PFI 'buy back' deals to cost taxpayer millions

Tens of millions of pounds will be needed to bring public buildings built using private finance into state hands.

Scores of buildings, such as schools, have been built across Scotland using the Private Finance Initiative (PFI) model where firms construct and maintain buildings for an annual fee.

At the end of the majority of these deals the facilities are simply handed over to the public bodies using them.

But this is not the case in 11 PFI contracts expiring in the coming years.

Research by BBC Scotland News shows these deals contain clauses which mean public bodies will need to pay the PFI provider a fee or market value for the property if they want to take full control of the building when the contract ends.

The Royal Infirmary of Edinburgh, Wishaw General in Lanarkshire, five high schools in Falkirk and two Scottish Water waste plants are among the affected facilities.

Critics point out that some of the PFI operators have banked repayments over the length of these deals at up to 10 times the original cost of building the facilities.

Unison Scottish secretary Lilian Macer said: "These PFI buyback clauses are quite frankly a scandal. Private firms have already been handsomely paid by the taxpayer over the course of the contract.

"Once you pay up your mortgage you don't then have to pay a penalty clause to own your home. At the very least it should be the same for public services."

PFI was introduced by John Major's Conservative government but Labour was the biggest supporter of the controversial financing model.

It meant the upfront cost of building such as schools and hospitals was taken on by the private sector in return for repayments to cover construction and maintenance, typically over a 25-year period.

But the scale of profits made by PFI operators, and the build quality of some sites, have faced widespread criticism.

The contracts with "buy back" clauses were among the first wave of PFI deals signed by Tony Blair's Labour government.

Most subsequent private finance deals did not include this type of clause.

Among the 11 deals identified by BBC Scotland News is the contract for the Royal Infirmary of Edinburgh where about £1.1bn in PFI repayments will have been paid out to operator Consort by the time the contract expires in 2027.

The complicated deal for the hospital means that NHS Lothian will in 2027 enter a secondary contract period, potentially lasting until 2053, where it will still pay a "management charge" to Consort but can give three months' notice to terminate the arrangement and the facility will revert to public hands.

However, if NHS Lothian does give notice it will have to pay Consort the "net present value" of this management fee over the unexpired duration of the secondary period.

NHS Lothian last year started formal dispute proceedings against Consort Healthcare after identifying a series of infrastructure issues that it says need to be rectified.

The two side are now working through an improvement plan to address the shortfalls, NHS Lothian said.

The Police Scotland college in East Kilbride, where armed police are trained, was built under a PFI deal that expires in 2026.

If the force wants to retain the facility then it will need to pay a fee.

Police Scotland claimed it "would not be appropriate" to name the PFI operator in this deal when asked by the BBC.

Elsewhere, a PFI contract for five high schools in Falkirk expires in 2025 when the local council plans to take full control of them.

Under the deal, a "buy back" option requires the local authority to pay the lesser of £5m or the market value of the sites.

At the University Hospital Wishaw, the PFI deal ends in 2028 and the contract suggests that to end the involvement of the private operator Summit Healthcare entirely at that point will require a payment, subject to negotiation, that does not exceed £15m.

NHS Lanarkshire said the future ownership of the hospital would be a matter for negotiation but it is hoped that will be concluded in early 2024.

Elsewhere, NHS Highland will have to pay a £3m fee to take over New Craigs Hospital in Inverness when its PFI deal ends in 2025.

The exact amount that will be paid in most of the 11 deals that end in the coming years has still to be determined but recently expired PFI contracts give an indicator of the sums that might be involved.

The Highland waste water PFI contract saw the building of two sewage plants, one near Inverness and one near Fort William, in 1998 at a capital cost of £32m.

The private consortium behind the scheme was paid a total of £218m to build and run the facilities until 2022, when, according to Scottish Water's latest accounts, it then got a £18.8m in an interim payment to allow the facility to transfer to full public ownership.

Scottish Water said the termination payment was made "while confidential discussions continue, pending the resolution of a final payment amount".

Elsewhere, the PFI consortium behind East Ayrshire Community Hospital in Cumnock was paid £12m by NHS Ayrshire and Arran in in 2021 to take over the facility.