The news that contractor Bam has been dropped from five London schools worth almost £50m, after, it is understood, claiming it could not deliver two of them without making a loss, has thrown the problem of cost inflation firmly into focus
When the government challenged the school building sector, in 2011, to find a way to meet the huge demand for school places while cutting 30% off capital costs, many thought it seemed a test that the industry was destined to fail. But instead, under the auspices of the Education Funding Agency (EFA), firms working in the sector rose to the challenge to come up with solutions which are now not just delivering pupil places at a greatly reduced cost, but - in terms of standardised design and procurement - have provided impressive approaches for other sectors to learn from.
But just as the EFA might have thought it could reap the rewards of its efforts, and watch the roll-out of thousands of school places build momentum, it has instead turned over the exam paper and found one final, fiendish question lurking on the back page. The news that contractor Bam has been dropped from five London schools worth almost £50m, after, it is understood, claiming it could not deliver two of them without making a loss, has thrown the problem of cost inflation firmly into focus.
With the EFA currently reprocuring those schools it has removed from Bam through its contractor framework, it remains to be seen whether other firms believe they can make the deal add up financially. But notwithstanding that, the issue has made it absolutely clear that, with subcontractor and materials prices continually rising, prices agreed several months ago for work are looking worryingly tight.
This problem is of course not unique to the EFA. Clients in all sectors are having to face the reality of inflationary pressures, and although the problem is most acute in the South-east, similar warnings are emerging from other regions
This problem is of course not unique to the EFA. Clients in all sectors are having to face the reality of inflationary pressures, and although the problem is most acute in the South-east, similar warnings are emerging from other regions. But, ironically, the education sector, which probably did more than any other to drive down costs in response to recession, is as a result the one that finds itself at the eye of the storm. The exceptionally rigorous basis on which schools have been costed gives virtually no room for manoeuvre; and the tender price allowances factored into projects look increasingly like they are being outpaced by the market.
Of course, a client that has done so much to drive down costs is not going to shift its position at the first sign of complaint from contractors. But much as it cannot afford profligacy on contracts, the EFA also cannot afford a trend of contractors turning its work away.
The need for school places is well documented: the Local Government Association warned last month that 130,000 more primary places would be needed by 2017. Less headline grabbing but equally important when it comes to ongoing costs is the need for these places to be delivered by skilful architects and contractors who can ensure that, even though they have been built on a vastly reduced budget, they stand the test of time.
So keeping the programme moving, if inflationary pressures continue, might require the Department for Education shifting more money to its schools programme. It might also - in the short term - require the EFA bringing money forward from projects not yet procured.
The EFA has proven itself a pioneering client once already, with its approach to standardisation and design. It now has the opportunity to take the lead again, by finding a way to respond to inflation that preserves the work it has done so far.
If it waits too long, the danger is that a sector which has done so much to convince construction firms to work to a new reality, may find that those same construction firms start turning away.
Sarah Richardson, editor