Contracting Problems? Tales from PFI Schools

Early commentators on the Private Finance Initiative (PFI) concentrated on value for money, risk
transfer and the public sector comparator. However more recent papers have looked at PFI
projects which are at the post-commissioning phase, and have focussed on operational issues,
often relating PFI to concepts from transaction cost economics such as bounded rationality,
opportunism and asset specificity. This paper analyses ongoing contract management issues
within an early PFI schools project in England. This is based on evidence obtained from semistructured
interviews with staff at an arts college and a sports college. The senior member of the
PFI team was also interviewed. The evidence shows that problems with contract management,
opportunism and trust, which were highlighted by previous commentators on PFI in the roads,
hospitals, schools and housing sectors, and in literature on outsourcing generally, also existed in
the project studied. This paper argues, consistently with other commentators, that PFI is an
expensive way of financing public services. Furthermore this study shows that two schools within
the same PFI project can have differently evolving relationships with the same service providers.