Local authorities seek
to exit from finance leases on the basis that schools never had the
authority to take them out. Liz Bury reports.
Go deeper with GlobalData
At least two leasing
companies have been caught in a legal wrangle over the status of
leases for ICT equipment taken out by UK schools.
The problems arose after
schools that entered into finance leases sought to stop making
payments on the basis that the contracts were illegal. Schools
cannot legally enter into finance leases, which are considered to
be loans, without permission from the Secretary of State. Kent and
Essex are believed to be the local authorities involved.
Philip White, CEO of
specialist IT lessor Syscap, said: “It results from a combination
of changes to accounting standards and a period of austerity which
means that central and local government are focusing on
expenditure. They want to cut costs.”
He added: “There have been
horror stories of schools allegedly paying £100,000 [€116,170] for
a £15,000 photocopier where they have taken three or four
upgrades.”
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By GlobalDataThe strict nature of the law
relating to leasing in schools means that there is no defence if
the required permission is not in place.
Joanne Davis, partner at law
firm Shoosmiths, said: “If it is borrowing, ie, a finance lease, it
needs sign off from the Secretary of State. If that’s not there, it
will make the contract ultra vires [beyond the authority]. If you
can’t establish ultra vires or intra vires, that’s the problem.
It’s all or nothing.”
She added: “Upgrades can be
viewed as loans. It’s becoming a problem for the leasing companies
because they are expected to be aware of the rules. It’s an issue
that could be quite widespread.”
There are also complications
in law relating to the interpretation of accounting rules that
define a finance lease.
“Some of the definitions are
so wide that schools could argue it is a finance lease when it was
never intended to be,” Davis said.
The FLA technology leasing
committee has been looking into some of the concerns raised about
ICT leases in schools.
Julian Rose, FLA head of
asset finance, said: “We’ve seen instances where schools have a
particular difficulty with their lease arrangements, and we are
working with them to help them address that.”
“Where schools have rolled a
contract into another they may have quite high rental payments in
relation to the value of the equipment used,” he said.
The FLA has been working with
the Department for Education to produce guidelines for schools
entering into leases.
“It’s about providing a clear
and simple guidance for schools, promoting best practice. It is
designed to ensure that schools are well informed about the
consequence of upgrading equipment during the life of a contract,”
Rose said. The guidance will take the form of a leaflet with 10
tips on how to get value out of leasing.
The market for IT leasing in
UK schools is estimated to be worth £300m annually, covering 30,000
primary schools, 3,000 secondary schools and 1,000
academies.
While a finance lease must be signed off by the Secretary
of State, for an operating lease it can be a headmaster, bursar or
local authority official who gives the go-ahead. Many schools are
now becoming academies, employing a manager or bursar with a
commercial background. Academies are funded directly from central
government and are expected to continue using existing procurement
protocols.
