Frequently Asked Questions
What is the purpose of PFI?
PFI is a means of delivering better and more cost-effective public services by bringing the private sector more directly into the provision of the assets the public sector needs.
PFI is about more than just financing and accounting — it aims to exploit the full range of private sector management, commercial and creative skills.
Having seen some of the problems caused with PFI in hospitals — why should it be any better in schools?
There is now a large number of signed PPP projects in schools. Many of these are already delivering services: the Sir John Colfox school opened in September 1999. These projects are being monitored closely and, in cooperation with LEAs and schools, issues are being resolved as they arise. To date, schools and LEAs have been pleased with the buildings, facilities and services they have received.
What will a schools PFI project actually involve?
Schools PFI projects involve LEAs buying asset-based services from the private sector such as school buildings, facilities such as sports halls or specific services including heating systems, ICT or catering equipment.
Usually the PFI contractor owns and operates the buildings/facilities/equipment, and would be able to generate income from commercial use outside school hours.
After defining the required outputs of the project, and satisfying itself that a PFI solution has the potential to offer the best value for money, the LEA invites the private sector to bid for a PFI contract. As with traditional procurement, this is a competitive process to ensure value for money.
A formal commercial contract will be entered into by the LEA with the successful bidder.
PFI fees are not be fixed or guaranteed, but vary according to how well the PFI contractor performs.
Why all this talk about partnerships and private finance. Why not just fund schools properly and let them get on with the job?
Public Private Partnerships are about more than money. They are about improving the services that the public sector provides. In terms of schools, that translates directly to raising educational standards:
- by improving school buildings we improve the environment in which learning takes place
- by improving classroom facilities we can ensure that schools are properly equipped to deliver a modern curriculum
- by improving the services a school needs we can ensure that teachers can get on with teaching rather than dealing with distractions like broken heating
In the Dudley ICT project part of the contractors fee is based on measurable improvements in Key Stage test and other exam results. If the results do not improve then the contractor will not receive that part of the fee. A clear illustration of working in partnership to raise standards.
Is it the case that schemes can only be viable if parts of school playing fields are sold off to the private sector for development?
Not so — the majority of schools PPP deals have not involved any disposal of playing fields. In addition, recent legislation requires any disposal of school playing fields to be approved by the Secretary of State.
There are other opportunities for the private sector to generate further revenue, including charging the public for the use of school buildings or facilities outside school hours. Sports halls are an obvious example of where dual use is a viable option. Any dual use proposal must be agreed with the school/LEA, it must be suitable for a school and fit in with the establishment's ethos.
Does dual use of school buildings compromise security?
Allowing a school to be used by the local community can actually improve school security. School buildings are occupied for longer, particularly in the evenings, and the community respects the property as they use the school's buildings and facilities.
In tendering for a PFI contract a school or LEA can specify the provision security as one of the services which the private sector must provide.
What happens to buildings at the end of a PPP contract?
This depends on the contract. The LEA or school could let a new contract, subject to a new competition, or extend the contract further. If the asset is no longer needed, the private sector partner could have first option of buying the freehold at market value for its permitted uses. The contract could provide for the school to be transferred to the LEA at nil cost or at an agreed market value. The various options will have different implications for the PPP fee.
What is the difference between PPP and PFI?
PPP is a term used to cover a wide range of activities in which the public and private sectors work together. One form of PPP could be a project under the Private Finance Initiative (PFI) to provide modern cost-effective public service, but PPP could also extends to other forms of partnership, for example, joint ventures.
Who is responsible for teaching?
The statutory responsibilities of the Head and the Governing Body remain unchanged. The Head, Governing Body and the LEA continue to be responsible for teaching and all other aspects of the curriculum.
What if the PPP contractor goes bankrupt?
Banks would normally step in and the contract would continue but be delivered by a different builder/operator. After all, it is in the bank's interests to recover the money they have lent. This would be best achieved by ensuring the service continues, thereby generating payments from the user for services provided over the period of the contract.
Capital investment is needed in many primary schools — the private sector is only interested in multi-million pound deals. How can PPP help?
Victoria Dock School in Hull is a new 1FE primary school which opened in January 1999. It has been built and will be operated by a local company under a PFI agreement. We want to encourage more local and regional companies to get involved in PPP deals and to ensure that all schools that want to participate are able to do so.
If the private sector contractors borrow money they will be charged a much higher rate of interest than the Government and the private sector will also demand a profit. Isn't this money that should have been spent on teaching?
As with any other public procurement process, it is essential that PFI procurement secures value for money (VfM). PFI projects cannot proceed unless they demonstrate better VfM than traditional procurement.
A PFI contract can provide incentives for a private sector partner to design a building (or other asset) efficiently as they will be responsible for maintaining it over a long period of time.
VfM can also be achieved within a PFI agreement by the efficient management of risk. Risk is placed with the party best able to manage it, for example the risk of cost over run in the construction phase is usually transferred to the private sector. Demand risk (the number of pupils in the school) is usually left with the LEA.
Won't the private sector try to maximise profit and charge as much as they can?
As with any other public procurement process, it is essential that PFI procurement is competitive and secures value for money. PFI projects cannot proceed unless they demonstrate better VfM than traditional procurement.
There is a contradiction between the financial autonomy of schools under Fair Funding, and the likelihood that under PFI arrangements schools will have to hand back part of delegated budgets. How will this problem be solved?
School governors are the key stakeholders in any schools PPP project. A project cannot proceed without the governors' agreement. Part of this agreement will be to pay back to the LEA the part of their delegated budget that relates to services to be provided under the contract. LEAs must consult governors early in the process and explain how a school's budget may be affected.
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If you have any queries or comments please contact: Schools.PFI@dcsf.gsi.gov.uk
