The schools PPP experience
in the U.K.
Javier Encinas
October 2011
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Agenda
• PPP/PFI principles
• PPP/PFI in schools : Jo Richardson Community School
(JRCS)
• UK PFI overview and lessons learnt
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What are Public Private Partnerships?
• ‘Arrangements typified by joint working between the public and private sectors. In their
broadest sense they can cover all types of collaboration across the private-public sector
interface involving collaborative working together and risk sharing to deliver policies, services
and infrastructure.’ (HMT, Infrastructure Procurement: Delivering Long-Term Value, March
2008)
•The Private Finance Initiative (PFI) is one type of PPP and the most common form used in the
UK. This involves the procurement of specified services on a long term basis.
•Typically a private sector partner designs, builds, finances, operates and maintains an
infrastructure asset to provide the service.
•Public sector pays annual unitary charge for 20-30 years for specified service quality.
3
International Context
Countries with active / developing PPP programmes include:
Australia, Austria, Brazil, Belgium, Bulgaria, Canada, Chile, Colombia,
Cyprus, Czech Republic, Egypt, France, Germany, Greece, Hungary, India,
Indonesia, Ireland, Italy, Japan, Korea, Malaysia, Malta, Mexico,
Netherlands, Nigeria, Pakistan, Peru, Poland, Portugal, Romania, Russia,
Saudi Arabia, Singapore, Slovak Republic, Slovenia, South Africa, Spain,
Taiwan, Turkey, US and UK … and more ….
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Common Sectors
Transport
Education
Prisons
Health
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Common Sectors (cont’d)
Also
Defence
• Housing
• Courts
• Technology
Government Offices
Leisure
Waste Treatment
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Distinction between Privatisation and PPP?
Where does accountability for
public services delivery lie?
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Types of PPP
Who pays?
Concession
User
PFI model
Public sector
Joint Venture*
Investment Programme Management
* Partnerships UK is an example
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Types of PPPs…2
Feasibility of Full Economic
Recovery in User Charges
Variants of charging, different tunes on demand risk
e.g. real toll roads,
airports, ports?
e.g. rail, water?
e.g. schools, hospitals, solid
waste?
e.g. street lighting, prisons!
Demand Risk Transfer
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PPP/PFI
in the education sector
Case study: Jo Richardson
Community School
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Types of school in England
25,000 state schools
Primary 5 – 11 years
Secondary 11 – 16
Technical colleges 16 – 18
Universities
State
funded
2,500 private schools (6-7% of children)
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Schools PFI projects
•
Education (mainly schools) is a major component of the PFI programme:
– approx. 225 projects signed;
– total value approx. £10 billion.
•
Individual school projects too small to be economic as a PPP:
 mostly for ‘grouped’ schools projects: can be 20 or more schools in one
project – so U.K. has more individual school projects than any other type of
PPP.
•
N.B.: A school is just one type of ‘accommodation’ PPP project: same
principles can apply to, e.g., hospital, prison, offices.
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Jo Richardson Community School (JRCS) - Background
• Jo Richardson Community School (JRCS) is a PFI
secondary school and community centre
• It is the first new school to be built in over 40 years in
Barking and Dagenham
– Barking and Dagenham is one of the most deprived boroughs in
London
• JRCS currently has 1300 students, from 11 to 18 years old
– 80% of the students come from deprived backgrounds
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JRCS – General Objectives
The school and community centre address two important objectives:
•
the delivery of a new pedagogy...
• School and vocational education
•
...and the provision of cultural, leisure, health and learning
resources for the wider community.
• Adult education centre / Learning Village
• Children’s Centre
• Health Centre
• Library
• Sports and Recreation spaces
• Performing Arts resources
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• Café
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JRCS - PFI Objectives
•
To procure facilities that secure the Council’s education strategy and its
community development and regeneration strategy
•
To procure school facilities that help deliver the Council’s new teaching
and learning approach in particular
•
The procurement team learns actively from traditional/and PFI recent
experience
•
The procurement delivers well designed, durable (expected life 50+
years) and serviceable accommodation
•
To develop a PFI methodology that can be taken forward by the Council
•
High quality vfm on outcomes
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Project preparation process
•
Essential Preliminary Questions :
•
•
•
What are the project’s scope and
requirements?
What is the best project option?
What is the best procurement option?
•
The Local Authority spent 18 months
preparing the OBC for this project
•
The OBC ensures that the project:
•
•
•
•
•
•
•
Is social and politically responsible
Is legal and operationally feasible
Is financially affordable
Is managerially achievable
Is bankable
Achieves good risk allocation
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Generates VfM
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Project design process
•
Design from the inside out (Design Council)
•
Design that ensures:
•
•
•
•
•
Efficient use of space
Management of people
Security
Accesibility
Client and end user involvement
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Project procurement process
•
Objectives of a procurement process:
•
•
•
•
Run a transparent and open
competition in a cost-efficient way
Select preferred bidder/partner
Achieve good outcomes
Key dates:
•
•
•
•
•
OJEU publication: May 2002
Contract signature: March 2004
School opening: September 2005
Procurement time:
22
months
Construction period: 18 months
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Project procurement process
• Briefing and feedback – contractors
• Use of exemplar designs
• Use of Design Quality Indicators in selection
• Contract award to Most Economically
Advantageous Offer
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JRCS - PFI private and public responsabilities
• Local Authority (Barking and Dagenham Council) in charge of providing :
• educational services to the students,
• extended services to the community (adult education, social integration,
health, recreation) and management of shared facilities;
•“Soft Facilities Management” services (reception, cleaning, catering, ect) and
• monitoring of the “Hard Facilities Management” services performance
• Role of private sector partner in charge of:
• Design & Construction (Bouygues)
• Financing (BNP Paribas, DEXIA Group, NIB, Barclays Equity)
• Maintenance of the infrastructure / “Hard FM” services (Ecovert)
· Building fabric maintenance
· Mechanical & electrical engineering
· Grounds maintenance
· Utilities management
· Health & safety management
· Lifecycle fund management
· Helpdesk
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JRCS - PFI Structure
Output
Specification
Public Sector Entity
Barking and Dagenham
Council (Local Authority)
Insurance
25 year Service
Agreement
SPV
BY Education (Barking)
Ltd
Only Residual Risk
Transfer
Lenders
BNP Paribas
DEXIA Group
NIB
85%
Financial
Providers
15%
Shareholders
Hard Facility
Services
Agreement
Construction
Contract
Bouygues UK
Ecovert FM
Bouygues
Ecovert
Barclays
Equity
Defined Risk
Transfer
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JRCS - PFI Risk Allocation 1/2
Risk transfer under a school PFI contract follows same principles as any PFI:
•Design / construction risk to Project Company
•So if the school is completed late or over budget no payments are made and the
revenue is therefore lost.
•Construction sub-contractor will pay penalties to compensate.
•Most operating risks to Project Company:
•High opex / maintenance / lifecycle, or payment deductions, reduce net revenues
•Some risks / deductions may be passed down to soft FM contractor (as discussed), or
building maintenance sub-contractor.
•Macro-economic risks may be shared:
•High interest rates reduce revenues (unless fixed or hedged).
•Payment mechanism may hedge against opex inflation.
Insurance covers force majeure (Acts of God).
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JRCS - PFI Risk Allocation 2/2
Risk
Pupil numbers
Authority
√
√
Detailed planning
Site availability
Private Sector
√
√
Design & construction
Force majeure
√
√
Vandalism
√
√
√
Availability
Inflation
√
√
√
Interest rates
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Horseshoe layout for general teaching classrooms
Doors located for
teacher monitoring
of corridor
Clear sight lines
Overhead data
projector controlled
from teacher’s desk
Layout allows for
students in
wheelchairs
Desks in
horseshoe layout
Resources stored
in centre of class
Windows sited to
rear for IT projection
Cill heights set to
reduce distraction
Area of room 70
– 75m2
No student is at the back of the class –
no student sits behind another
Gaps for good
circulation
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Delivering educational innovation for the pupils
nursery entrance
Student
Entrance
children’s
centre
central street
design tech
food tech
line of
security
science
and art
school (shared)
performing arts
school
(shared)
library
& ICT
community
general teaching
and SEN
entrance
external sports and play
general teaching
and 6th form
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student entrance
school
(shared)
sports
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And extended services for the community
line of
security
drop-in crèche
vocational
teaching
café / restaurant
In main street
community use for
adult education
performing arts
customer first
Library / ICT
learning centre
cafe
pitches
sports facilities
used by local
clubs etc
hard courts
sport
bikes
all weather floodlit pitch
car park
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JRCS - Benefits so far
• Construction on time and budget
• Design fulfils the Authority's vision
• Project delivers long term solutions
• Authority has managed to establish good relations with private partner
• Incentive on both sides to add value
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JRCS - Challenges
•
Defining needs appropriately
•
User involvement
•
Long period and cost of procurement
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Educational outcomes / results
% students gaining 5 or more grades A* - C GCSE
National
36
39
39
40
45
46
48
49
50
52
53
+ 47%
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B&D
20
28
28
27
31
32
34
38
38
42
49
+145%
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The schools PFI experience in the U.K.
•
An enormous increase in school building.
–
–
approx. 225 projects signed worth approx. £10 billion
Difficult to imagine it could have been achieved in another way.
•
Some lengthy procurement periods.
•
Projects generally completed on-time and on-budget.
–
Exceptions relate to solvency of construction sub-contractors, but problems have been
absorbed by investors / lenders, not public sector.


However → delays in delivery of completed schools.
Public sector needs to pay more attention to credit quality of major sub-contractors.
•
•
•
•
Design quality is adequate, but limited evidence of major innovation.
Good level of performance on availability (very limited deductions)
Some concerns on quality of soft FM, e.g. cleaning.
Concerns on long-term flexibility and the cost of change.
•
Much adverse publicity in newspapers and TV – importance of Government
communication of the benefits of the PFI programme.
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The UK experience
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Situation of the UK Infrastructure in the 1990s
•Legacy of under- investment
• Backlog of school repairs in 1997 estimated at £7billion
• Backlog of NHS building maintenance over £3billion
•Constrained capital budgets
•EU Commission paper on PPPs: “Whilst the principal focus of PPPs
should be on promoting efficiency in public services through risk sharing and
harnessing private sector expertise, they can also relieve the immediate
pressure on public finances by providing an additional source of capital.”
• Balance Sheet Treatment
•Cost overruns – conventional procurement
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Cost overruns
Guy’s Hospital
Guy’s Hospital
Outturn: £124m
Budget: £36m
Faslane Trident
Submarine Berth
Budget: £100m
Faslane Trident
Submarine Berth
Outturn: £314m
Scottish Parliament
Scottish
Parliament
Budget: £40m
Outturn: £431m
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UK Experience - PFI
964
PFI Contracts
Signed
£76 Billion
Capital Value
+750 Projects now
operational
Source: HM Treasruy
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Signed Deals and Capital Value by Financial Year
120
103
16000
85
14000
88
12000
93
81
69
58
10000
100
80
63
60
54
55
60
8000
35
6000
4000
2000
1
2
2
5
29
33
33
12
1
40
Number of projects
Capital Value (£ Millions)
18000
20
2
0
0
1987 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Capital Value in £m
No of projects
In 2010, 33 projects worth £2.9 Bn closed
Source: PUK Projects Database
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Distribution of PPP Projects by Value
Housing, 1,578
Environment,
3,816
Other, 5,882
Equipment,
4,782
Transport,
26,228
Accomodation,
7,178
Education, 9,949
Health, 13,645
Capital value - £m
Total: £76.05 Bn
Source: PUK Projects Database
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Distribution of PPP Projects by Number
Housing, 26
Other, 104
Environment, 58
Transport, 67
Equipment, 37
Health, 296
Accomodation,
117
Education, 226
Total: 964
Source: PUK Projects Database
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Comparison with Conventional Procurement - Evidence
Delivery on time and on budget
2008
2005
85% +
80%
On time
On budget
On time
On budget
45% +
30%
Conventional
Procurement
PPP
Performance of completed projects – No. of Projects
Source: National Audit Office – UK Parliament – Expenditure Auditor
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Operational Performance
• users are satisfied with the services provided by PFI projects;
• PFI is delivering the services required with over 90% of public service
managers believing that services provided are satisfactory or better;
• the incentivisation within PFI contracts is working with the payment
mechanism improving the service being provided in the PFI projects
• evidence that PFI projects can lead to better educational outcomes
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Public Expenditure Context
PFI (PPP) represents approximately 11% of UK total public
sector investment.
PFI (PPP) is an important technique for procuring public
services but is only one of a family of procurement methods.
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P
P
P
Public Sector
Partnership
Private Sector
Service Requirement
Service Delivery
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Lessons Learnt
•
Legislative framework
•
Policy framework
•
Institutional reform
•
Capacity building:
–
Public sector
–
Private sector
•
Central support
•
Communications
•
Programme development
•
Quality Control
•
… and above all, Political Commitment
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Infrastructure UK Contact:
Javier.Encinas@hmtreasury.gsi.gov.uk
44 (0) 20 7270 1347
www.hm-treasury.gov.uk
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