Chartered Accountants in Dudley
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Private finance initiative (PFI) schools

Chartered Accountants in Dudley

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A PFI school is subject to a private finance initiative contract with a private sector contractor. In a PFI school, the contractor charges a monthly fee and has responsibility for constructing new school premises and/or refurbishing existing ones. The contractor also provides a range of facilities management services, including cleaning, catering and maintenance.

A PFI contract usually lasts 25 years and, at the end of the contract, the buildings built by the contractor are transferred back to the local authority, trustees or governing body, depending on the type of school.

Specific issues for PFI schools considering conversion: PFI schools have a governing body agreement with the local authority, giving the governing body certain rights and responsibilities. The governing body agreement ensures that the governing body of the school is bound into the PFI for the full 25-year term. As a result, PFI schools cannot exit from PFI contracts by converting to academy status.

While the DfE has said it has no intention of buying out schools from PFI deals, it has made it clear that PFI contracts will not be barriers for schools wishing to convert to academy status. It proposes that as part of the conversion process, the PFI school will enter into a new school agreement with the local authority, under which it will commit to meet its PFI obligations and continue to receive the services it is entitled to under the PFI. The DfE accepts that the school may have to carry out further due diligence and will offer additional funding for this.

The funding agreement for the school will allocate financial risk to the school where it fails to comply with its PFI obligations and where this results in a cost to the local authority. The DfE recognises that local authorities may be concerned about the increased risk of contracting with an independent academy trust, and therefore offers an indemnity to the local authority, which guarantees that its liabilities are not increased by the decision of the PFI school to become an academy. The DfE will also consider annual grant funding requests from an academy that can show its continued involvement in the PFI scheme has led to increased costs.

It is clear that the financial risk of a PFI school, which previously sat with the local authority, is borne to a much greater extent by the DfE. As a result, the business case underpinning academy conversion applications from PFI schools is likely to be scrutinised much more carefully than for other types of schools.

Summary: given the potential complexities, it is likely that the process of converting into an academy will take longer for a PFI school than for other types of schools. However, assuming the additional complexities are addressed and the financial consequences of ongoing PFI commitments are taken into account, there is no reason in principle that prevents a PFI school from converting to an academy.

To find out more about AGS accountants in the West Midlands and our academies services, please contact us.

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Chartered Accountants in Dudley