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Local authorities will not be breaking law by continuing academy PFI payments, QC says

Continuing to make payments towards a school rebuilt through a project finance initiative (PFI) arrangement once that school has converted to academy status will not cause local authorities to break the law, an expert has told the Government.07 Oct 2011

A leading QC told the Department for Education (DfE) that a local authority "would not be acting unlawfully" by continuing to make payments towards a school building under a pre-existing private finance initiative (PFI) project agreement.

In an opinion sent to the DfE (19-page / 111KB PDF), Tim Kerr QC also said contractual arrangements created to allow the local authority to continue to make payments would also be lawful.

"I do not think a local authority would... act unlawfully by continuing to pay unitary charge to a PFI provider under a pre-existing PFI project agreement relating to a school maintained by the authority after conversion of that school to an academy," he said.

Academies are self-governing schools operating with funding from central Government rather than from local authorities.

Under the Academies Act, which makes it possible for publicly-funded schools to become academies, a local authority must "cease to maintain" the school on the date on which the school opens as an academy.

Last month a Sheffield secondary school rebuilt ten years ago under a PFI scheme delayed its transition to academy status as a result of concern over whether local authority payments under the PFI project agreement would be considered 'maintenance' under the Act.

Kerr said that the words "cease to maintain" could not be considered under their ordinary English meaning.

"Read in context, [the words] bear the meaning 'must cease to do what the authority did when it had the statutory function of maintaining the school'," he said.

However, a local authority would be acting unlawfully if it provided "all or a high proportion" of the academy's funding, or took on contractual powers equivalent to those it held before the school converted to academy status, he said.

"It is always, ultimately, a question of fact and degree whether the prohibition [on maintenance] is breached. But I do not think the prohibition would be breached in the case... where, after conversion, the authority's net funding is only of 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," he said.

PFI was introduced in the early 1990s as a way of using private sector skills and finance to provide public services. It allows the private sector to obtain finance to design, build and operate a facility for the benefit of the public. In return, the public sector will grant its private sector partner a long-term contract to run the facility and will pay a monthly fee over the life of the project to repay the loan.

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