Vital construction work on schools involved in England’s biggest PFI deal could be left incomplete, despite a council pumping in £3.5 million of its own money to fill a funding shortfall.
Local authority chiefs in Stoke stumped up the extra funding as they signed off on an extension for the work to be completed by a PFI company, just months before its contract was due to end.
With 43 PFI deals across England set to end in the next seven years, experts say the case underlines the need for councils to adequately prepare for expiry.
Work ‘backstop’
Spencer van der Werf, the managing director of Help for Schools, warned that without preparation, “more and more contracts will end up hastily negotiated”.
“[This could] leave schools in a situation where they will have…leaking roofs, cracked windows and the like [because] they won’t have the capital expenditure in their budgets to fix these issues.”
Successive governments have used PFI to fund new schools since the late 1990s.
Private companies build and maintain sites in exchange for mortgage-style payments, normally over 25-year contracts – which rise beyond inflation – before handing them over to taxpayers.
Stoke has 88 schools built under a PFI contract due to end next month with Transform Schools (Stoke) Ltd. It’s the largest school PFI contract in the country.
The council said it entered into a “supplemental agreement” with Transform in May to provide “a back-stop period for works to be completed”. This has “helped to avoid a lengthy and costly dispute resolution process”.
It will also stump as much as £3.5 million to cover “extra costs caused by the impact of high inflation” since “hand-back condition surveys were carried out”.
“Whilst the council has committed to inject a significant amount of additional funding into the project to ensure that as much of the remaining work will be completed, there is no guarantee that all works will be completed within the £3.5 million,” a spokesperson said.
‘Grave concerns’
The council stressed that “a number of disputed work items” have been included in the programme.
Accounts for Transform Schools (Stoke) stated that the agreement, in the opinion of its directors, “reduces” its “ultimate obligation to an amount that is able to be funded”.
The council said £7.2 million of “hand-back works” remained outstanding as of August 26. Of this, the “PFI provider has stated £2.3 million are complete and are going through the validation process”.
In January, Stoke council officer Paul Gerrard told a meeting “approximately £1.5 million” of work needed to be completed each month before the contract’s original end date.
During another meeting, headteacher Mike Whittingham shared “grave concerns regarding…the hand-back works and business as usual works”.
He said his school Trentham Academy still had “leaks” and “400 hand-back jobs identified, with just over 100 completed with nine months to go”.
Cost of PFI expiry
Van der Werf added many councils now lacked PFI expertise, as those who signed off on the deals over 20 years ago no longer worked for them.
Information obtained through freedom of information requests shows 10 local authorities have paid out more than £3 million in total on costs associated with expiry.
Most put cash towards condition surveys and legal help, while one established a new team to oversee 13 separate deals.
Ian Denison, the director of PFI consultancy Inscyte, believes the findings show councils “have limited capacity to actively manage these contracts”.
“By the time an LA fully grasps the complexity of PFI expiry … it is often late in the process.
“With limited time remaining, the only viable option is frequently to bring in external expertise in an effort to influence outcomes and better manage risks.”
Was PFI worth it?
Earlier this year, the Treasury’s 10-year infrastructure strategy stated the government “will work with the private sector to harness the potential for private finance”.
To support this, it will explore the use of public-private partnerships (PPPs) for projects where “value for money for taxpayers can be secured”. PFI is a form of these partnerships.
But during a talk at the Schools and Academies Show earlier this year, Dan Rudley, deputy director of the DfE’s private finance team, admitted officials “don’t know” if PFI has saved public money.
“What there isn’t right now is any kind of retrospective study that shows the outcomes and whether or not what was expected has actually transpired.”
The DfE confirmed the ongoing expiry programme will provide additional data on the condition of buildings at hand back.
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