A new academic year begins but we are still in the dark as to how the Priority Schools Building Programme will be funded - so here’s a few ideas for a fairer, more balanced system
As summer turns to autumn, it appears that we are still no closer to knowing when the procurement of the 219 schools to be funded via PFI under the Priority Schools Building Programme (PSBP) will start, or how they will be private finance funded, than we were four months ago when the initial government announcement was made. In the absence of any further information from the Department for Education (DfE), I’d like to share my thoughts on the characteristics I think a new schools PFI model should include.
First, as they say, let’s start at the beginning with the urgent need to speed up procurement. From the information the DfE has issued as part of its tender for a legal adviser to PSBP, it has stated that its aim is to procure each batch of schools within 12 months from the point of OJEU to financial close.
The signs are therefore promising that, on this aspect at least, the government is set to inject a sense of urgency into schools’ procurement, though it would be great to see procurement times reduced even further.
The use of standardised design is of course key to ensuring that this strict timetable can be met, but I would argue that standardisation also needs to be applied to the documentation and specification process. Building any contractual changes around the tried and tested SOPC 4 standards developed under BSF, will limit delays and ease the process.
Second, the length of term of financing needs to be reviewed if maximum value for money is to be achieved. Insisting that finance is arranged for 25 years is very expensive and therefore it is extremely important that consideration be given to seven-year refinancing arrangements.
Staying with finance, although many of those in the private sector have reservations at the prospect of “framework funding”, fearing it will remove their ability to deliver value for money, I see this as potentially a risk worth taking. Getting funding agreed upfront for each batch of schools, then ironing out the contractual details with the preferred bidder will allow schemes to reach financial close faster, benefitting all parties.
Standardised design is key to ensuring that this strict timetable can be met, but I would argue standardisation also needs to be applied to the documentation and specification process
Talking of risk, as it currently stands most risk sits with the private sector with correspondingly significant returns available to compensate it for taking such a gamble. Redressing that risk balance between the public and private sectors is therefore critical to both restore confidence in the system and to deliver cost efficiencies. This risk takes on several different forms. First, the insurance risk: instead of the private sector arranging project insurance, the government and Education Funding Agency (EFA) should explore taking the risk on itself, using its financial clout to deliver cost savings which are simply not available to contractors.
Next up: the utilities risk. I’ve always thought that asking contractors to take on energy consumption and tariff risks upfront on a 25-year contract (albeit benchmarked every five years) is challenging. The same goes for the contamination risk: contractors shouldn’t be required to take it on before reaching financial close. In both cases, the risk profile should be jointly shared between both private and public sector partners.
The non-profit distributing model introduced in Scotland, which sees the private sector’s potential returns capped in return for the public sector taking on more of the risk around changes in the law, title risk and energy costs, shows that such a risk-sharing model can work. Such a model also addresses one of the major criticisms that PFI is used by private investors to profiteer from the public sector by trading equity in PFI projects.
Education is the bedrock of our society and it must be the priority of both the public and private sectors to ensure that we deliver good quality projects. To do this we need a fair, efficient and balanced investment system. I hope that when the government’s announcement comes it is worth the wait.
Steve Beechey is group investment director and head of education at Wates