The hidden costs of PFI deals | BBC News

Key Concepts

• Private Finance Initiative (PFI): A procurement method where private companies finance, build, and maintain public sector assets (schools, hospitals, roads) and the public sector makes payments over a long period.
• Liquidation: The process of bringing a company's assets to an end in order to pay off debts.
• Contractual Rigidity: The inflexibility of PFI contracts, often leading to issues with adapting to changing needs or unforeseen problems.
• Value for Public Money: Assessing whether the benefits received from a project justify the costs incurred.
• Dividend Payouts: Distribution of a company’s profits to its shareholders.

The Deteriorating State of Schools Under PFI Contracts

This report details the issues arising from decades-long Private Finance Initiative (PFI) contracts used to build and maintain schools in the UK, focusing particularly on the case of Stoke-on-Trent. The investigation reveals significant problems with the value for public money delivered by these contracts, as well as concerns about the condition of school buildings as contracts reach their end.

The Rise and Fall of PFI

The PFI model gained prominence under Tony Blair’s Labour government as a means of funding public infrastructure projects without large upfront public expenditure. The idea was to leverage private sector investment and expertise to deliver better facilities. By 2018, however, concerns about the cost-effectiveness of PFI began to grow, leading to its eventual abandonment by the Conservative government. Nationwide, approximately 600 PFI contracts cover schools, hospitals, and roads.

The Stoke-on-Trent Case Study: A Warning Sign

The investigation centers on a PFI contract covering 88 schools in Stoke-on-Trent, which concluded last October. Crucially, repairs were not completed upon the contract’s termination. Subsequently, the private company, Transform Schools Stoke Limited, entered liquidation, leaving the city council and schools responsible for outstanding repairs and the associated costs.

Specific issues identified in Stoke-on-Trent schools include:

• Roof Leaks: A primary school experienced ongoing roof leaks even after reported repairs.
• Water Supply Issues: A classroom repeatedly reported a lack of running water.
• Uncompleted Repairs: Instances of repairs being marked as finished without any actual work being carried out.
• Trenton Academy Swimming Pool: The swimming pool, previously used for local primary school lessons, has been unusable since 2022 due to unresolved structural issues despite “major structural works”. The school expressed a lack of confidence in the repairs due to ongoing defects.

Financial Implications and Concerns

Stoke-on-Trent City Council initially allocated £3.5 million to address the issues, and has since reserved an additional £8 million. However, estimates suggest the total cost of repairs could range from £24 to £30 million. Meanwhile, the private company involved distributed millions of pounds in dividends to its shareholders over the contract’s lifespan.

John Raz, the Chief Executive of Stoke-on-Trent City Council, stated, “We would have preferred if those profits had been spent on Stoke on Trent schools. Now clearly under a PFI it is quite right um that that provider uh should uh be able to make a profit and extract dividends but they should also face up to the responsibilities that they've taken on.” This highlights the perceived imbalance between profit generation and fulfilling contractual obligations.

Contractual Issues and Declining Service

Sources indicated a decline in the responsiveness of the private company during the final year of the contract. One individual noted, “It became very obvious that in the last year or so there was no inclination to to to make any of the of the repairs that needed to be repaired.” This suggests a lack of incentive to invest in repairs as the contract neared its end. The rigid nature of the contracts was also highlighted, with one example cited of a school being required to maintain grass at a height of less than 2.5cm.

Wider Implications and Future Risks

The Stoke-on-Trent case serves as a warning for the hundreds of other PFI contracts nearing their end in the next decade. The report emphasizes that these contracts cover vital public services beyond schools, raising concerns about potential similar issues in other communities.

Furthermore, the government is currently exploring the use of private companies to build new NHS clinics, suggesting a potential return to similar procurement models. This raises questions about whether lessons have been learned from the PFI experience.

Conclusion

The investigation into PFI contracts in Stoke-on-Trent reveals a concerning pattern of inadequate maintenance, unresolved issues, and significant financial burdens falling on public bodies. The case underscores the risks associated with long-term PFI agreements, particularly as they approach their termination. The findings highlight the need for careful scrutiny of future public-private partnerships and a thorough assessment of value for public money.