Council barred from buying-out PPP contract

BY MICHAEL RUSSELL

The Scottish Government have refused to give Highland Council permission to borrow money to buy out £160 million contracts covering the construction and upkeep of 15 schools.

At present, every year the council hands over £29 million to two consortia to pay for the new schools, including Portree High School, that were built between 2002 and 2010 through two separate Public Private Partnership schemes. However, in light of ongoing budget constraints late last year the council approached the Finance Ministry for additional borrowing powers to buy out the contracts.

Derek Yule, the council’s finance director, said the amount they wanted to borrow would have been the subject of “detailed negotiation” with the two contractors.

“I would not wish to publish figures of what we estimate this cost could be as it could prejudice any future negotiation,” Mr Yule added. “We are still negotiating around certain aspects of the contracts, but we are unlikely to realise very much in the way of savings.

“The council currently pays around £29 million per annum in payments to the contractors. This covers a range of costs including facilities management as well as financing costs. We believe that we could have refinanced this cheaper and applied different standards of facilities management.”

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Portree High School was financed through a PPP. Picture cc/John Allan

Mr Yule said that any council borrowing scores against the Scottish Government limits set by the UK Treasury.

“Perhaps this would be less of an issue if it was just Highland, but there were also concerns about setting a precedent that other councils would follow,” he added. “Additional council borrowing could impact on the Scottish Government’s own borrowing proposals given their new powers to borrow. I also suspect that there may be a policy issue around this as well regarding the current model for schools financing.”

In response, the Scottish Government confirmed Mr Yule’s view.

A spokeswoman said: “Under UK Government Treasury rules, Highland Council’s proposed borrowing would incur a capital cost and associated affordability issue for the Scottish Budget.

“The Scottish Government, alongside the Scottish Futures Trust, has been encouraging procuring authorities to instead look at whether they can realise savings from their existing PFI contracts. This could be through, for example, re-scoping services, sharing in insurance cost savings and optimising the risk transfer in contracts.

“We continue to support and work with authorities to identify where these savings can be made.”

Portree councillor Drew Millar supported the move to buy out the contracts.

He added: “I was always opposed to PFI and PPP, but ultimately when it came to the new schools being built I had to bite the bullet. This was an expensive way of funding them and £29 million per year is a huge amount of money. But the precedent has been set with buying out the Skye Bridge contract, which every SNP MSP supported at the time.

“If we try to renegotiate and try make savings this is a very difficult scenario as we are starting from a position of weakness because we signed the contract.”