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The schools PPP experience in the U.K. Javier Encinas October 2011 UNCLASSIFIED.

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Presentation on theme: "The schools PPP experience in the U.K. Javier Encinas October 2011 UNCLASSIFIED."— Presentation transcript:

1 The schools PPP experience in the U.K. Javier Encinas October 2011 UNCLASSIFIED

2 2 Agenda PPP/PFI principles PPP/PFI in schools : Jo Richardson Community School (JRCS) UK PFI overview and lessons learnt UNCLASSIFIED

3 3 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 years for specified service quality.

4 4 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 …. UNCLASSIFIED

5 5 Common Sectors TransportEducation PrisonsHealth UNCLASSIFIED

6 6 Common Sectors (cont’d) Also Housing Housing Courts Courts Technology TechnologyAlso Housing Housing Courts Courts Technology Technology Defence Government Offices Leisure Waste Treatment UNCLASSIFIED

7 7 Distinction between Privatisation and PPP? Where does accountability for public services delivery lie? Where does accountability for public services delivery lie? UNCLASSIFIED

8 8 Types of PPP * Partnerships UK is an example Investment Programme Management Joint Venture* Who pays? ConcessionUser PFI modelPublic sector UNCLASSIFIED

9 9 Types of PPPs…2 Demand Risk Transfer Feasibility of Full Economic Recovery in User Charges 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 UNCLASSIFIED

10 PPP/PFI in the education sector Case study: Jo Richardson Community School UNCLASSIFIED

11 25,000 state schools Primary 5 – 11 years Secondary 11 – 16 Technical colleges 16 – 18 Universities 2,500 private schools (6-7% of children) 11 UNCLASSIFIED State funded Types of school in England

12 12 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.  UNCLASSIFIED

13 13 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 UNCLASSIFIED

14 14 UNCLASSIFIED 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

15 15 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

16 16 UNCLASSIFIED 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

17 17 UNCLASSIFIED 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

18 18 UNCLASSIFIED 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

19 19 UNCLASSIFIED 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

20 20 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

21 21 JRCS - PFI Structure Insurance Lenders BNP Paribas DEXIA Group NIB Construction Contract Bouygues UK Hard Facility Services Agreement Ecovert FM SPV BY Education (Barking) Ltd Public Sector Entity Barking and Dagenham Council (Local Authority) Barclays Equity Ecovert 85% Bouygues 25 year Service Agreement Defined Risk Transfer Output Specification Only Residual Risk Transfer 15% Financial Providers Shareholders UNCLASSIFIED

22 22 UNCLASSIFIED 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

23 23 UNCLASSIFIED JRCS - PFI Risk Allocation 2/2 RiskAuthorityPrivate Sector Pupil numbers√ Detailed planning√ Site availability√ Design & construction√ Force majeure√√ Vandalism√√ Availability√ Inflation√√ Interest rates√

24 24 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 – 75m 2 No student is at the back of the class – no student sits behind another Horseshoe layout for general teaching classrooms

25 25 UNCLASSIFIED nursery entrance children’s centre design tech food tech science and art general teaching and SEN general teaching and 6 th form external sports and play Student Entrance line of security school (shared) performing arts school (shared) library & ICT community entrance school (shared) sports student entrance central street Delivering educational innovation for the pupils

26 26 And extended services for the community drop-in crèche bikes car park café / restaurant In main street customer first Library / ICT learning 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

27 27 UNCLASSIFIED 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

28 28 UNCLASSIFIED Defining needs appropriately User involvement Long period and cost of procurement JRCS - Challenges

29 29 UNCLASSIFIED NationalB&D %+145% % students gaining 5 or more grades A* - C GCSE Educational outcomes / results

30 30 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.

31 31 UNCLASSIFIED

32 32 The UK experience UNCLASSIFIED

33 33 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

34 34 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

35 35 UK Experience - PFI 964 PFI Contracts Signed 964 PFI Contracts Signed £76 Billion Capital Value £76 Billion Capital Value +750 Projects now operational +750 Projects now operational Source: HM Treasruy UNCLASSIFIED

36 36 Signed Deals and Capital Value by Financial Year Source: PUK Projects Database UNCLASSIFIED In 2010, 33 projects worth £2.9 Bn closed

37 37 Distribution of PPP Projects by Value Capital value - £m Total: £76.05 Bn Source: PUK Projects Database UNCLASSIFIED

38 38 Total: 964 Distribution of PPP Projects by Number Source: PUK Projects Database UNCLASSIFIED

39 39 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 Conventional Procurement 80% 30% On time On budget 45% + 85% UNCLASSIFIED

40 40 UNCLASSIFIED 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

41 41 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. UNCLASSIFIED

42 42 P P P P P P Public Sector Partnership Private Sector Service RequirementService Delivery UNCLASSIFIED

43 43 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 UNCLASSIFIED

44 44 Infrastructure UK Contact: 44 (0) Infrastructure UK Contact: 44 (0) UNCLASSIFIED


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