A Costly Legacy of PFI
Stoke Schools Face Uncertain Future as 25-Year PFI Contract Nears Expiry
Following the pertinent BBC Article around schools across Stoke-on-Trent, where they are facing significant challenges as the 25-year Private Finance Initiative (PFI) contract approaches its October expiry. With widespread concerns over delayed repairs, escalating costs, and uncertainty about the future state of their buildings, this case highlights the critical issues surrounding PFI agreements as they come to an end.
Despite schools' concerns, an investigation by the BBC found that only £416,000 in deductions had been applied to the contract since 2014—shockingly low compared to similar PFI agreements nationwide. With no guarantee that the necessary repairs will be completed before the contract ends, many schools fear they will inherit buildings in poor condition with no funding to fix them.
A Costly Legacy of PFI
This highlights the real issues around the reality of PFI projects and handing back assets to the public sector in a good, maintained condition. These 88 schools are highlighting the issue of significant sums are being paid for building upkeep, with unresolved repair issues, poor maintenance, and spiralling costs.
In most contracts, there is generally an obligation of a final condition survey which is undertaken, typically 18 to 24 months prior to expiry. This should not be confused with the 7-year plan recommended by the Infrastructure and Projects Authority (IPA). It is important to appreciate that this final condition survey occurs at a very late stage in the contract. If the assets are in poor condition and significant remedial works are required to meet the handback criteria, there may simply be insufficient funds or time for these works to be planned and completed.
Financial and Operational Risks for Schools
Local authorities can improve the PFI handback process by adopting a more strategic and proactive approach. Establishing clear management plans and ensuring a thorough understanding of asset conditions will support early preparation. Addressing resource constraints through better allocation of staffing, expertise, and funding can help streamline the transition. Collaboration with stakeholders and structured planning will also ease the complexity of the process. By anticipating potential costs and service disruptions, authorities can develop mitigation strategies, ensuring a smoother and more efficient handback. Taking these steps early will enhance readiness and reduce risks.
Wider Implications for Schools Across the UK
With 570 PFI contracts across the UK due to expire in the coming years, the government has been warned of a major risk that public buildings, including schools and hospitals, will be handed back in poor condition. The National Audit Office (NAO) has highlighted that the final years of PFI contracts create a disincentive for private firms to invest in necessary repairs, leaving public bodies to foot the bill.
The Need for Strategic Exit Planning
As PFI contracts across the country near expiry, it is crucial that schools, local authorities, and the government implement robust exit strategies to ensure buildings are handed back in a safe, functional condition.
Lessons from Stoke’s experience should serve as a warning:
Starting early in expiry planning is essential to mitigate risk and reduce costs.
Be clear on the condition of the asset
Commission the right expertise to navigate and map out a soft landing to handback
Deductions for poor performance should be applied and enforced.
Clear accountability is needed to ensure private firms fulfill their contractual obligations.
Financial safeguards must be in place to protect schools from inheriting major repair costs.
At Airey Miller, we understand the complexities of PFI contract expiries and can work with schools and local authorities to navigate these challenges. Download HERE our recent project summary on PFI expiry: How London boroughs can get ahead
For more insights on managing PFI expiry risks, get in touch with our team.
Mark Humphreys, Director - Mark.humphreys@aireymiller.com
Mark Pratten, Technical Director - Mark.pratten@aireymiller.com
