Laying firm foundations

Bookmark and Share

Is your school involved in a PFI project under Building Schools for the Future? MST’s education law expert Mark Blois offers a vital guide to governors’ legal responsibilities.

The scale of private finance initiatives in education is difficult to overstate. There are currently 845 schools involved in 107 PFI projects in England, and roughly half of the Government’s flagship Building Schools for the Future (BSF) scheme will be paid for using the scheme.

There are a number of different bodies involved in any BSF PFI project and most of them will require legal advice upon various aspects of the process. The importance of one such body, and the need for it to receive legal advice, is frequently overlooked. A school’s governing body plays a particularly important role in the BSF process and this means there are significant legal obligations upon it.

It is worth reminding ourselves about some of the legal responsibilities and obligations that rest upon the governing body. A range of duties and powers have been conferred on governing bodies by the various education acts down the years. Of these, the main duty is to take general responsibility for the conduct of the school with a view to educating pupils and promoting high standards of educational achievement.
In discharging this obligation governors are required to act at all times with honesty and integrity and must be ready to explain their actions and decisions to staff, pupils, parents and anyone with a legitimate interest in the school. Governing bodies are corporate bodies and have a legal identity separate from the individual governors.

Two things flow from this. Firstly, decisions that have been made properly will be binding on all the governors. Secondly, individual governors are generally protected from personal liability as a result of the governing body’s decisions and actions. Provided that they act honestly, reasonably and in good faith, any liability will fall on the governing body even if it has exceeded its powers.

Specifically, by virtue of section 50(7) of the School Standards and Framework Act 1998, governors do not incur any personal liability in respect of anything done in good faith in exercising their power to spend a school’s budget share. An example of an act not done in good faith is fraud.

The agreement of contracts relating to BSF projects is something that most governing bodies will see fit to delegate to the chair and headteacher. Individual governors have no power or right to act on behalf of the governing body, except where the whole governing body has delegated a specific function to that individual, or where regulations specify that a function is to be exercised in a particular way.

A governing body can delegate any of its statutory functions to a committee, a governor or the headteacher, subject to prescribed restrictions, but each governing body will remain accountable for any decisions taken, including those that have been delegated. Any individual or committee to whom a decision has been delegated must report to the governing body in respect of any action taken or decision they make.

In a BSF PFI project a private sector consortium, usually including a building firm, a bank and a facilities management company, establishes an independent legal company called a special purpose vehicle (SPV), which enables the organisations involved to work together under one umbrella. The SPV bids for a single contract which will be awarded by the local authority. They then proceed to design and build the project in line with the client’s requirements.

Once the proposed outcomes of the project for a school have been agreed and the local authority has satisfied the school’s governing body that PFI would give best value for money, the local authority must then seek support from the Department for Children, Schools and Families for the project to go ahead. If the project bid is successful and the DCSF has indicated its provisional support, the local authority then takes the lead in the project, through a partnership with the private sector consortium.

The governing body of the school that is benefiting from a BSF project will need to sign governing body agreements (GBAs) with the local authority during the process. These are critical documents which need to be considered very carefully by governors. It is sensible for governing bodies to seek legal advice in relation to GBAs.
Early on in the process there will be a GBA for design and build. This is an agreement by the governing body to allow the construction works to go ahead and that the building will be properly maintained in the future. It does not detail the construction works that will take place or include any plans for the school.

Financial support
As the process proceeds, governors will also need to sign a GBA that will deal with the funding of the project. In a BSF PFI project, the private sector consortium raises money to meet the cost initially, and then the local authority will then provide both capital and revenue funding. Grant support for the capital element of local authority PFI is available from central government. Once a PFI contract is signed, the project receives financial support from the Government to assist with the cost of building and maintaining the premises.

The promise of support is given in the form of a letter, which sets out a level of ‘PFI credits’ issued for that project. PFI credits are a measure of the private sector investment which will be supported, and act as a promise that PFI grant can be claimed once the project is operational. The level of grant is then based on the level of PFI credits issued.

These funds contribute the capital repayment element of the Unitary Charge paid to the private sector provider annually in return for the availability of the school building, rather like a mortgage. However, the school’s governing body is also required to agree to pay the local authority an annual amount, usually the part of the
Unitary Charge that relates to the facilities management content of the contract. The PFI contract has the first call on the school’s budget and so the local authority must have written approval from a governing body to use its delegated budget in any way. This means the governors will be required to sign a GBA early in the PFI process.
This will then be reflected in a revised delegated budget for the length of the contract period.

Governing bodies need to make sure that they are clear about their rights and responsibilities under the GBA and that they are involved in all stages of performance monitoring. They will have valuable input to make, particularly on the practicalities of the mechanisms agreed. They also need to agree with the local authority how changes in requirements would be dealt with and how the payment mechanism will operate.

Above all, before entering into the GBA contract, a governing body must be satisfied that the contract is in the best interests of the school. To reach that conclusion they need to consider how important the project is to the work of the school, as well as ensuring that the contract provides enough flexibility to allow future developments at the school without undue constraints. This is unlikely to be achievable without legal advice.

Managed service
The third aspect of contractual commitments that a school governing body may be required to enter into as part of a BSF scheme is a GBA relating to an ICT managed service. A significant aspect of PFI is that the private sector consortium will provide other services such as catering, cleaning, grounds maintenance and in some cases ICT. The consortium provides these services for an annual fee (just like rent), with the contract also typically lasting 25 to 30 years. This sometimes results in the school’s technical and support staff being transferred under TUPE (Transfer of Undertakings Protection of Employment) Regulations 1981 to the private sector consortium. Once the scope of projects and the range of services to be provided by the PFI contractor have been determined, agreement has to be reached about which staff should be transferred and on what basis.

BSF also allows for separate ICT PFI projects which cover the management and supply of services across a whole school or whole local authority. A feature of these projects will be that practically all technical IT staff in schools will be outsourced to private companies. So even those schools who are not taking part in a new build or refurbishment may be required to take part in the part of BSF that concerns ICT provision. This follows a recommendation by Becta, the Government’s education
IT agency, that to save money through economies of scale, ICT equipment and services should be bought by large organisations such as local authorities, and not by individual schools.

The ICT element is probably one of the most controversial aspects of the programme. Recent press coverage suggests that it has been causing rifts between schools and local authorities, with some schools concerned about inadequate budgets and receiving unsuitable and badly specified ICT systems. The centralised procurement method also makes it challenging for school governors to fulfil their legal obligations described above.

In summary, a school’s governing body is under significant legal duties and obligations, and these need to be brought to bear in relation to all BSF-related contracts that the governing body enters into on behalf of the school. As with any contract, legal advice may be appropriate to demystify the draft contractual papers and ensure that the school provides input to them in a way that promotes their overall objectives to provide better education for pupils.

Mark Blois is an education law expert at Browne Jacobson. Please visit, email or call 0115 976 6000.

Taken from Managing Schools Today Issue 17.6