Between 1998 and 2010 the private finance initiative (PFI) became the favoured option to procure school buildings and facilities in the UK. Under the scheme, responsibility for financing, building and managing infrastructures and services is transferred by the state to a private consortium, including banks, financiers and a construction company. Such contracts often extend to twenty-five or thirty years.
Over time, financial value has been prioritised over educational value in the management of contracts, while the procurement and construction method has had a clear impact on the quality of school buildings. Twenty years on, the PFI experience in education exposes the flaws of a system in which public authorities cannot fully exercise control over projects but have retained responsibility for the provision of quality learning environments.
The financial legacy
The rising cost of debt finance, equity, and other factors over the duration of a PFI contract means that for a group of schools procured through private financing, costs were shown to be 40 per cent higher over a twenty-five-year period than those of publicly financed operations.
These higher costs can only be justified if public-private partnerships (PPPs) produce efficiency gains over the length of contracts: value for money, understood as the cost/benefit/risk ratio, is supposed to underpin the choice of private finance over public borrowing. However, evidence that benefits have outweighed the costs has been lacking so far.
Repayment of the PFI debt is threatening local authority and school budgets already under strain from severe cuts in public services after 2010. In areas where private finance deals have been most widely used, PFI credits, which are based on a fixed rate, can no longer cover the payments earmarked to service the debt. The gap between income and payments has forced local councils to make savings in other budget areas and in some cases to call on the Department for Education for extra financial support. But regardless of local circumstances, the long-running relationship binding the SPV and local authorities is a source of uncertainty. The economic context, fiscal or political decisions, changes in education and school budget allocations will inevitably occur over a thirty-year span.
In the education sector, those changing parameters have had multiple repercussions on local actors and indirectly on teaching and learning conditions.
Impact on the frontline
It is not so much the PFI contributions per se that have put schools in the red, but the fact that these are ring-fenced and indexed on inflation, thereby worsening an already precarious situation. Secondary school finances dramatically deteriorated between 2014 and 2018 in England where 50 per cent of academies and 60 per cent of council-run schools reported a deficit in 2016/2017, resulting in staff cuts and a reduced curriculum offer. But in the highly fragmented English system, in which individual schools run their own budgets, much depends on the number of pupils on roll, which largely determines their level of funding. Falling rolls mean fewer resources to cover hikes in PFI contributions. A major concern for headteachers and governors is therefore to keep pupil numbers high. Ironically, the challenging situation of a growing number of English PFI schools has had an adverse effect on the government’s academisation policy, deterring academy chains from taking on board schools with such financial liabilities.
Furthermore, the contractual relationship with the companies set up to receive PFI payments (special purpose vehicles/SPVs) has had a direct impact on school management and educational activities. Changes in the use of facilities or their adaptation to new learning needs are undermined by fixed contract clauses agreed at the outset of the partnership. Any alterations require the approval of the SPV and will carry extra costs, sometimes over the whole life of the contract.
Risk and regulation
While control over the implementation of contracts is difficult to achieve, responsibility ultimately lies with public authorities. It is their duty to maintain uninterrupted provision of public service education. The limits of risk transfer were starkly exposed when leading service providers such as Jarvis, Ballast UK and Carillion went bankrupt, forcing councils to step in and take over provision of meals and accommodation.
Other underlying features of public-private procurement seem to undermine educational value. The dominant position of the building contractor leaves little room for direct communication between the architect employed by the firm and the local authority or the school, and makes cost-cutting more likely. Quality of school buildings has been compromised by the low weighting given to design in the evaluation of bidder’s proposals, leading not only to school buildings characterised by narrow corridors and an absence of natural light, but also to serious safety issues. The collapse of a wall in a school which had been part of the Edinburgh PPP1 project shows how the fragmentation of responsibilities within PPP schemes had an impact far beyond the construction phase. The consortium did have to bear the cost of repairs. But there was also a financial impact for public authorities, who had to provide schooling and transport for 7000 pupils when sixteen other schools were closed for inspection due to safety concerns.
What had originally been framed as a technical scheme—an integrated chain bringing more efficiency in construction and management—was also a political and financial instrument in sync with the growing marketisation of education.
PFI commitments have weighed heavily on school budgets, set a rigid framework over the management of infrastructures and entailed a loss of autonomy, a paradoxical outcome at a time when autonomy and freedom of initiative have become key planks of education policies.
While public procurement has not always delivered high quality school buildings and has often entailed savings on maintenance budgets, it remains centred on its core educational mission and leaves more scope for decision making and control to those who are most concerned.
As the attraction of public-private partnerships has waned, a combination of different investment models is now favoured. It remains to be seen whether they can bring long-term educational value.
You can read Francoise Granoulhac’s full article ‘Twenty Years on: The Impact and Legacy of the Private Finance Initiative in UK Schools’ in the Political Quarterly journal.