Academy conversions from within PFIs

In March 2016, the white paper ‘Educational Excellence Everywhere’ was published by then education secretary Nicky Morgan. Promising significant acceleration of the academisation policy, the proposal that all schools convert to academies by 2022 come what may was soon watered down. Political and media attention has subsequently turned to plans for new grammar schools.

A year later and in spite of government upheavals, the process of academy conversion has quietly continued unabated. This remains true of schools within existing Private Finance Initiatives (PFIs), many of which began as part of the Building Schools for the Future programme during the five years leading up to 2010.

Schools PFIs and implications for academy conversions

Under a schools PFI, a contractor takes responsibility for building or refurbishing school facilities and then for maintaining them over a period of around 25 years. As the name suggests, the contractor will have used private financing to pay the building costs. In return, the local authority party to the PFI pays the contractor a monthly unitary charge. The object was that impressive school premises would be built and maintained by the private sector, while the costs to the public sector are spread over a quarter of a century. PFIs are designed to be finely balanced in terms of the roles and incentives for the parties. The existence of a PFI raises additional hurdles for would-be

The existence of a PFI raises additional hurdles for would-be academies during the conversion process: the original arrangements between the local authority and PFI contractor will not have envisaged the involvement of semi-autonomous academies. An academy will not become a party to the PFI itself, and there are key implications in terms of:

  • the local authority’s obligation to afford the PFI contractor access to school premises which will be occupied by a proposed academy; and
  • how a proposed academy contributes to the local authority’s PFI costs, and how changes in these costs are passed on.

Consequently, there is a solution which sees additional documents entered into as part of the academy conversion process. The academy and the local authority enter into a ‘school agreement’ which governs the relationship between the two in terms of the ongoing PFI, whilst a tri-partite ‘principal agreement’ is signed by the academy, the local authority and the DfE. Under the principal agreement, the DfE agrees to cover certain potential costs to the local authority if the academy breaches its obligations under the school agreement.

The PFI contract itself also needs to be adapted to recognise the existence of the academy. This is done by way of a variation; in the context of the PFI, the academy is added to the list of bodies for which the local authority assumes responsibility, while the PFI contractor adds the academy to the list of bodies named on the insurance policies taken out for the project. As an academy is normally granted a 125 year lease of the school site, the land arrangements prevailing under the PFI will also likely need some modification to accommodate this.

Sharpe Pritchard’s education team has advised on many academy conversion projects including those from within live PFIs, and we recognise the multitude of stakeholders and interests that can be involved. We can advise and give support on the conversion process and legal documents, adapting to the different challenges each conversion can bring.

For more information on the new regulations, please contact David Wall on 020 7405 4600 or email dwall@sharpepritchard.co.uk.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.

Posted in Central Government, Construction, Education providers.