Academic initiative

The government has sought through new legislation to pave the way for more PFI academy conversions. Graham Burns looks at the background to the changes.

The Education Act 2011 (“the EA 2011”) has now gained Royal Assent. Included in the EA 2011 is a provision which amends the Academies Act 2010 (“the AA 2010”) by seeking to clarify that local authorities are not precluded from providing financial assistance to academies. The provision set out in section 58 of the EA 2011, is of particular significance for academy conversions where the converting school is subject to Private Finance Initiative (“PFI”) arrangements.

In the past six months PFI academy conversions have suffered substantial delays due to the reluctance of PFI funders to consent to variations to PFI project arrangements. The reluctance of funders to offer consent stems from the original wording of the AA 2010, which did not explicitly permit local authorities to make PFI payments on behalf of academies. As a consequence PFI funders have argued that a local authority making PFI payments on behalf of an academy would be acting outside of its powers.

This viewpoint has not been shared by the Department for Education which has consistently maintained that the legislation did not prevent local authorities from contributing to the expenses of academies and that the inclusion of section 58 in the EA 2011 is simply to “put the matter beyond doubt”.

Background

Where a maintained school is subject to PFI arrangements, the relevant local authority and a PFI contractor will have entered into a Project Agreement which provides for the local authority to make payments (known as the unitary charge) to the PFI contractor in return for services at the school and any other schools listed under the Project Agreement. The individual schools will not usually be a party to the Project Agreement, instead the schools will normally enter into individual governing body agreements with the local authority which determine the level of the school’s contribution towards the local authority’s payment of the unitary charge.

There was some speculation at the outset of the AA 2010 as to whether PFI schools would be able to convert to academy status. DfE policy though made clear that such schools would not be precluded from converting but a more complex contract structure would be necessary to enable the conversion.

Where a maintained PFI school wishes to convert to academy status the general position of the DfE is that the existing commercial arrangements between the local authority and the PFI contractor should not be amended, but some technical amendments to the Project Agreement will be necessary to take account of the school’s new academy status. The converting school will enter into a new “School Agreement” with the local authority which will set out the academy’s contribution in respect of the PFI. The School Agreement will effectively replace any existing PFI governing body agreements which the school has entered into and will set out the academy’s obligation to make a contribution towards the local authority’s payment of the unitary charge to the PFI contractor.

The issue raised by funders though has been that following a PFI school’s conversion the local authority will continue to make payments to the PFI contractor effectively on behalf of the academy. The funders have argued that payments on behalf of an academy are outside of a local authority’s powers and constitute illegal payments. The DfE previously sought counsel’s opinion on this issue, however the opinion did not satisfy the funders’ concerns.

Conclusion

Section 58 of the EA 2011 came into force on the date of the Act’s Royal Assent on 14 November 2011 and it is hoped that the provision will alleviate funders’ concerns. The response of the PFI funding market to the new legislation has yet to emerge, however it is hoped that the response will be positive enabling delayed PFI conversions to recommence. So far 24 PFI schools have acquired academy status, half of these being sponsored academies. It is anticipated that there will be a dramatic increase in the number of converting PFI schools once the current impasse is resolved and the funders allow the conversions to proceed.

Graham Burns is a partner in law firm Stone King, and specialises in Education. He is advising on a number of projects relating to  PFI schools. He can be contacted by email at This email address is being protected from spambots. You need JavaScript enabled to view it.