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The schools PPP experience in the U.K . Javier Encinas October 2011. Agenda. PPP/PFI principles PPP/PFI in schools : Jo Richardson Community School (JRCS) UK PFI overview and lessons learnt. What are Public Private Partnerships?.

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The schools ppp experience in the u k javier encinas october 2011

The schools PPP experience in the U.K.Javier EncinasOctober 2011

UNCLASSIFIED


Agenda
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
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.


International context
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
Common Sectors

Transport

Education

Prisons

Health

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Common sectors cont d
Common Sectors (cont’d)

Defence

Leisure

Government Offices

Waste Treatment

Also

  • Housing

  • Courts

  • Technology

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Distinction between privatisation and ppp
Distinction between Privatisation and PPP?

Where does accountability for

public services delivery lie?

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Types of ppp
Types of PPP

Concession

User

PFI model

Public sector

Joint Venture*

Investment Programme Management

Who pays?

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* PartnershipsUK is an example


Types of ppps 2
Types of PPPs…2

Variants of charging, different tunes on demand risk

e.g. real toll roads, airports, ports?

e.g. rail, water?

Feasibility of Full Economic Recovery in User Charges

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

PPP/PFI in the education sectorCase study: Jo Richardson Community School

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Types of school in england
Types of school in England

State funded

25,000 state schools

Primary 5 – 11 years

Secondary 11 – 16

Technical colleges 16 – 18

Universities

2,500 private schools (6-7% of children)

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Schools pfi projects
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) - 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
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

    • Café

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Jrcs pfi objectives
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


Project preparation process
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

    • Generates VfM

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Project design process
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
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 process1
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
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


Jrcs pfi structure
JRCS - PFI Structure

Output Specification

Only Residual Risk Transfer

Lenders

  • BNP ParibasDEXIA GroupNIB

Insurance

85%

Public Sector Entity

SPV

BY Education (Barking) Ltd

25 year Service Agreement

Financial Providers

  • Barking and Dagenham

  • Council (Local Authority)

15%

Shareholders

Construction Contract

Bouygues UK

Hard Facility Services Agreement

Ecovert FM

Bouygues

Ecovert

Barclays Equity

Defined Risk Transfer

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Jrcs pfi risk allocation 1 2
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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Horseshoe layout for general teaching classrooms
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

Gaps for good circulation

No student is at the back of the class – no student sits behind another


Delivering educational innovation for the pupils

nursery entrance

Student Entrance

children’s centre

line of security

design tech

food tech

central street

school (shared) performing arts

science and art

school (shared) library & ICT

community entrance

general teaching and SEN

external sports and play

general teaching and 6th form

school (shared) sports

student entrance

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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

pitches

sports facilities used by local clubs etc

cafe

hard courts

sport

bikes

all weather floodlit pitch

car park


Jrcs benefits so far
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
JRCS - Challenges

Defining needs appropriately

User involvement

Long period and cost of procurement

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Educational outcomes results
Educational outcomes / results

% students gaining 5 or more grades A* - C GCSE

National B&D

36 20

39 28

39 28

40 27

45 31

46 32

48 34

49 38

50 38

52 42

5349

+ 47% +145%

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The schools pfi experience in the u k
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.



The uk experience
The UK experience

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Situation of the uk infrastructure in the 1990s
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


  • Cost overruns
    Cost overruns

    Guy’s Hospital

    Outturn: £124m

    Guy’s Hospital

    Budget: £36m

    Faslane Trident Submarine Berth

    Outturn: £314m

    Faslane Trident Submarine Berth

    Budget: £100m

    Scottish Parliament

    Outturn: £431m

    Scottish Parliament

    Budget: £40m


    Uk experience pfi
    UK Experience - PFI

    964

    PFI Contracts

    Signed

    £76 Billion

    Capital Value

    +750 Projects now

    operational

    Source: HM Treasruy

    UNCLASSIFIED


    Signed deals and capital value by financial year
    Signed Deals and Capital Value by Financial Year

    In 2010, 33 projects worth £2.9 Bn closed

    Source: PUK Projects Database

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    Distribution of ppp projects by value
    Distribution of PPP Projects by Value

    Capital value - £m

    Total: £76.05 Bn

    Source: PUK Projects Database

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    Distribution of ppp projects by number
    Distribution of PPP Projects by Number

    Total: 964

    Source: PUK Projects Database

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    Comparison with conventional procurement evidence
    Comparison with Conventional Procurement - Evidence

    80%

    30%

    Delivery on time and on budget

    2008

    85% +

    On time

    On budget

    2005

    45% +

    On time

    On budget

    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
    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

    Private Sector

    Partnership

    Public Sector

    Service Requirement

    Service Delivery

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    Lessons learnt
    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:

    [email protected]

    44 (0) 20 7270 1347

    www.hm-treasury.gov.uk

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