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

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

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

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 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 UNCLASSIFIED 4

5 Common Sectors Transport Education Prisons Health UNCLASSIFIED

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

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

8 Types of PPP Who pays? Concession User PFI model Public sector
Joint Venture* Investment Programme Management UNCLASSIFIED * Partnerships UK is an example

9 Variants of charging, different tunes on demand risk
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 UNCLASSIFIED

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

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

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 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 Jo Richardson is much more than a secondary school. It has been widely hailed as a model of ‘extended’ community provision and as a catalyst for urban regeneration in the area. Barking and Dagenham is one of the most deprived boroughs in London and use to have one of the worst academic attainment records in the country UNCLASSIFIED UNCLASSIFIED

14 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 The school and community centre address two important objectives: the delivery of a new pedagogy... Focus on teaching and learning through the development of new pedagogical methods developed from teaching models used in Switzerland, the Netherlands and the Scandinavian countries Through the introduction of vocational/technical education for year olds Vocational education prepares students for jobs that are based on manual or practical activities Carpentry, plumbing, electricity, hairdressing ...and the provision of cultural, leisure, health and learning resources for the wider community. To develop the extended school concept to meet key community objectives: adult education, social integration, health, recreation The community school is designed for extensive out of hours use with public access to the performing arts, resource areas, sports and dining spaces. Jo Richardson School also incorporates a primary healthcare centre, a community one-stop shop and public library. Extending the use of school facilities to the community is to be encouraged especially when you consider the amount of investment required to construct and run a school compared against the time available both within (i.e. when the school sports hall or the school theatre is not being used by pupils) and outside of normal school hours (i.e. school holidays, weekends and before and after normal school hours) for potential community use. UNCLASSIFIED 14

15 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 UNCLASSIFIED

16 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 In UK, problem was linked to lack of investment in infrastructure, teaching quality was not a problem Increase the utilisation of the infratsrcuture (Sweat the asset) and amortise the capital investment more efficently UNCLASSIFIED UNCLASSIFIED

17 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 The Authority appointed a CABE Enabler to give advice on the project. The advice was to appoint a client side design team to develop a full reference scheme. After a competitive process, Penoyre & Prasad Architects were appointed to work with the LEA and school community to develop a clear brief and a reference project to issue to PFI bidders. At the same time, in order for the design advisor to better understand the new teaching pedagogy and its implications for the fabric of the future school, the project team visited a local primary school where it was already in operation. The pedagogy was inspired partly by a Swiss educational model which was initially developed in primary schools within the borough and is now being developed in the secondary sector. The team also visited three schools in Holland to understand the physical implications of the pre-vocational curriculum options. UNCLASSIFIED UNCLASSIFIED

18 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 UNCLASSIFIED UNCLASSIFIED

19 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 UNCLASSIFIED UNCLASSIFIED

20 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 UNCLASSIFIED

21 JRCS - PFI Structure SPV BY Education (Barking) Ltd 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 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). JRCS - PFI Risk Allocation 1/2 UNCLASSIFIED

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

24 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 As a part of its vision, the Local Authority (Barking and Dagenham) championed new ways of learning, by delivering the curriculum in larger than average (75 m²) classrooms with a 'horseshoe' shape seating arrangement. Area of room 70 – 75m2 Gaps for good circulation No student is at the back of the class – no student sits behind another UNCLASSIFIED

25 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 The school and community centre are organised around internal ‘streets’, accommodating a variety of uses and providing the principal social space for the student community. At the new Jo Richardson School the community offices, library and resource centre are located at the intersection of the main student and public routes. With 1500 students the pastoral arrangement is particularly important and the planning provides a distinct hierarchy of inside and outside spaces to reflect this general teaching and SEN community entrance external sports and play general teaching and 6th form school (shared) sports UNCLASSIFIED student entrance UNCLASSIFIED

26 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 UNCLASSIFIED

27 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 Project delivers long term solutions for the Authority, the pupils and the wider community UNCLASSIFIED UNCLASSIFIED

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

29 Educational outcomes / results
% students gaining 5 or more grades A* - C GCSE National B&D + 47% % In secondary schools, (General Certificate of Secondary Education) GCSEs, are compulsory academic qualifications in core subjects taken by 14–16-year-old students in England, Wales and Northern Ireland. GCSE are a measure of academic attainment In 2000, Barking and Dagenham had a 16 point gap in the GCSE results In 2011, that gap has been reduced to only 4 points UNCLASSIFIED UNCLASSIFIED

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.



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 Faslane Trident Submarine Berth Faslane Trident Submarine Berth
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

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

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

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

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

39 Comparison with Conventional Procurement - Evidence
Delivery on time and on budget 2008 85% + On time On budget 2005 80% 45% + On time On budget 30% Conventional Procurement PPP Performance of completed projects – No. of Projects Source: National Audit Office – UK Parliament – Expenditure Auditor UNCLASSIFIED UNCLASSIFIED

40 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 UNCLASSIFIED UNCLASSIFIED

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 P P P Service Requirement Service Delivery Public Sector Partnership
Private Sector Service Requirement Service Delivery UNCLASSIFIED

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 UNCLASSIFIED

44 Infrastructure UK Contact:

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