Reported concerns over would-be academy's PFI payments should be cleared up, says expert

PFI operator Innisfree has raised concerns about the legal ability of the Sheffield Council to continue to pay fees outlined in the PFI agreement once it has become an academy. It is waiting for a full legal opinion, according to industry journal InfraNews.

Similar complications could arise for other schools funded through a PFI model that are seeking academy status, said Kate Orviss of Pinsent Masons, the law firm behind Out-Law.com.The Department for Education should clarify the situation, she said.

The concern, Orviss explained, hinges on whether local authority payments under the PFI project agreement would be considered 'maintenance' under the relevant legislation, meaning that they must stop when the school is funded by central Government.

The Academies Act makes it possible for publicly-funded schools in England to become academies, which are self-governing schools operating with funding from central Government rather than from local authorities.

Under the Act a local authority must "cease to maintain" the school on the date on which the school opens as an academy.

"We have acted on similar cases in the past and obtained robust opinion from our counsel that payments under a project agreement did not count as 'maintenance' for the purposes of the Academies Act," said Orviss. "The fact that there is now a competing opinion raises significant concerns, particularly considering the limited number of banks operating in the PFI market in the UK."

"We haven't seen the opinion. We don't know what it says. An opinion is just that – an opinion. The Department for Education, which is responsible for the legislation, must take steps to address these concerns centrally or risk academy conversions grinding to a halt," said Orviss.

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.

Tapton School was completely rebuilt with PFI funding in 2001 and rented by Sheffield Council from landlords Interserve, which held a 25-year management contract for the facility. Interserve sold its stake in the PFI along with its other stakes in Sheffield schools to Innisfree in April 2009.