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Brown era will mean continued advances of pfi in education 01/07/2007 Despite occasional bursts of criticism by trade union UNISON and others, public private partnerships (PPPs) and the Private Finance Initiative (PFI) are set to play a huge role in the UK’s educational sector in the years ahead. Catherine Burke, head of capital projects at Birmingham and London law firm Martineau Johnson, is sure that the change at No 10 is not going to mean any new direction. “There are real financial challenges facing the education sector, whether we are talking about universities, colleges or schools. “We have to be able to deliver ever improved further and higher education to sustain our competitiveness as a country and there is the much trumpeted 45 billion pound expenditure programme to rebuild or refurbish every secondary school in the country over the next 15 years. “The sheer size of the funding requirements to meet such needs will ensure that PPPs will have an increasing role.” Ms Burke says that the issue is how PPPs and the PFI will develop in the educational sector. “One factor with regard to schools for example will be what happens if at some stage during its life a PPP-funded school has to be closed because it is no longer needed. “At present, this can be an expensive business for the education authorities because they effectively have to compensate their private sector partner for the loss of revenue post closure and a school building is unlikely to have a significant value as it will have limited scope for redevelopment for other purposes. “Another factor is whether the PPP project is best as a Design and Build one-off or whether ongoing maintenance will be specified as being included for the future. “Now that the basic principles of PPP are so widely understood by both the public and private sectors, I expect attention to move on to the finer points of the arrangement such as this kind of issue. Ms Burke’s team has advised a number of universities and colleges on PPPs in relation to student accommodation, including the University of Plymouth and Stratford-upon-Avon College. In both cases, a private sector partner delivered student accommodation to meet the growth needs of the educational establishment concerned. Both were PPP arrangements, which are slightly different from PFI in that the latter benefits from a line of funding credits available from government. Though there is, says Ms Burke, a much greater understanding of PPPs these days, there are crucial contractual issues: “In the case of college accommodation, there is sometimes a commitment by the college to guarantee revenue through student occupants while in other cases, the entire responsibility of generating accommodation revenue is shouldered by the private sector. “Clearly, this contractor will look for some compensation for having to take on this risk and it is in this kind of area that there is still a considerable amount of work in such deals.” Ms Burke points out that PPP can these days be involved in financing much needed improvements to academic facilities, as well as accommodation. “Our work with the University of Plymouth, for example, where the contractor was The University Partnerships Programme, included academic facilities and we are expecting that more and more higher and further education-related PPPs will involve this aspect.” UNISON’s line is that PFI type arrangements cost more because government can borrow at lower interest rates than the private sector and it also points out that private companies have to make a return, but Ms Burke points out that such a simplistic argument ignores efficiency gains. As to the justification of PPP and PFI, Ms Burke is adamant that it is a ‘no brainer’. “The money simply isn’t there to do what’s needed for our educational infrastructure without it,” she said. “It’s difficult to be sure on the economic arguments going forward because most PPPs are not old enough to enable the figures to be completed and no PFI deals have run their course, but my own view is that the public sector is probably best at predicting service needs and, arguably, the private sector is best at providing for them. “If this argument can be substantiated, it’s not about PPP but about the terms under which PPP arrangements are best delivered.” Ms Burke advocates some blue-sky thinking too. “There is an issue about the risk and costs associated with buildings such as schools being closed before the PPP contract has run its course. “I would like to see such buildings being designed in a way that could mean that they could be deployed in a different sector. Birmingham’s Eye Hospital has been transformed into Hotel Du Vin, why not build this flexibility into new buildings? “I would also like to see arrangements where developers were encouraged to build schools as part of wider development schemes.” For further information please contact Catherine Burke on
catherine.burke@martineau-uk.com |
