Why are we still building PFI schools?


News that 17 Edinburgh schools were to be closed on Monday amidst fears for their structural safety sent waves of shock and “we told you so” across the city and Scotland.  Following the collapse of a wall at Oxgangs Primary Schools, surveys at other Edinburgh schools, all built by Miller Constuction under the same Private Finance Initiative (PFI) deal revealed problems. The whole affair has raised serious questions about the way these schools were built, maintained and financed, under deals widely condemned as poor value for the taxpayer.  There has been much bluster about how these mistakes of the past must never be repeated without much analysis of how we’re building, maintaining and financing Scotland’s schools in 2016.

Edinburgh Schools Partnership (ESP), the private consortium set up to profit from building and operating the schools, were unable to provide assurances about the quality of the buildings, forcing their closure.  ESP were set up by a consortium which included Miller Construction, who built Oxgangs Primary and the other schools identified as potentially unsafe.  Miller Construction have subsequently been bought over by Galliford Try.

Teacher’s Union, the Education Institute for Scotland (EIS), welcomed the move to safeguard pupils and staff, adding,

However, we must also question how such significant defaults could escape normal building control scrutiny and we believe it is now necessary for an urgent review of all PPP/PFI contracts, including the terms of the private maintenance contracts which are often both expensive and extremely restrictive.

Similarly, Nicola Sturgeon has called for an inquiry, making clear the SNP repeatedly raised concerns about the “extortionate rents” paid under these PFI contracts at the time, which Labour duly ignored.  Sturgeon told the Scotsman, “If it turns out that this a legacy of those PFI projects, then there will be big questions for those who were in charge at the time to answer.” 


“Those in charge at the time” are unlikely to give much of a fuck.

It’s no wonder then, in the midst of an election campaign, that some SNP supporters are suggesting the crisis in Edinburgh is all Labour’s fault – which it  is – and that PFI has now been abolished in Scotland – which it hasn’t.  Neither the media nor the politicians seem keen to draw our attention to one very important point: Scotland’s bridges, motorways, hospitals and schools are still being built by the private sector, at a large long term cost to the public purse. So with another private finance scheme in ruins, why are we still building PFI schools?

While all PFI contracts vary, the basics resemble mortgages in some ways: you (i.e. the Government) put in a deposit and then pay back a loan over time in exchange for use of something, and get charged interest by the builder/bank/combination of both.  Some key differences to a mortgage is that all maintenance is done via contracts with agreed agents (often the building company themselves) and at the end of it all, ownership sometimes even reverts back to…the company who built it, leaving them free to sell your local primary/hospital for flats and fuck off with a massive profit.   

The maintenance contracts create a disincentive to build anything decent, described by Neil Baxter of the The Royal Incorporation of Architects in Scotland as a “dripping roast” to contractors – described more commonly as “the shitter the job, the more you get paid to fix it.”   The Edinburgh Schools Partnership have been quick to say they will accept liability for the cost of repairs, although serious questions remain about the many people who ESP will have paid to verify the safety of these buildings and the quality of their construction.

The official tale is that PFI no longer exists in Scotland, having been abolished by the SNP.  The reality is very different:  the SNP correctly identified that people liked the idea of there not being any profit being made from education, the NHS and large public infrastructure projects, so introduced a system known as “Non Profit Distributing” (NPD), a nice sounding name.   They set up a trust known as the Scottish Futures Trust (SFT), another pretty cool sounding name, the SFT appointed a Chief Executive called Barry White. Seriously guyz, full marks for names.


Sadly, not this guy.

Barry takes home a tidy £180,000 for helping SFT not make a profit, more than the First Minister (as tax creeps can verify here).  He comes to this definitely not PFI role with a wealth of experience in definitely not PFI, previous employers include “BAM PPP” (the clue’s in the name) and “Partnerships UK”, the company set up the UK Treasury responsible for “furthering public-private partnerships in the United Kingdom.”  He was also a Regional MD at Construction Firm Morrison Construction, who, like Miller Construction of falling down schools fame, are now owned by Galliford Try.  Morrison Construction were awarded a £57m for Schools in Shetland last year, with funding coming via the SFT.  Galliford Try are of the SFT’s “Tier 1” contractors, so the rebranded Miller Construction/Morrison Construction can now be found building Scotland’s rebranded PFI schools.

The key benefit of these schemes to Governments is that they can be kept “off balance sheet” and in the post #PanamaPapers world, what responsible Government wouldn’t want to keep their expensive dealings with the private sector away from the relevant authorities? Certainly not any we’ve ever had in Westminster…or Holyrood.


Get Yer Tax Returns out! But shoosht about PFI.

Last year, the Scottish Government was forced to reclassify one SPF project, the Aberdeen bypass (brought to you by a consortium including….Galliford Try!), making it a public as opposed to a private investment, to avoid falling foul of EU rules on public expenditure.  This led to a  hasty adjustment to the terms of other Government contracts, with a charity being set up to offload most of the stake previously held by the “granting authority” (council/health board), to avoid the Office for National Statistics counting the spending on public projects as public spending. Documents leaked to the Guardian stated,

Any perception of public sector control over the [project] delivery company must be avoided … Public-sector financing of projects [through debt or capital financing] must be limited in order to maintain clarity of risk-transfer to the private sector delivery partner.

The complete removal of any capital contribution to projects through the construction phase, or on construction completion, is the cleanest approach and will be adopted across the programme.

So the Scottish Government’s strategy to get rid of expensive long-term PFI deals now involves putting nothing in up front, meaning more of the cost to the public purse will be paid later.  And the Scottish Futures Trust, intended to be the champion of the public good in these definitely not PFI deals, must avoid any perception of public sector control.

Aside from lots of nice names, there are 2 differences between what the SNP have done and most previous PFI contracts – the assets will be public (which matters) and the returns for the bidder are defined when the contract is signed, which only matters if investors are prepared to accept lower returns, which there is little/no evidence for, meaning the increased risk from not holding the assets would need to be offset with more cash from the public purse.  Aside from the exact structure, the concept is the same: buy now, pay later, pay lots.  The biggest cheek is using the words “Non Profit Distributing” when the only entity which doesn’t make a profit is the Scottish Futures Trust set up with public cash.  But don’t take my word for it, here’s a handy quote from legal firm, Blake Morgan, who explain,

It is therefore not a “not for profit” model. Contractors and lenders are expected to earn a normal market rate of return, as in any other form of privately-financed PPP deal.

The NPD model is defined by the principles of enhanced stakeholder involvement in project management; no dividend-bearing equity; and private sector return capped at a reasonable rate set in competition through an open procurement process compliant with EU rules. Investors bid a rate of return in competition.

It is important to realise that apart from this, NPD is not very different to traditional forms of PPP including PFI. In particular, the distribution of risk between public and private sector, including to construction and service contractors and their sub-contractors, is much the same.

Welcome to the SNPFI Scotland, “much the same” as New Labour’s PFI Scotland – built on the crumbling foundations of a Tory dream: that no school, no hospital, no road can ever be built without the private sector making a long term profit at the expense of the taxpayer.   Keep it “off balance sheet” to avoid accepting the true cost and call it something funcy to avoid accepting it’s even PFI.  This week’s Tax Return Voyeurism is nice but when John Swinney is coming up with ever more creative ways to use PFI projects to prevent the Office of National Statistics from measuring public spending as public spending, it’s hard to take any of it very seriously.


Swinney prefers to keep things under his hat.

There will be enough huffing and puffing about the sorry situation now facing Edinburgh’s pupils to blow many PFI schools down, and rightly so; we all deserve to know why companies were allowed to profit from dangerously sub-standard schools for so long – but the fact we’re still building a PFI school system and a PFI state in Scotland, suggests the lessons staring at us from the rubble have yet be learned.


Further Reading:

Scotland for Sale: Councils offer up public land at London property pissup

Who’s been selling Scotland’s water?

Off the rails: Corbyn’s tall tales give the SNP a free ride


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