Private sector innovation 'adds value' to education

As the residential expansion of Botany Downs rapidly swallows up the vacant land between Howick and Manukau City in south east Auckland, students attending new schools in the area turn up in the new year with their classrooms only half built.

As my youngest daughter and her mates can attest, neither Willowbank nor Baverstock primary schools were complete when they opened. Nor were the new whanau at Botany College complete when they moved on to college.

Whether or not this is he result of failures in the traditional procurement method, poor contract management or too many rainy days in Auckland, is hard to say.

But with seven more schools to be constructed in the area with the near future, one wonders whether some of the lessons learned from the privately financed and operated New Schools Project in New South Wales (NSW) or the aggressive UK Building Schools for the Future programme might be worthy of consideration here.

Like Auckland, the new schools in NSW are located in areas of urban growth. The selection of locations for the schools by the government is based on its assessment of long-term enrolments.

But rather than finance and manage the construction of the schools themselves, the government grants a licence to a private sector company to enable them to construct and operate the school facilities.

Upon completion of construction, the project company then leases the schools from the government to carry out their operation and management obligations and subleases them back to the state for education purposes.

The teachers teach and the company undertakes all facilities management. This includes building and grounds maintenance, cleaning and waste management, energy management and security. The state remains responsible for the delivery of education.

At the end of the contract term, possession of the schools must be passed back to the Department of Education and Training (DET) in a pre-determined condition, with the contract providing for a provisional fund in the final years of the agreement to ensure required work is performed.

Background to NSW New Schools Project

The New Schools Project was the first delivered under the NSW government's Working with Government Guidelines for Privately Financed Projects (PFPs), released in November 2001.

It was also the first social infrastructure PFP in NSW and the first school PFP in Australia. Under the first New Schools initiative, a total of nine schools have been opened in north-western and western Sydney, the Illawarra and the Central Coast. Four schools opened in 2004 and five in 2005.

A second New Schools Project to build 10 new schools is just about to commence.

Post-implementation evaluation

A NSW Treasury post-implementation review (see footnote 1) found that while the first project faced delays at the start, because of the complexity of the first PFP contract model, the PFP schools were delivered some two years earlier, on average, than would have been possible had traditional public sector funding been used.

PFP delivery enabled a faster response to demographic needs in urban growth areas.

Prior to commencement, criticism of the first project included concerns that it represented an outsourcing or privatising of public education; that the government would abrogate responsibility for teaching and student outcomes; that facilities standards would be less than traditionally delivered schools; and that the project financing would be more expensive than for traditional delivery (leading to reduced resources for education).

The Treasury review received formal submissions from the NSW Teachers' Federation, The Public Service Association and the Secondary Principals' Council. While there was some criticism of the schools, mostly in the area of DET's design standards, submissions were positive regarding the operation of the contract.

The positive sentiments expressed, including satisfaction with resources provided, and responsiveness to queries or calls for assistance on facilities management issues, represented a substantial shift from early concerns.

The PFP contract complied with the government's industrial relations requirements. No employees were transferred to the private sector under the Schools Project.

DET undertook a range of activities and consulted broadly during the development of the project and this was considered key to the overall success of the initiative.

Key benefits of the PFP model identified in the NSW Treasury report included:

• The schools were constructed in a shorter timeframe and this enabled an earlier opening than would normally have been possible.
• The bundling of construction and operation delivered service, and construction innovation and savings were achieved through better economies of scale and reduced management fees.
• Along with the provision of school facilities, additional service was added by providing a childcare centre at eight of the schools. This resulted in a one-off $2 million payment to DET for licensing a portion of the site. (Anecdotally, provision of the additional service has also enhanced the popularity of the schools with both parents and teachers.)
• Provision by the operator of an onsite manager by the contractor has released school principals' and teachers' time for educational purposes that was previously spent dealing with facilities management issues
• The New Schools Project was able to deliver better value for money as tested against the Public Sector Comparator.
• PFP allowed DET to bring forward new school delivery by three years on average.

The report listed a series of recommendations to reduce complexity of the contract evaluation, documentation and payment mechanisms.

Notably, the second, recently commissioned New Schools programme of work has taken only seven months from the issue of the request for detailed proposal documentation to financial close.

As such, it sets a benchmark in Australia as to how fast a PFP deal can be done.

The experience in NSW replicates similar experience in England.

In February 2003, the Blair government announced a new capital investment programme in secondary education called Building Schools for the Future (BSF).

The plan is to rebuild or renew every one of England's 3,500 state secondary schools during the 15-year lifetime of the £45 billion programme (see footnote 2).

The emphasis is on securing improvements in educational standards across the country, driven by a state-of-the-art learning environment.

Within the next five years, almost £3 billion is expected to be privately financed thereby topping up a limited public purse.

This is all part of a £26 billion pipeline of private finance initiatives to be completed by 2010 equivalent to 10-15 percent of total public expenditure on capital projects.

UK government private finance initiatives to 2010 (by department and cost)

Experience in both the United Kingdom and Australia has shown privately financed projects have consistently delivered value for money when compared with the public sector comparator.

Bundling of projects has proved to have been valuable in achieving economies of scale and reduced management fees.

New schools are being delivered on time and on budget and asset and facilities management issues are removed from teaching staff responsibilities thereby contributing to better educational outcomes.

If such gains can be made in the Australian and English contexts, logic suggests there is merit in considering potential application of the PFP model in New Zealand.

Footnotes

1. The New South Wales Treasury New Schools Privately Financed New Schools Project Post Implementation Review is online as a PDF document

2. For further information about the Partnerships for Schools and Building Schools for the Future programmes:

• Building Schools for the Future
• Department for Education and Skills
• Partnerships for Schools
• Partnerships UK
• HM Treasury PFI Strengthening Long Term Partnerships