WS Atkins yesterday pulled out of a flagship PFI contract worth £100m to manage education for Southwark Council just two years into a five-year deal.
The support services group, which was awarded the contract in April 2001, asked to pull out after the central education budget was cut because of a government commitment to pass more money on to schools. In Southwark this is thought to mean there will be about £2m less in the education budget.
Michael Foote, the managing director of Atkins Business Services, said: "The contractual arrangements have been increasingly financially challenging. We therefore approached the council to request an amicable premature termination."
The contract's collapse is embarrassing for ministers. It comes a week after Charles Clarke, the Secretary of State for Education, warned local authority leaders that if they failed to run schools efficiently, the Government would give the job to the private sector.
Officials at the Department for Education and Skills will work with the council to provide interim management for the London borough's education service when Atkins pulls out after the summer term. They are now searching for a permanent replacement to take over from September 2004. Options include a new contract with a not-for-profit company or a more limited deal with strategic managers.
Atkins took over the management of Southwark's schools after the borough received a damning report from Ofsted inspectors. Ofsted's first report after the privatisation deal, published in July last year, pointed to early signs of improvement. However, headteachers became disillusioned.
Nick Stanton, the leader of the Liberal Democrat-controlled council, said: "There is always the suspicion that shareholders are getting money that could have gone into education. I think schools have been badly burned by this experience."
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