School PFI contracts - make sure you are planning for their expiry

The basic premise was that the private sector would fund the construction work, often new-build schools, and would recoup their investment (and make a profit) under a long-term contract to maintain the facilities, usually for 25 years. The intention was that schools would benefit from new modern facilities, maintained appropriately, helping improve educational outcomes. 

It will not be a surprise to anyone involved with a PFI school, or to anyone who reads the media, that PFI projects have not been universally successful or popular. The history, practical and financial issues involved are long and complicated and not the subject of this article!

We are now entering the 'wind-down' phase and many PFI contracts will end in the next five to ten years. Whilst the default reaction to this is likely to be joy and relief in many schools, it is essential that schools plan properly for what will be a very significant upheaval. The two main issues to consider are: 

1. Ensuring the PFI Contractor fully complies with its contractual obligations and hands back the school estate in the appropriate condition.  Under a PFI contract, the PFI Contractor is responsible for maintaining the school buildings and facilities. When the contract ends, this responsibility passes to the school. So if the PFI Contractor has not done what it should have, the school will suffer the financial consequences. Equally the PFI contract will have a lifecycle programme relating to plant and other equipment, for example boilers that should be replaced every ten years.  From the PFI Contractor's perspective, there is little incentive to invest in maintenance and lifecycle over the last few years of the contract and so it will require pro-active management of the contract to ensure that obligations are met. A significant complication here is that academy trusts do not have a direct contractual relationship with the PFI Contractor. However, under the terms of their School Agreement academy trusts must rely on the local authority to enforce the terms of the PFI contract. It is unclear how different local authorities will approach this, given the complexity and likelihood of disputes with the PFI Contractor and that the local authority has no direct incentive given it is not responsible for the academy. This reinforces the need for the handover to be managed sufficiently far in advance.
2. Planning for how all the services provided by, or through, the PFI Contractor will be delivered after the PFI contract ends.  Whilst the PFI contract will always cover the facilities management and maintenance of the school buildings and facilities, they often also cover cleaning, catering, ICT, sport/leisure lettings and other services. In many PFI contracts, once the expiry date passes these services stop being provided, leaving schools to arrange their own contracts. Given the nature and size of these contracts, schools should allow enough time to design and run a competitive tender process. Contracts may be subject to procurement regulations, and ensuring compliance needs sufficient time.

So, if your school has a PFI contract the first thing to do is confirm when that contract ends. Then start working backwards from that date. The Government's Infrastructure and Projects Authority has published a report "Preparing for PFI Contract Expiry" which recommends starting to plan seven years before your PFI contract is due to expire. The Department for Education has also launched an 'Expiry Unit', intended to help schools deal with PFI contracts coming to an end, however currently we understand this is only looking to support schools where the PFI contracts end in the next five years. 

If you would like to discuss the contents of this article, or any other matters relating to school PFI contracts, please contact Matthew Wolton in our Education team on at mwolton@vwv.co.uk or on call him on +44 (0)7384 812 795. Alternatively, please complete the form below.