City council bids to retain £50m annual grant for highways PFI

Birmingham City Council is to try to persuade the Department for Transport (DfT) to keep alive a £50.31m annual grant linked to a controversial highways private finance initiative (PFI) contract.

The contract was originally made with Amey but this ended in acrimony in 2019 with a legal dispute followed by a settlement agreement that allowed the contractor to exit the £2.7bn Birmingham Highways PFI contract.

This followed the Supreme Court’s September 2018 refusal to allow Amey to appeal a Court of Appeal ruling in favour of the council’s claim that parts of roads and footpaths were being left unrepaired.

Lord Justice Peter Jackson said in that ruling: “In the present case the PFI contract worked perfectly satisfactorily for the first three and a half years. Things only went wrong in 2014 when [Amey] thought up an ingenious new interpretation of the contract, which would have the effect of reducing their workload, alternatively increasing their profit if [Birmingham] issued change notices.”

Contractor Kier replaced Amey and is expected to remain in place until at least August 2023.

A report to Birmingham’s cabinet said restructuring of the PFI contract “remains subject to approval by Government of a revised business case, which will be required to confirm retention of the council’s £50.311m per annum PFI grant”.

The DfT has demanded an outline business case before it decides on this, which was submitted on 6 December

Birmingham’s PFI credit has continued since the end of the legal dispute with Amey but the council needs to secure this since it constitutes half its annual revenue budget for highways maintenance.

As part of the original PFI business case proposal Birmingham ring-fenced its highways revenue budget and has accumulated a revenue reserve of £168.4m to support future investment and facilitate the restructuring of the contract.

Loss of the PFI grant would see the council have to make annual bids for DfT grants, “which could result in a significantly reduced amount of funding for investment in the city’s highways network”, the report said.

Mark Smulian