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BUILDING for the FUTURE a Review of the PFI Education Pathfinder Projects

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BUILDING for the FUTURE a Review of the PFI Education Pathfinder Projects N IAO Northern Ireland Audit Office BUILDING FOR THE FUTURE A review of the PFI Education Pathfinder Projects REPORT BY THE COMPTROLLER AND AUDITOR GENERAL NIA 113/03, 14th October 2004 N IAO Northern Ireland Audit Office Report by the Comptroller and Auditor General for Northern Ireland Building for the Future A Review of the PFI Education Pathfinder Projects NIA 113/03 £18.00 This report has been prepared under Article 8 of the Audit (Northern Ireland) Order 1987 for presentation to the Northern Ireland Assembly in accordance with Article 11 of the Order. J M Dowdall CB Northern Ireland Audit Office Comptroller and Auditor General 5th October 2004 The Comptroller and Auditor General is the head of the Northern Ireland Audit Office employing some 145 staff. He, and the Northern Ireland Audit Office, are totally independent of Government. He certifies the accounts of all Government Departments and a wide range of other public sector bodies; and he has statutory authority to report to The Northern Ireland Assembly on the economy, efficiency and effectiveness with which departments and other bodies have used their resources. For further information about the Northern Ireland Audit Office please contact: Northern Ireland Audit Office 106 University Street BELFAST BT7 1EU Tel: 028 9025 1100 email: [email protected] website: www.niauditoffice.gov.uk 3 List of Abbreviations BAFO Best and Final Offer BELB Belfast Education and Library Board BRE The Building Research Establishment Ltd DE Department of Education DEL Department for Employment and Learning DfES Department for Education and Skills DFP Department of Finance and Personnel FHE Further and Higher Education GCSE General Certificate of Secondary Education GNVQ General National Vocational Qualification ITN Invitation to Negotiate ITT Invitation to Tender LTE Long Term Enrolment NIAO Northern Ireland Audit Office NPV Net Present Value OFMDFM Office of the First Minister and Deputy First Minister OJEU Official Journal of the European Union PFI Private Finance Initiative ppm Parts Per Million PPP Public Private Partnership PSC Public Sector Comparator SIB Strategic Investment Board The Belfast Institute The Belfast Institute of Further and Higher Education The North West Institute The North West Institute of Further and Higher Education 4 VAT Value Added Tax Table of Contents Page Executive Summary The PFI procurements were undertaken across a range of schools and colleges in the context of a major capital and maintenance backlog in the education estate. 11 The Departments of Education and Employment and Learning were proactive in identifying lessons to be learned from the Pathfinder projects. 12 The delivery of the Pathfinder projects compares favourably with those procured through conventional contracts. 13 A more strategic review of long term enrolments would help inform decision making. 14 Improvements in design and construction, if applied, could have a positive impact on educational attainment and achievement of departmental targets. 14 Part 1 The Department of Education was proactive in identifying lessons to be learned. 16 The PFI deals were economically and financially feasible. But there was close proximity between the Public Sector Comparators and the successful bids. 16 Affordability, was helped by the disposal of surplus assets. 17 5 Table of Contents Page The Department acknowledges that it underestimated the resources needed. 18 Some consultants were used to good effect; others worked under less rigorous terms of engagement. 18 The management and planning of projects needs to be improved. 19 A detailed market-sounding study was used to develop a longer term strategy for addressing the capital needs of the education estate. 19 There was potential to learn lessons from the procurement of Education PFI projects in Great Britain. 20 Experiences in Northern Ireland helped shape national guidance. 21 Changes to subsequent procurements demonstrate that steps have been taken to implement lessons learned. 21 PFI procurements of schools and colleges are being organised as clusters where applicable, in compliance with the findings of the market sounding study. 21 Additional resources have been made available. 22 Project management and planning procedures, including the use of advisers, have been refined; this has helped reduce procurement times and driven down consultancy costs. 23 6 Table of Contents Page Specialist agencies have provided assistance to DE and DEL. 24 Post project evaluations remain to be undertaken. 24 Part 2 The delivery of the Pathfinder projects compares favourably with those procured through conventional contracts. 26 Taken together, the proposed deals were economically and financially feasible. 26 In some cases the scope of projects changed and alternative solutions were proposed by the private sector. 27 But these changes have impacted on the quality of the projects. 29 While the initial procurement phase for the Pathfinder projects took longer, the construction phase was shorter than in conventional projects. 29 However, there was limited innovation both in terms of design and service delivery. 31 On the whole, long term enrolments were properly assessed but there is a significant disparity between planned and actual enrolments in two PFI schools. 32 A more strategic review of long term enrolments would 38 help inform decision making. 7 Table of Contents Page Part 3 Our review of design and construction has highlighted a number of important lessons which, if applied, could have a positive impact on educational attainment. 40 There was a significant difference in architectural quality between PFI and traditionally built schools. 45 The quality of service design was better in Northern Ireland than in England and Wales. 47 A good environment is critical to successful school design and can enhance educational attainment. 48 The cost of ownership appears to be higher in PFI schools/colleges. 52 The least expensive route has not necessarily been pursued by the contractor. 53 With adequate maintenance and free from major defect, there is no reason why the schools and colleges should not last for 50-60 years and beyond. 54 Design Quality of schools in Northern Ireland has room for significant improvement 55 8 Table of Contents Page Appendices Appendix 1: Methodology and Scope of NIAO Examination. 58 Appendix 2: The National Audit Office's Analytical Framework for Assessing Value for Money in PFI Projects. 60 Appendix 3: Department of Education's Report on Evaluation of PFI (PPP) for Education Service Capital Projects (September 1999). 61 Appendix 4: FE Colleges Pathfinders: Belfast Institute of Further and Higher Education (the Belfast Institute) and North West Institute of Further and Higher Education (the North West Institute). 63 Appendix 5: Major milestones in revising the 1994 Building Handbook 67 Appendix 6: BRE Survey Methodology. 68 9 BUILDING FOR THE FUTURE A review of the PFI Education pathfind Projects 10 ExecutiveExecutive SummarySummary Building for the Future - A review of the PFI Education Pathfinder Projects The PFI procurements were undertaken across a range of schools and colleges in the context of a major capital and maintenance backlog in the education estate. 1. In 1996, faced with a substantial capital and maintenance backlog and limited budgets1, the Department of Education (DE)2 launched a twin track approach to explore the extent to which PFI could be used to complement conventional procurement to improve the educational estate. Four secondary schools and two further and higher education colleges were selected to be Pathfinder PFI projects. In sectoral terms, the sample was broad incorporating FE colleges, controlled and maintained schools. This maximised the opportunities to acquire experience of the advantages and disadvantages of PFI procurement and to evaluate its long term applicability. The projects selected were Balmoral High, Drumglass High, Saint Genevieve’s High, Wellington College, Belfast Institute of Further and Higher Education (the Belfast Institute) and the North West Institute of Further and Higher Education (the North West Institute), all of which were high priorities in DE’s planned capital programme. 2. Five PFI contracts were let for the six projects, Balmoral High School and Wellington College being covered by a single contract. Deals were finalised between June 1999 (Drumglass) and October 2000 (Balmoral/Wellington). Drumglass was handed over in August 2000, the North West Institute in February 2001 with the remainder being completed in 2002. Each contract was for the design, build, finance and operation of a facility for 25 years. The capital value of the six projects was £67 million with a total cost, in net present value (NPV) terms, of £113 million. 1. Maintenance of Board Property was the subject of an NIAO report in December 1995 (HC 16, Session 1995-96). The report was considered by the Committee for Public Accounts (HC 269, Session 1995-96). 2. The Department of Education (DE) is responsible for the central administration of primary and post- primary education. Prior to the reorganisation of Northern Ireland Departments in 1999, DE was also responsible for Further and Higher Education. Central responsibility for this sector now rests with the Department for Employment and Learning (DEL) 11 BUILDING FOR THE FUTURE A review of the PFI Education Pathfinder Projects The Departments of Education and Employment and Learning were proactive in identifying lessons to be learned from the Pathfinder
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