the schools ppp experience in the u.k. javier encinas october 2011 unclassified
TRANSCRIPT
The schools PPP experience in the U.K.
Javier EncinasOctober 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.
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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 HealthUNCLASSIFIEDUNCLASSIFIED
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Common Sectors (cont’d)
Also Also
• HousingHousing• CourtsCourts
• TechnologyTechnology
Also Also
• HousingHousing• CourtsCourts
• TechnologyTechnology
Defence
Government Offices
Leisure
Waste TreatmentUNCLASSIFIEDUNCLASSIFIED
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Distinction between Privatisation and PPP?
Where does accountability forpublic services delivery lie?
Where does accountability forpublic services delivery lie?
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Types of PPP
* Partnerships UK is an example
Investment Programme Management
Joint Venture*
Who pays?
Concession User
PFI model Public sector
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Types of PPPs…2
Demand Risk Transfer
Fea
sibi
lity
of F
ull E
cono
mic
R
ecov
ery
in U
ser
Cha
rges
e.g. real toll roads, airports, ports?
e.g. rail, water?
e.g. street lighting, prisons!
e.g. schools, hospitals, solid waste?
Variants of charging, different tunes on demand risk
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PPP/PFI in the education sector
Case study: Jo Richardson Community
School
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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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State funded
Types of school in England
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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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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
JRCS – General Objectives
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• 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
JRCS - PFI Objectives
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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 • Generates VfM
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• Design from the inside out (Design Council)
• Design that ensures:
• Efficient use of space
• Management of people
• Security
• Accesibility
• Client and end user involvement
Project design process
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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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• Briefing and feedback – contractors
• Use of exemplar designs
• Use of Design Quality Indicators in selection
• Contract award to Most Economically
Advantageous Offer
Project procurement process
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• 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 private and public responsabilities
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JRCS - PFI Structure
InsuranceLenders
BNP ParibasDEXIA Group
NIB
Construction Contract
Bouygues UK
Hard Facility Services
Agreement
Ecovert FM
SPV
BY Education (Barking) Ltd
Public Sector Entity
Barking and DagenhamCouncil (Local Authority)
Barclays Equity
Ecovert
85%
Bouygues
25 year Service
Agreement
Defined Risk Transfer
Output Specification
Only Residual Risk Transfer
15%
Financial
Providers
Shareholders
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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).
JRCS - PFI Risk Allocation 1/2
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JRCS - PFI Risk Allocation 2/2
Risk Authority Private Sector
Pupil numbers √
Detailed planning √
Site availability √
Design & construction √
Force majeure √ √
Vandalism √ √
Availability √
Inflation √ √
Interest rates √
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Clear sight lines
Overhead data projector controlled from teacher’s desk
Desks in horseshoe layout
Windows sited to rear for IT projection
Cill heights set to reduce distraction
Doors located for teacher monitoring of corridor
Layout allows for students in wheelchairs
Resources stored in centre of class
Gaps for good circulation
Area of room 70 – 75m2
No student is at the back of the class – no student sits behind another
Horseshoe layout for general teaching classrooms
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nursery entrance
children’s centre
design techfood tech
science and art
general teaching and SEN
general teaching and 6th form
external sports and play
Student Entrance
line of security
school (shared) performing artsschool (shared) library & ICTcommunity entrance
school (shared) sports
student entrance
cen
tral s
treet
Delivering educational innovation for the pupils
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And extended services for the community
drop-in crèche
bikes
car park
café / restaurantIn main street
customer firstLibrary / ICTlearning centre
cafe
community use for adult education
sports facilities used by local clubs etc
all weather floodlit pitch
hard courts
pitches
line of security
sport
vocational teaching
performing arts
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• 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
JRCS - Benefits so far
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• Defining needs appropriately
• User involvement
• Long period and cost of procurement
JRCS - Challenges
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National B&D 36 20 39 28 39 28 40 27 45 31 46 32 48 34 49 38 50 38 52 42 53 49+ 47% +145%
% students gaining 5 or more grades A* - C GCSE
Educational outcomes / results
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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
Budget: £36m
Guy’s Hospital
Outturn: £124m
Faslane Trident Submarine Berth
Budget: £100m
Faslane Trident Submarine Berth
Outturn: £314m
Scottish Parliament
Budget: £40m
Scottish Parliament
Outturn: £431m
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UK Experience - PFI
964PFI Contracts
Signed
964PFI Contracts
Signed
£76 BillionCapital Value£76 Billion
Capital Value
+750 Projects nowoperational
+750 Projects nowoperational
Source: HM Treasruy UNCLASSIFIED
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Signed Deals and Capital Value by Financial Year
Source: PUK Projects DatabaseUNCLASSIFIED
In 2010, 33 projects worth £2.9 Bn closed
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Distribution of PPP Projects by Value
Transport, 26,228
Health, 13,645
Education, 9,949
Environment, 3,816
Equipment, 4,782
Accomodation, 7,178
Housing, 1,578
Other, 5,882
Capital value - £m
Total: £76.05 BnSource: PUK Projects Database
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Total: 964
Distribution of PPP Projects by Number
Transport, 67
Health, 296
Education, 226
Environment, 58
Equipment, 37
Accomodation, 117
Housing, 26 Other, 104
Source: PUK Projects DatabaseUNCLASSIFIED
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Comparison with Conventional Procurement - Evidence
Source: National Audit Office – UK Parliament – Expenditure Auditor
Delivery on time and on budget
Performance of completed projects – No. of Projects
PPP ConventionalProcurement
80%
30%
On time
On time
On budget
On budget45% +
85% +20052008
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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) 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.
PFI (PPP) is an important technique for procuring public
services but is only one of a family of procurement methods.
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PP PP PP
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 CommitmentUNCLASSIFIED
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Infrastructure UK Contact:
44 (0) 20 7270 1347
www.hm-treasury.gov.uk
Infrastructure UK Contact:
44 (0) 20 7270 1347
www.hm-treasury.gov.uk
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