Just £32m withheld from PFI providers as councils overpay for poor service

As the chancellor announced the end of PFI in the budget earlier this week, a freedom of information request conducted by the law firm Collyer Bristow shows that just £32m was withheld from PFI providers, confirming government fears that tax payers are over-paying for poor service. 

Almost half, £14m, of the amount held back was from just one local authority, Birmingham City Council.  Birmingham has been involved in a long running dispute with Amey, the infrastructure support company, over maintenance of the Birmingham road network, going to the Court of Appeal over the correct interpretation of the PFI agreement.

Brighton & Hove City Council has also had issues with its £1bn PFI contract with Veolia, an environmental services company.  The council has criticised Veolia for the council’s low recycling rate of 27%, as they refuse to recycle certain materials.

Catrin Rees, a senior associate in Collyer Bristow’s construction team said: “The amount of money withheld by local councils was just £24m in 2016, just 0.3% of the £10.3bn of annual payments to all PFI providers across the public sector. Councils are often reluctant to withhold payment as they are concerned about the legal implications of doing so. However, PFI contracts will invariably have some sort of contractual mechanism to allow payments to be reduced for failures in performance. Councils and ultimately taxpayers should not be paying for services if they are not being delivered by PFI contractors.” 

Whilst the chancellor has signalled the end of PFI, many contracts will still have many years, if not decades, to run. Rees added: “If local authorities feel that their providers may not be holding up their end of the agreement, then it’s sensible to consider revisiting the original agreements and taking advice on whether there are grounds to reduce or withhold payments to get a better service for taxpayers.

“Undeniably, PFI contracts can work well for local authorities, contractors and tax payers where parties cooperate and have realistic expectations of each other, but that does not always happen.”

260 of the 428 local authorities responded to Collyer Bristow’s freedom of information request, which was made in July 2018.