Agenda item

PFI Update

To receive an update regarding the analysis of the PFI affordability gap and to consider experiences of the PFI contracts.


Jason Ashley, Head of Redbridge Community School addressed the Forum with the consent of the Chair and summarised some of the issues of PFI contracts experienced by the schools in question:


·  The PFI contracts are very complex, set out the liabilities of each party and include mechanisms for cost increases. The three parties are the Council, the three schools together and the SPV (Special Purpose Vehicle) mortgage company.

·  Southampton gained from the creation of three new schools with fantastic facilities but in exchange entered into contracts with a duration of thirty years, and things were different now. Since inception of the PFI contract there has been unforeseen events which had not been anticipated in 2001.

·  The DFE bonus did not cover the costs for the schools.

·  The school operated a delegated budget of £1.2 million annually for soft services under the PFI contract.

·  The PFI contracts used the higher RPI rate to calculate inflation when calculating cost increases whilst no additional services were provided. In April 2023 the schools were advised that costs would increase by 13% which later reduced to 6.7%.

·  The Council remained liable for mortgage payments, giving rise to an affordability gap.

·  The Council remained liable for the shortfall for any other additional liabilities after benchmarking, such as porterage.

·  Utility costs had also increased sharply within the contract

·  There was a risk that the Council and schools could be bankrupted.

·  It was hoped to avoid the need for top slicing, which would not go to the schools in question, but it might be unavoidable.

·  The Council seemed to lack the expertise needed to manage these complex contracts as the officers who had entered into them no longer worked at the Council, although there were officers such as Jo Swabey who sought to support the schools. By contrast the SPV and Mitie ran sophisticated operations.

·  The RFI contracts were managed by Mitie. There were no problems with the Mitie staff within the schools, who were first class. The three schools in question had obtained joint legal advice to commence legal proceedings as they were not receiving value for money under the contracts. Whilst at the end of the contracts the schools should be returned in the same good condition they were in at the start, the schools feared that this would not be the case. It was felt that as Mitie was a private company its focus was to maximise profits. The SPV made £1 million profit from the schools.

·  Seven hundred work jobs had been submitted to the Mitie helpdesk which were not rectified in time and so the schools received a penalty payment.

·  They could not instruct the caretaker direct over a minor issue in the school, such as vomit in a hallway. They had instead to call Cantell School helpdesk who would call the caretaker. They were not authorised to do minor tasks for themselves.

·  There were ongoing catering issues.

·  Legal fees had to be considered when seeking to negotiate contract changes with the SPV.

·  The perception of the schools was that they had very little control and that things were done to them under the contract.


Jo Swabey, Contract Manager, Southampton City Council summarised some of the issues of working within the PFI contracts for the local authority:


·  It is agreed that the PFI contract is very complex.

·  Since joining the local authority in April 2023 she had been working more collaboratively with the Commercial Service Manager and the schools.

·  Schools required better data so that better programme planning could take place and the SPV could be challenged.

·  The Council had a renewed focus on governance, particularly with regard to benchmarking and penalties.

·  There were now frequent calls from the Council to Mitie and the SPV about catering problems.

·  Senior managers for the SPV and Mitie were often parachuted in which did not promote sustained support within the schools.