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Councils still paying PFI bills for closed schools

A council in the north of England remains locked in a battle to end a £657,000-a-year private finance initiative (PFI) contract for a school that closed four years ago, highlighting the “complexities” that continue to plague such deals.

A Schools Week investigation has also uncovered documents that reveal ministers footed the bill to end such agreements during the early years of the academies programme to force moves out of local authority control.

Meanwhile, controversial gagging clauses, called non-disclosure agreements (NDAs), have been issued to several PFI school leaders, prompting transparency concerns.

‘Power in companies’ hands’

Andrew Chubb

Andrew Chubb, of Project PFI, said schools and local authorities “through no fault of their own” found themselves ill-equipped to understand the complexities of the contracts, “which leaves the balance of power in any negotiations in the hands of the private sector”.

“Failure to grip these contracts and manage them appropriately means it’s almost inevitable the quality of service will be substandard, and costs will be far higher than they should be, to the detriment of school budgets.”

Successive governments have used PFI to fund the construction or refurbishment of schools since the late 1990s.

Private companies carry out the work and maintain sites in exchange for mortgage-style payments, normally over 25-year contracts – which rise beyond inflation – before handing them over to taxpayers.

Council’s years-long negotiations

Kirklees Council revealed through freedom of information that it is still “working to remove Almondbury High” from its PFI contract – four years after the school shut.

The site was used for 12 months to accommodate pupils from a neighbouring school that was undergoing extensions.

In October 2021, councillors greenlit plans for officers to begin talks to bring the agreement to a halt to pave the way for a £21 million special school to be built on the site.

Documents prepared ahead of the vote noted that a “deed of variation to the project agreement” would have to be secured to stop the authority from having to continue paying its £657,000 annual unitary charge.

They noted “the monetary impact” of the contract – which runs until September 2033 – with Kirklees Schools Services Limited.

The council said it had “continued to pay a charge under the agreed terms of the contract”.

But fees “have been reduced during this period and there were buildings needing maintenance in order to protect the on-site swimming pool and keep it in use for both the local community and the school swimming programme”.

“We are now in the pre-planning stage of our ambitious plans to rebuild and relocate one of our existing special schools, Woodley School and College, by using the Almondbury site to create superb new facilities.”

Meanwhile, Wirral Council was saddled with PFI payments following Kingsway Academy’s closure in 2018.

Council documents, published in 2021, stated the annual costs then stood at £867,500, which would rise with inflation.

But the authority said this week it paid the fees to Wirral School Services Ltd “on a reduced basis due to the site either being fully mothballed or only partially occupied”.

Historic contract terminations

Papers uncovered through FOI show the government stepped in 18 years ago to aid the academisation of two underperforming schools by terminating their PFI contracts.

Compensation was paid by the Department for Education “for the loss of potential income” this would have caused the PFI company, NewSchools (Merton), and its sub-contractors.

A Merton Council spokesperson explained this was done because “back in 2006, academy providers did not want to take on” PFI schools, so the DfE “agreed to meet the cost of changing the contract”.

Asked how much it forked out, the department said it did not hold information going back that far as it wiped financial records “seven years after the date [they were] last modified”.

In 2009, Cornwall Council secured the termination of a PFI deal for 34 schools that ensured “various disputes between the parties had settled”.

The authority would not say how much was paid to end the contract or whether any NDAs were issued.

Four years later, four schools in Stoke-on-Trent, which has more PFI primaries and secondaries than anywhere in the country, struck a deal to terminate their agreements with Transform Schools (Stoke) Ltd.

Two “negotiated an arrangement with the council and DfE which permitted them to leave…subject to them demonstrating acceptable alternative arrangements” to government officials and serving notice on the authority.

The others were relocated under the Building Schools for the Future programme. A council spokesperson said “no compensation was paid for potential loss of income from these schools”.

Widespread use of NDAs

Answers to our FOI requests also reveal big variations between local authorities in the use of NDAs.

Most said PFI contracts did not feature gagging clauses, while others rejected our FOI request as it would either take too long to track down the information or for commercial reasons.

Norfolk said “all parties” to its only PFI contract “have to abide by” NDAs. This included the local authority, the PFI company, individual schools and now multi-academy trusts.

The council “does not hold information about the specific number of people this covers” but stressed “the confidentiality clauses were part of the standard PFI contract developed at the time” by the DfE.

A spokesperson added the NDAs were used “to ensure schools consult with us”.

“[They] can decide whether they wish to discuss their experiences or their overview of operational experience within a PFI contract, but they are not allowed to disclose certain project agreements to third parties.

“If a school were to breach their NDA, the school and Norfolk County Council would be in breach of contract which could lead to financial penalties.”

Sponsoring MATs gagged

Two other authorities said the orders also covered external lawyers and PFI experts in receipt of “commercially sensitive” information.

Meanwhile, Worcestershire County Council confirmed NDAs had been distributed to two MATs since 2020.

The agreements are issued to sponsoring trusts and members of the schools’ governing bodies after the DfE has granted an academy order. Once signed, confidential documents are released.

Legal expert Jordan Glackin, of Shakespeare Martineau, said one of the reasons NDAs are used in the schools sector “is because of the sensitivity of information being shared and other confidentiality obligations subject to that”.

“It could be part of the due diligence process when an academy trust’s taking on another school.

“[In these cases] sometimes NDAs will be put in place because, if the transaction doesn’t go ahead, you’ve given information to a third party/competitor and will want to ensure that information you have provided is protected and its use is restricted.”

But Chubb noted that, when it comes to PFI, the clauses can make “it far harder for schools and councils to ensure best value is obtained from the contract”.

This is because “depending on the wording of the NDA, it may make it impossible for…[them] to obtain the independent advice they need to get best value in terms of costs and service levels”.

Semperian Asset Management Ltd, which Wirral School Services and Kirklees Schools Services are a part of, and Vercity Management Services Ltd, the company listed as Transform Schools (Stoke) Limited’s secretary on Companies House, have been approached for comment.

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