Behind the headlines: PFI & schools (Part 3)

In future public private partnership contracts; greater agility can be built in from the outset.

In the third and last of our series of blogs tackling some of the key questions we have seen in the media around PFI and schools, we are looking at the questions that have been raised about flexibility, maintenance costs and poor quality service. 

Why are contracts viewed as being so inflexible? 

One of the themes that has come up in recent coverage of PFI and schools is the suggestion of inflexibility. This is something that needs to be looked at in future public private partnership contracts; greater agility can be built in from the outset. We frequently encounter contracting authorities who are justifiably frustrated by the length of time and the cost involved in effecting formal contract variations. Whilst we acknowledge that changes can have inadvertent consequences for any or all parties and can affect risk transfer and the payment mechanism, and therefore require third party input from lawyers and technical advisors, sometimes contracting authorities are left in the dark on the completion status of a variation, with no visibility of how long they will take or what is required to conclude them. 

This has to change, and we have some good ideas on how.

In the case of schools, the Local Authority whose jurisdiction the school is located in are the contracting party, not the individual schools, and the contract will often cover multiple schools. In some cases these factors can increase the complexity involved, making it essential that governance between contract management capability at the Local Authority and the teachers who work in the school is fit for purpose. The challenge of getting this right is made all the harder by the Academisation of schools, which introduces another party or parties

Does PFI tie schools and hospitals into expensive maintenance contracts? 

PFI contracts are necessarily long term arrangements, because of the scale and value of the assets which are built and managed under them. There is a significant benefit in having the subcontractor that provides the building maintenance services (often called ‘Hard Facilities Management’) tied in for the long term, to ensure they alone are responsible for these services throughout the duration, and cannot seek to blame other parties for any issues that arise.

The price to the public sector of these services, including the increases that typically occur annually, were largely determined by the level of maintenance and the indices chosen when the project was being planned and procured by the relevant public sector body. 

There are mechanisms in many contracts, often referred to as ‘benchmarking’ or ‘market testing’, that, usually every five years, compares the prices being paid against other comparable prices from other providers. This can lead to a renegotiation of the prices payable, and was built in to ensure continued value for money. 

What can schools do about poor maintenance services under PFI contracts? 

Schools should be seeking recourse through the mechanisms available to them in the contract where maintenance is not being undertaken in line with the contract. This includes financial penalties, using the Dispute Resolution Procedure which formalises the process of escalating a matter in a proportionate way to seek a resolution, and, in more serious instances, the provisions relating to breaches of contractual obligations.

Understanding the management structure that has been put in place by the Local Authority who holds the contract is also key, to ensure they are aware of such issues and can help advise on the best way forward.