Falkirk high schools costing council £34m more than originally estimated

Falkirk Council is paying less than originally planned for schools built under the controversial private finance initiative (PFI), an investigation by JPIMedia can reveal.

Thursday, 17th October 2019, 12:00 pm

However, figures show the local authority is paying over £34m more than originally planned for schools built under the Non-Profit Distributing scheme (NPD).

A contract signed off by the local authority with private firms in the late 1990s to replace crumbling buildings in the region under PFI has seen the initial business case inflation keep “broadly in line” with the actual/current projected rate to the end of the payments.

While the NPD model, which was developed and introduced as an alternative to the traditional PFI model in Scotland, has seen the actual/current projected rate of inflation to the end of the payments being higher than in the initial business case.

Denny High School was one of those built under the NPD scheme

Across the country many PFI deals were pegged to the retail price index (RPI), the now discredited inflation measure used to calculate rail fare hikes and student loans payments.

The governor of the Bank of England, Mark Carney, has admitted there are “known errors” in the RPI system and last year called for the UK Government to stop issuing bonds linked to it.

But that advice has come too late for many local authorities which are now shelling out millions more in costs for schools built under PFI.

Scottish Labour leader Richard Leonard has pledged to ban any further public-private finance deals if his party took power.

“Scotland’s historical PFI deals have put unnecessary pressure on our NHS, our local government services and right across the public sector,” he said.

“That is why I have been clear that the Scottish 
Labour government that I lead will introduce a ban on new PFI/PPP/NPD deals. We will also take private contracts back in house at the earliest opportunity to save the taxpayer money in the long term.”

In common with other local authorities at the time, Falkirk Council signed off a deal to pay for new school buildings, known as public-private-partnerships (PPPs).

The region’s schools built under the initial PPP are Larbert, Graeme and Braes High Schools, Bo’ness Academy and Carrongrange School.

The contract – which runs for 26 years – is estimated to cost £1.97m less than originally estimated.

The capital cost of the schools was £65m but by the end of the contract’s term, Falkirk Council will have paid Class 98 £316.4m.

While the NPD contract – for Falkirk, Denny, Grangemouth and St Mungo’s RC high schools – will see the council paying £34.25m more than originally thought. They will have to pay £478m.

Cecil Meiklejohn, Falkirk Council leader said a clean correlation between the PFI and NPD funding models cannot be made easily for a number of reasons including differences in construction costs, specifications, financial models, prevailing interest rates and market bidders as the projects were ten years apart. The contracts were for different lengths of time and the scale of themdiffered. The government grant supporting the projects varied hugely too.

She said: “Falkirk was the first schools PFI contract in Scotland and considered to be the worst.

“While it may be difficult to compare, it is clear that the fundamental differences 
between the NPD and PFI 
contract, over the contract time period based on best value, the PFI contract will have cost the tax payer more. Particularly as there will be a requirement for a £5m termination payment before the Council owns the buildings.

“Under the NPD the council will have ownership, and throughout the contract there will be no additional usage costs as community access was built into the contract, which is not the case with the PFI schools which incur additional costs after 7.30pm and at weekends which are charged at commercial rates.

“Further more the surplus sums generated by the NPD company go to a NPD charity that are then available for the community bid in to for local initiatives, which is estimated to be £27m over the lifespan of the contract. The cost of the PFI has been a long hard burden for Falkirk to bare a legacy that was given to us by a Labour Executive.”

A Scottish Government spokeswoman said: “The annual PFI repayment bill now exceeds £1 billion – nearly five times more than the Non-Profit Distributing (NPD) programme which we introduced and is proving far better value to the public purse.

“The funding of public infrastructure has vastly improved since 2007.

“We are working to ensure PFI contracts which have been inherited provide the best value for money for the taxpayer – and to ensure savings are achieved from existing contracts, wherever possible.”