Concerns raised new school funding model that ‘looks and walks like a PFI, probably is a PFI’

Wrexham Council have agreed to explore a model that could see new build schools funded in an agreement between Welsh Government, Wrexham Council and the private sector.

The arrangement has been described by some councillors as reminiscent of controversial Private Finance Initiatives (PFI) that use private sector investment in order to deliver public sector infrastructure, with critics of the system pointing to inflexible costly agreements and high charges for decades.

However despite the concerns executive board members backed a ‘strategic partnering agreement’ with the newly formed a Welsh Education Partnership Company (WEPCo).

Speaking at yesterday’s meeting Education Lead Member Phil Wynn said it: “….will allow us to access the stream of funding provided by the preferred business partner The Development Bank of Wales, which will allow schools to be built during band B and C of the Welsh Government’s 21st century school capital program, which to date has proved to be a great success here in Wrexham.

“For clarity this funding stream is in addition to the capital grants that we traditionally received from the Welsh Government for this purpose.”

In the Welsh Government tender document last year it states a single Private Sector Delivery Partner (PSDP) is to be procured for Wales to form a joint venture company.

The successful PSDP along with Welsh Government will be required to form a new Welsh Education Partnership Company (WEPCo) vehicle, which will deliver infrastructure services to Welsh Government, local authorities and further education institutions in Wales.

The initial term of the partnering arrangement will be ten years, with an optional five year extension.

The document also explains the vehicle could see libraries and other facilities built: “Revenue funded, 21st Century Schools (Band B) Programme Mutual Investment Model (‘MIM’) projects have been identified for delivery through the WEP Strategic Partnering Framework, on an “exclusive” basis. Participants will also have the option to deliver, design and build capital projects for education or community facilities through the arrangement, where these projects meet specific criteria.

“Community services could include, library services and other community based services to the public within Wales.”

It appears each WEPCo project will see a new ‘special purpose vehicle project company’ created, with the shareholders being the PSDP along with the public sector.

Although Wrexham’s councillors did not appear to be aware who the private partner could be, in a press release dated the day before (7th of September) by “global investor and asset manager based in Paris” Meridiam, that appears to reference the agreement: “Meridiam was selected preferred bidder by the Welsh Government for a major education contract to develop, build, operate and maintain new schools and Further Education colleges across Wales.

“This contract is valued at more than € 500 million capex and will support economic growth and sustainable recovery.

“The design and development of the first schools will start this fall and new schools and colleges will be operated during a long-term period of 25 years or more.”

The press release also gives detail of existing projects in Finland and London and says the “contract further consolidates the footprint of Meridiam in the education sector”.

Although the time period in the Welsh Government tender was 10+5 years, a council officer noted the setup would be over a 25 year period locally: “What actually happens is we pay back with Welsh Government as partners over a 25 year period, at the end of that period they actually have to hand over the building to us in as new condition.

“So everything that has within that, for example, windows, boilers, roofs, that have a 25 year lifespan or less, they actually have to be replaced before that building is then handed over in its entirety to us, then then it becomes our asset.”

With an eye on detail of the report before councillors in Wrexham, Cllr Hugh Jones pointed to 2.5 of the report and noted it mean no commitment was being agreed at the meeting and the topic will come back in future. 2.5 of the report states: “It should be noted that in agreeing to the Strategic Partnering Agreement, the Executive Board is not being asked to decide to proceed with any MIM project.

“Nothing within the Strategic Partnering Agreement commits the Council to make any such commitment. Any decision to proceed with a project would need to come back to the Executive Board in future for determination. ”

Cllr Joan Lowe said: “Initially I did have reservations, considerable reservations, but having it fully explained to us, and what is behind it that we joined the scheme and it keeps the door open, and if our schemes fit in the future, then we can take benefits from it.

“So because because of that, I fully support doing this because eventually it could help the schools in Wrexham and children. So I think it’s a way forward.”

Cllr David Griffiths supported the report passing however voiced his concerns: “This is in my opinion a PFI just by an another name, I have not seen any PFI’s that have been successful for the people that have purchased or built anything through a PFI. I will vote for it. I take comfort because it says it is not on us that we must carry it forward, we’re not committing ourselves to any financial burden.”

Cllr Wynn offered reassurance to Cllr Griffiths, stating: “I’m happy to give that assurance to Councillor Griffiths that If we do pursue funding for this stream that it will be done on a sound business plan.”

Council Leader Pritchard referred to the report as starting a process of being “prepared and ready to go” incase there is announcements from Welsh Government for education funding, and thus he supported it.

Cllr Marc Jones was less keen: “I know on paper, we are just keeping the door open and we’re not committing to anything.

“But it does seem to me that the Welsh Government has had this on the table for three years, and all of a sudden seems to be an awful rush to to get people to sign up for it by the end of this month. It seems to me as if this is going to be the only way to get schools built in the future.

“So, I think it’s really important that we understand what we’re signing up for, because as David Griffiths has said, if it looks and walks like a PFI, it probably is a PFI. PFIs have not been good for local authorities and hospitals and the like.

“So I’m just wondering to what extent We are sort of walking into a situation where we have no option but to go for a PFI.”

Cllr Pritchard replied: “It’s like deja vu. We have already challenged and had other discussions and the debates and I think you’re quite right, that what we’re doing really, we’re facilitating what the Welsh Government wants because they hold the money and they allocated it.

“What I would say personally, and you are very consistent Marc on PFI to be fair to you, is it is all about getting money into schools across the county and investing in education. I think the decision on how its funded and where it’s funded from is a government discussion and it’s all above our head, but I take on board what you’ve said.”

The Finance Officer told councillors: “That if we were going to take any scheme forward, then that would come back to the Executive Board in advance. So at this moment, it’s just to ensure that we’re in the game for the next 10 years, really, because this is our only opportunity.”

Cllr Wynn added to the reassurance: “Can I assure you that methodology of funding is only available for brand new build schools.

“So many of our projects have actually been refurbishments, or extensions of schools. So, this methodology will not pay for that type of construction nor special skills. So the government will have to continue with their existing capital grants going into the future.

“What that will look like from a contribution level and how much money is available, well the future will dictate that.

“Obviously, the mutual investment model was on the table and the government have spent the last three years working up the partnership with the Development Bank, and gone to tender to find that they were the best partners to work with.

“So I would say the Welsh Government haven’t rushed into the agreements, and there has been loads of discussions that have been taking place between the government and Wrexham Council and other councils.”

Cllr Pritchard wound up the debate by saying: “If you look around Wrexham what we’ve built in partnership with the Welsh Government and the money that they’ve funded us, I think we’ve done okay, we’ve got some fantastic schools.

“We would like more money to obviously build some more schools, but on a balanced approach, I think that being fair, we’ve been allocated the money when we’ve asked for it.”