFI agreements, the government guidance on the operation of such agreements in place at the relevant time, the nature of the Airwave Network services, the original fixed period of the PFI Agreement and the notion that the Home Office would have paid for the network investment costs over that period. However, the terms themselves appear to give rise to uncertainties, and the interpretation Airwave Solutions placed on them seems to have differed from the position indicated in relevant government guidance. That interpretation was reflected in the Service Transfer Plan it proposed to the Home Office, which left the network assets in Airwave Solutions’ ownership. We explain as follows and in part 1 of Appendix E.”
“4.77. Additional uncertainties were (and are) liable to arise as a result of the way Schedule 15 of the PFI Agreement provides for transferable assets to be transferred at the end of the agreement for fair market value. We note that under the PFI guidance referred to above, assets that have no practical alternative use would normally be expected to transfer automatically to the contracting public authority at no cost. Other PFI guidance makes a similar point: that on expiry of a standard PFI contract, with rare exceptions, the key assets needed to continue to deliver public services should revert to the public sector free of charge. 4.78 The points set out in paragraphs 31 to 34 of part 1 of Appendix E suggest that some (if not most) of the key Airwave Network assets should in principle fall into the categories of ‘asset with no practical alternative use’ or of key assets required in the continued delivery of public services. The points reflect that the Airwave Network is dedicated for the exclusive use of the public emergency services and relevant Sharer organisations using radio spectrum reserved for that purpose. 4.79 The exit and asset transfer provisions did not, however, provide for the transfer of transferable Airwave Network assets to the Home Office at no cost at the end of the PFI Agreement. That is the case even though, as we refer to above, the terms of the contracts were put in place for a specified period following a tendering process in which the winning bidder would be expected to set the price so as to recoup its expected costs of building the network and give it the chance of earning a reasonable return over that period. In addition, in a further departure from general guidance, the basis on which the fair market value was to be calculated is not specified in the PFI Agreement. This created further uncertainty and the potential for dispute, had the Home Office sought to transfer the assets.”
“The actual PFI Agreement shows what a well-functioning market looks like in terms of the treatment of the assets at the end of the term of the original PFI Agreement, namely the possibility for the Home Office to require the relevant assets to be transferred to it (or a third party) at a fair market value.”
“4.66 The Infrastructure and Projects Authority – the government’s centre of expertise for infrastructure and major projects – has told us that in most cases, assets with no alternative use transfer to the customer public authority at zero cost at the end of a PFI agreement. It said that in some earlier PFI agreements, asset transfer was provided for at market value, and in technology projects obsolescence risks made it difficult to assess both the likely value of assets at the end of the contract period and whether the customer would wish to take them on. It also told us, ‘… we are not aware of other projects where the contracting authority does not have a right to the assets (whether automatic transfer, at market value etc) at the end of the contract’.”
“Upon expiry of a standard PFI contract, with rare exceptions the key assets needed to continue to deliver public services revert to the public sector free of charge.”
“The key insight, it appears to us, from the quoted section of the Byatt Report is that assets should be valued at the level at which they would be traded in the absence of the existence of market power for any party which controls those assets. We note that this would be the fair market value of the assets employed by the Airwave Network in their state as of the end of 2019, i.e. their scrap value. The use of (an undepreciated) MEA as the benchmark in this case would seem to us to allow Motorola to capitalise on its incumbent position as owner of Airwave Solutions to realise a windfall gain on the value of its assets (the windfall being the difference between the scrap value of the assets which it would have recovered in the absence of the contract extension and their replacement value). As set out above, we are minded to regard the approach set out in the Byatt Report as more appropriate given the circumstances of this case.” (Emphasis added)
“…the CMA found that the PFI Agreement provided a contract price designed to recoup, over a fixed term, the supplier’s upfront investment in building the network. Motorola has never challenged this conclusion, or that it did in fact recoup its costs over the original term, and is too late to do so now. The analogy with non-PFI contracts in other market types does not assist with the proper approach to a PFI contract for a public service funded at taxpayer expense.”