PFI contracts can work, says Julia Harnden, but they also can have a negative impact on school finances

PFI is an acronym that has caused huge controversy. The private finance initiative has transformed the social infrastructure of the UK, enabling arguably the biggest investment in schools, hospitals and other public projects since the Victorian era. But for some it has come at a high price, leaving a legacy of unsustainable debt.

The Association of School and College Leaders (ASCL) has found that some schools are paying as much as 14 per cent of their funding each year to cover the costs of these deals. This is a particular problem in a time of real-terms budget cuts.

So what are they paying for? In a nutshell, private sector providers build and operate the school infrastructure and provide facilities management services, such as cleaning, maintenance and security, for the length of the contract – usually 25 to 30 years.

The school is not party to the contract; it exists between the local authority and the PFI contractor. The authority is responsible for managing and enforcing the contract, but there is a cost to schools of training staff to monitor service provision.

The authority pays a fixed monthly charge for the capital investment, facilities management and any IT services provided. Schools contribute to this charge, as well as to the costs of any additional work undertaken by the facilities management provider.

The monthly fixed-charge rises with inflation, and additional works are usually subject to a management fee, which could be up to 15 per cent of the cost of the work.

One of the appeals of PFI is the assurance it gives schools that buildings, fixtures and fittings will be maintained to nearly-new standards. In some cases, schools are very happy with these contracts.

There is a flip side, however. Some schools, for instance, tell us about furniture that is replaced “under life-cycle” when there is nothing wrong with it. There should be flexibility to redirect these funds to meet changing curriculum needs or to update the toilet block that actually needs it.

It can also take a frustratingly long time to instigate small changes, such as buying additional desks or installing a plug socket; the contract prevents schools from making changes via more traditional and cheaper routes.

In theory, PFI contracts are also designed to incentivise the service provider to carry out work to specified timescales and standards. In practice, it can take schools many months to receive any recompense when things go wrong.

What is worse is the impact of having facilities that are unavailable – such as sports pitches out of use for a winter.

What can be done? The central “disconnect” in PFI is that the contract is not with the end user (ie, the school) but with the local authority. In other words, the school does not have a direct “voice”. How vigorously local authorities police these contracts is variable, and the situation is becoming more complex as their role shrinks.

ASCL wants the government to carry out a value-for-money review of PFI contracts. School business managers are skilled and effective in challenging suppliers and managing contracts to ensure value for money, so why not turn directly to them to provide their assessment of how well these deals are working?

Guidance issued by the Treasury in 2011 on how the public sector can make savings on PFI projects suggests an 11-point plan detailing the steps to be taken in a contract review. Points one and two say:

1. Check that the existing contract is being managed effectively.

2. Check whether the payment mechanism is being used with effective performance monitoring and payment deductions.

Furniture that has nothing wrong with it is replaced

If the government is truly committed to supporting schools to achieve financial efficiencies, tackling value for money in PFI contracts would be a leap forward.

In many cases efficiencies could be realised simply by giving schools a voice – ask school leaders these two questions and hear what they say. Let’s seize the opportunity to make a real difference to the financial health of PFI schools.