Local government commissioners have warned that the government’s withdrawal of funding for a £600m PFI highways contract, won by Kier, is likely to damage a bankrupt council’s ability to turn its finances around.
On 30 November, the Department for Transport (DfT) confirmed it was ending its funding support for the project to maintain Birmingham’s roads, without identifying any alternative. However, the government insists it is maintaining the current level of highways funding for Birmingham.
In October, the government appointed external commissioners to oversee the running of Birmingham City Council due to its inability to balance its budget.
In a progress update, the leader of the commissioners Max Caller has warned that Whitehall’s actions over the roads contract means Birmingham has to spend more money on short-term cover and re-procuring highways work.
A letter dated 9 January, but only published last week (22 February), said: “Announcing the decision in December with an existing contract-termination date of 31 January 2024 provided no time to establish a new contractual relationship on other than a short-term basis, with a consequent substantial uplift in rates.
“It is also an inherently unstable position which will require a new procurement exercise, putting significant pressure on a management team who are already heavily committed to service changes to deliver next year’s budget.
“This would test even the best, well-embedded management. It is likely to set back progress on other issues.”
In November, Kier was named preferred bidder on the £600m restructured 11-year PFI contract to maintain the city’s road network, having taken over the job on an interim basis in 2020 following the collapse of Birmingham’s previous £2.7bn deal with Amey.
Birmingham Council has issued a legal challenge to the DfT’s funding decision, with a judicial review hearing scheduled to take place before the end of March.
In the meantime, Kier continues to carry out the highways contract under an extended version of its previous contract.
A council spokesperson said: “Our main priority remains the continued delivery of statutory highway functions and services across the city, ensuring the safety of citizens and visitors across the network.”
A spokesperson for the DfT said: “The government has already confirmed that it will maintain the current level of local highways maintenance funding for Birmingham City Council for the remainder of the spending review, so funding will not be reduced over this period.
“We have also confirmed over £151m in additional funding specifically for the West Midlands Combined Authority to deliver smoother, safer local roads, as part of our £8.3bn Network North pledge thanks to savings from HS2.”
The team of commissioners appointed to run Birmingham have two political advisors, one of whom is former Labour minister Lord John Hutton. He was appointed chair of the newly formed Association of Infrastructure Investors in Public Private Partnerships, a body representing PFI investors, in January.
