Legal trio help get schools' PFI projects off the ground

Eversheds, Nabarro Nathanson and Cameron McKenna have helped start the schools' Private Finance Initiative (PFI) ball rolling by negotiating the UK's first contract for a private company to design, build finance and operate a school.

Construction and maintenance company Jarvis, advised by Nabarros, signed a 30-year contract on 17 November with Dorset County Council eight months after it was named preferred bidder by the council.

Jarvis is to replace the overcrowded Sir John Colfox secondary school at Bridport with a £12m new school. It will maintain and service the new school for the 30 years of the contract.

Getting banks to lend money to companies signing PFI contracts with local authorities has proved difficult as there are fears that local authorities do not have the power to enter into them. The Local Government (Contracts) Bill, which is about to gain Royal Consent is aimed at clearing up that problem.

Nabarros construction partner Roger Wakefield said that Nabarros had had to provide an opinion to Jarvis that Dorset Council had followed the right procedures.

This enabled Jarvis itself to provide initial funding which will switch to the funding bank once Dorset gets a certificate under the new Local Government Act. Capital Bank, advised by partner Arthur Dyson of Cameron McKenna, is lending £14m to Jarvis. The certificate will guarantee that the bank will still get its money back should anyone challenge the legality of the contract.

Wakefield said that the other problem for Jarvis had been ensuring that it would still get paid under the contract, even if Colfox school went grant-maintained and opted out of Dorset County control.

“In fact,” said Wakefield, “the local authority receives funding for the payments, notwithstanding changes in the status of the school.”

The Department of the Environment, Transport and the Regions announced on 19 November that it was doubling the amount of money available to local authorities next year for PFI projects from £250m to £500m. It said that this could cover £130m of PFI credits for schools next year.

Stephen Matthew, from Eversheds' Nottingham office, who led the legal team advising Dorset, said new money from the Government and the precedents created in this deal should help speed up a whole raft of schools' PFI projects that are in the pipeline.

He said his firm was already advising Enfield, Essex, Staffordshire and North Yorkshire authorities on building new schools under PFI.