Council to receive £6.6m lump sum over PFI street lighting contract failures

PFIstreet1There’s a welcome injection of cash on the way for Leeds City Council’s coffers after the company providing the city’s street lighting has agreed to pay out a lump sum of £6.6m for failing to meet performance targets set out in a PFI contract.

The 25-year contract, which was signed in 2006 with Tay Valley Lighting (TVL Leeds), has had a troubled life so far.

First, it was revealed three years ago that the cost of providing the lighting had more than doubled since the commercial operator took over the job. Then early last year it was reported that the electricity bills to keep the city’s street lights on had increased by 40 per cent, despite a £94m project to reduce energy consumption.

Now it turns out that the council and TVL have been in dispute “for many years” over the performance of the firm that was subcontracted to deliver the contract, Southern Electric Contracting Limited (SEC).

A report published by the council, which pays TVL £1.1m a month under the PFI deal, says the dispute has been around SEC’s failure to carry out work including planned maintenance, electrical tests, inspections and painting.

The settlement is a bit of a compromise: the council had asked for £10.3m, but has agreed to the £6.6m in part because it didn’t want to get involved in a “costly, disruptive and resource intensive dispute resolution process” which might have led to the contract being terminated.

Contract management team replaced

MediaId-101The dispute has been serious enough for TVL to replace both the senior management team responsible for the contract and a number of under-performing sub-contractors. It has also put in place “a much more rigorous management structure and quality assurance framework to ensure (amongst other things) that more accurate records of works undertaken by sub-contractors are maintained”.

“The Council is not simply accepting a lump sum payment in relation to historic compensation but is also entering into an agreement to ensure that TVL now takes positive steps to bring its contractual performance back into line with the requirements of the contract,” the report says.

The Council is holding back £391,000 it owes to TVL over energy consumption payments until certain milestones to address the service failures have been achieved.

Meanwhile the Council and TVL have agreed three separate investment programmes to introduce LED lights  – one in subways, one in tunnels and one on various roads with the largest proportion of high energy lamps. The bulk of the £720k cost to fit the LED lamps – which consume on average around half the energy of the existing lamps – will be borne by the council.

TVL is owned 50:50 by Scottish and Southern Energy plc (SSE) and Royal Bank Leasing Limited. SEC is a subsidiary of SSE.

Back in 2012 the council was repaying some £75m a year for its PFI contracts. That will have increased in the meantime as two new PFI contracts have come on stream. I haven’t been able to update it as I can’t find the figures.

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