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Authorities can continue to make PFI payments after academy conversion, says QC

A local authority would not be acting unlawfully by the mere fact of continuing to make payments to a provider under a pre-existing PFI project contract where a maintained school has converted to an academy, a leading QC has said.

In an opinion given to the Department for Education, Tim Kerr QC of 11 KBW said he did not think that agreeing contractual arrangements of this type would breach s. 6(2) of the Academies Act 2010.

The 2010 Act says a local authority “must cease to maintain” the school on the date on which the school opens as an academy.

But Kerr said: “I think the words ‘must cease to maintain’ in section 6(2) do not bear their ordinary English meaning but, read in context, bear the meaning ‘must cease to do what the authority did when it had the statutory function of maintaining the school’. The contrary view is arguable but the argument is weak and in my view would fail in the unlikely event that a legal challenge were brought.”

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The QC said that a local authority might breach the section “if it provided all or a high proportion of an academy’s funds and took contractual powers equivalent or substantially equivalent to the statutory functions exercised in respect of the school concerned before its conversion to an academy”.

The opinion added that it was, ultimately, always a question of fact and degree whether the prohibition in section 6(2) is breached.

“But I do not think the prohibition would be breached in the paradigm case described in my instructions where, after conversion, the authority‘s net funding is only of an ‘affordability gap’ representing a small proportion of the academy‘s annual budget; the authority retains only limited involvement in the management of the academy‘s premises and facilities; and the academy trust controls and runs the academy, its premises and the education it provides,” Kerr said.

“Indeed I think it unlikely that a local authority would breach the prohibition if it provides less than 50 per cent of an academy‘s funds and does not retain control over the academy‘s premises or the content of the education provided by it.”

The QC argued that the local authority had power under section 16(1)(c) of the Education Act 1996, read with section 579(5), and under section 2(1) and 2(4) of the Local Government Act 2000, and section 1(1) of the Local Government (Contracts) Act 1997, and section 111(1) of the Local Government Act 1972, to enter into contractual arrangements of the type described in his instructions.

“It follows that such contractual arrangements for the conversion of a maintained school to an academy will generally be intra vires and lawful, assuming the relevant powers are properly exercised and assuming the authority‘s post-conversion involvement in the funding and management of the academy is not so substantial that the authority ‘crosses the line’ and unlawfully maintains the academy,” he concluded.

The publication of Kerr’s opinion came after reports that at least 16 schools had been forced to delay conversion amid concerns over the issue of continuing PFI payments.

Kerr said he had no objection to the Department publishing his opinion, but stressed that it was not addressed to anyone other than his instructing solicitors and the DfE and that he did not undertake or accept any duty of care to any other person to whom the opinion might be made available.

He also pointed out that the issues had been the subject of advice from other counsel but that he had not seen or considered that advice.

The instructions and the advice can be downloaded here.

Philip Hoult

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