Birmingham City Council has succeeded on one of six grounds argued in the High Court in a dispute over support from the Secretary of State for Transport for its highways maintenance contract set up under the private finance initiative (PFI).
The local authority sought judicial review of a decision not to support the revised PFI, which the Secretary of State said had an inadequate business case. The council argued that it was a continuation of a scheme for which support had been agreed, reports the Local Government Lawyer.
Birmingham said that when the PFI deal was set up with contractor Amey in 2010, the Secretary of State had agreed to pay some £625.2m of PFI credits to finance a £2.4bn 25-year project for the design, build, financing and maintenance of the city’s highway network including 2,500 km of roads, 100,000 street lighting columns and some 850 highway structures and bridges.
After a initial contract with Amey was dissolved, Kier took over on a interim basis. the Department for Transport (DfT) wrote to Birmingham in May 2019 promising that: “Our intention is to continue paying PFI grant at the current rate, subject to value for money.
“We understand that the council may also be considering changes to the contract, and it is of course at liberty to submit other proposals for support from new and existing funding streams from Government. DfT will consider such changes on their merits, provided always that the business case demonstrates continued value for money.”
Birmingham sought PFI credits for a revised deal but in reply the DfT said the revised deal could not under accounting rules be counted as off balance sheet because the proportion of capital work relative to the value of the asset was insufficient and too little risk would transfer to the private sector, said the Local Government Lawyer report.
It said the revised deal would therefore need to be accounted on balance sheet which required an up-front charge in the region of £200-£250m and “the Government has therefore rejected the outline business case on the basis that this cost is unaffordable”.
Birmingham challenged this on six grounds but primarily on the basis that the letter it received in 2010 gave rise to a substantive legitimate expectation that PFI credits would continue to be paid and could end this only in exceptional circumstances.
It said the DfT decided to terminate PFI credits “without regard to that expectation, without directing [itself] lawfully by reference to the conditions stated in the DfT’s letter of 14 July 2010 and the Guide, and on the basis of considerations which did not constitute exceptional circumstances”.
Mr Justice Mould found Birmingham succeeded on a single ground concerned with procedural legitimate expectation and fairness
He said: “In my view, there was a clear shift in the Government’s position following the claimant’s submission of its [final business case] in August 2023, which was not made known to the claimant and upon which the claimant had no opportunity to reflect or to engage, but which very significantly affected the outcome of the process upon which both parties had embarked in May 2019.
“In my judgment, in the light of what had gone before, in particular the close and open discussion which DfT had rightly encouraged since its letter of 16 May 2019, fairness demanded that the claimant be given the further opportunity to engage and to respond in the light of the clear shift in the Government’s position.”
The DfT argued that Mould J should have refused Birmingham relief under section 31(3C) of the Senior Courts Act 1981.
The judge rejected this, saying he was “by no means confident that the decision would have been substantially the same had the claimant had a proper and fair opportunity to respond to the matters which emerged only in September 2023 as the determinative factors in decision. I shall make an order quashing the decision on ground 4 only”.
A Birmingham statement said: “The council will continue to ensure the delivery of services via the current interim services contract that is delivered by Kier to allow for the time required for DfT to retake its decision on the PFI.
“The council will now work with Government and stakeholders in an attempt to secure the long-term future of the PFI arrangement, which demonstrate significant value for money and provide for sustainable investment in the city’s highway infrastructure, benefitting the entire region.”
Originally published by: Local Government Lawyer
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