Legal fear halts conversions of PFI schools to academy status

9th September 2011 at 01:00
Operators express worries over lawfulness of switching contracts with councils to individual academies

Schools that were built using private-sector cash are having to put planned conversions to academy status on hold due to legal complications over the ownership of their buildings, it has emerged.

Under the private finance initiative (PFI) brought in by the Labour government, new buildings at hundreds of schools were paid for, built and operated by private-sector firms such as Lloyds Banking Group, and effectively rented back to local authorities on long-term, multi-million-pound deals.

But The TES has learnt that funders have expressed concerns about the legality of switching their contracts with councils to individual academies, prompting 16 academy conversions to be put on hold.

Both funders and the Department for Education are seeking legal guidance on what changes need to be made to the PFI contracts to allow the process to go ahead.

Just three weeks before it was due to open as an academy on 1 September, Tapton School in Sheffield was told its the switch had been shelved.

Lloyds, which funded its redevelopment a decade ago and currently receives around #163;1 million each year from Sheffield City Council, is in talks with the DfE about how to resolve the impasse.

Tapton's head David Bowes said the school had already frozen its bank accounts in anticipation of becoming an academy, and was temporarily left without access to cash.

"It's a nuisance and it's causing us some difficulties," Mr Bowes said.

"Lloyds wanted to have confidence that when local authorities cease to be responsible for this payment, the academy company will be accountable. But in the end, I am sure that - as a flagship government policy - this will be resolved."

The TES understands that academy conversions in Exeter, Northampton and Birmingham have also been postponed.

A spokesman for Sheffield City Council said: "We will be meeting with (Tapton School's) representatives very shortly to try to find a solution."

A Lloyds spokesman said: "We have been working with the DfE to adapt the status of existing PFI contracts and look forward to working to facilitate the transition."

The DfE has confirmed that 16 PFI schools have had their academy conversions put on hold due to concerns raised by funders. However, another 24 schools built with PFI funding have already converted.

A DfE spokesman said: "This is a technical issue affecting a very small number of PFI schools... We are currently working with them to resolve the matter and expect them to convert within a few months."


Private function

PFI schools were introduced by the former Labour government to procure new buildings without having to pay any upfront costs.

Hundreds of new schools were delivered and the initial expenses were paid for by private companies, which retained ownership of the buildings and rented them back to the "tenant" on a long-term lease.

The contracts often involved high annual repayments which had to be honoured, irrespective of how the schools fared. At least four PFI schools have already closed, leaving their councils millions of pounds out of pocket.

In July, education secretary Michael Gove announced that up to 300 more schools are to be rebuilt under private finance schemes, with an upfront cost of #163;2 billion. The first wave are due to open in September 2014.

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