BSF – Tackling the two-tier estate

Local authorities may welcome new PfS guidance issued to help them implement Local Education Partnership facilities management solutions to Design & Build schools, but schools could remain wary, writes Andrea Squires.

In response to criticism from various quarters that the Building Schools for the Future programme was in danger of creating a two-tier estate, Partnerships for Schools (“PfS”) has now issued guidance for the roll-out of Local Education Partnerships’ facilities management proposals to conventionally funded Design & Build (“D&B”) schools. Whilst a LEP FM solution is not mandatory, local authorities and schools will have to work hard to demonstrate to PfS that an alternative approach establishes a viable long-term strategy for the maintenance of the school estate, protecting the BSF capital investment.

The PfS guidance published on 27 January is a thorough review of the issues that local authorities should consider when contemplating the long-term maintenance of the D&B schools. In contrast, schools being rebuilt under the Private Finance Initiative (“PFI”) will automatically receive a full managed FM service from the LEP as a fundamental element of a PFI contract. The guidance has relevance to secondary schools as well as primary schools, academies and sixth form colleges as investment programmes to deliver transformational change in each of these areas are also the responsibility of PfS and are increasingly being delivered through the LEP.

Key aspects of the guidance

These can be summarised as follows:

1. While local authorities are not required to procure FM services from the LEP, a local authority will be required in its Outline Business Case to set out a strategy for ensuring the long-term maintenance of its schools across the entire school estate.
2. In developing an FM strategy, local authorities should seek to avoid an approach which will lead to a two-tier system, i.e. fully maintained pre-funded PFI schools compared to non pre-funded ad hoc maintenance for non-PFI schools.
3. The approach to FM should be developed as early as possible at the start of the BSF process in order to establish clear requirements that either bidders can bid against or the LEP can respond to so that the full benefits of designing with whole life costing in mind can be maximised. In so far as possible (and provided value for money can be demonstrated) a range of fixed costs or rates should be agreed with the LEP so that benchmarks can be established and economies of scale realised.
4. Effective risk transfer from the public sector to the private sector is most likely to be achieved when whole solutions are adopted, where the LEP is responsible for the interface between the different members of the supply chain. Any FM Agreement should be signed at the same time as the D&B Contract and the ICT Services Contract. Careful consideration must be given where existing service providers are to be retained.
5. No single solution to FM is preferred and PfS encourages local authorities to adopt an approach which suits the needs of the local authority and the schools. Three types of FM contract are envisaged, namely: the high risk transfer (which adopts a long term PFI style availability model); the medium risk transfer (which is similar to a high risk transfer but removes some risk or responsibility from the LEP in order to achieve value for money i.e. when the high risk transfer is simply unaffordable); and the low risk transfer (which is more akin to a call off contract where little risk is passed and the local authority retains the discretion to call for services or not).
6. Local authorities are free to develop a schools-specific solution and local authorities should be encouraged to negotiate flexibility with the LEP, but this may have a price implication. PfS prefers a consistent level of risk transfer across all schools.
7. PfS has stressed that whatever approach the local authority takes the arrangement must demonstrate value for money and be affordable. A clear assessment of available spend for each school must be carried out.
8. In all types of FM contract a sinking fund is likely to be involved, which must be held by the Authority (rather than the LEP). The sinking fund will be used to pay for lifecycle replacement. PfS has stated no view as to whether contributions to the sinking fund should be ring fenced (beyond saying that any pooling should be approved by the Schools Forum), but this is something that should be considered and is likely to be preferred by schools and trustees. Expenditure from the sinking fund must first be approved by the school (and any trustees). Local authorities may need to consider topping up the fund from its own monies, but it is expected that no up-front commitment to doing so will be made.
9. Whilst supplementary guidance for Voluntary Aided schools is to be issued, it is likely governing bodies will be asked to contribute their 10% and a relevant proportion of their devolved formula capital. This will however come down to a project specific approach by each local authority.
10. “Third Party Use” (i.e. use for non school purposes), whilst provided for in the standard form documents issued at the same time as the guidance, is not required by PfS and local authorities are free to develop their own approach to this (in consultation with schools and stakeholders).

What issues need to be addressed by local authorities?

Notwithstanding a school’s enthusiasm for BSF, it is likely that schools will be reluctant to sign up to an externally managed FM service and will need to be convinced that the proposals meet the individual schools’ requirements and are affordable. The focus for local authority teams, and indeed PfS, tends to be on whether proposals achieve value for money, but actually the schools are concerned more about whether the cost is affordable. This is particularly so as there are deep-seated concerns about whether budgets will be maintained at current levels, ignoring the obvious and immediate worry that proposals may not even be affordable on current budgets. This is not just a hearts and minds issue for schools.

The other major challenge for local authorities is achieving consistency across the school estate, particularly where there are a number of academies, sixth form colleges and voluntary aided schools, where the funding arrangements differ from those in place for community and foundation schools. There is no settled precedent yet for the adoption of a LEP’s proposals by new academies. There is the obvious point that the more schools are able to opt out of the LEP’s proposals, the less scope the LEP will have to achieve economies of scale and therefore keep costs as low as possible.

Although PfS acknowledges the possibility that schools (or indeed local authorities) may opt out of the LEP’s proposals, as yet, there is no clear guidance about what needs to be shown to satisfy PfS that an alternative procurement method will achieve the same standard of service and costs efficiencies. It is unlikely that anyone putting forward an alternative business case can truly satisfy this test as, at least as far as an individual school is concerned, it is unlikely they would be comparing apples with apples. The situation can be compared with the approach taken with regard to the externally managed ICT service, which has been, and remains in some quarters, unpopular. If nothing else, concerns over FM may cause delays to a BSF programme.

The other key issue for local authorities is whether in fact a suitable arrangement can be agreed with bidders for a BSF scheme (or the LEP itself if proposals are being sought after the LEP is established). Bidders may be reluctant to take risks where there is a high proportion of the estate which is not being redeveloped through BSF. Flexibility is the key, but this will take time to work through and may have cost consequences.

Andrea Squires is a partner at Winckworth Sherwood (www.wslaw.co.uk), specialising in strategic projects and public private partnerships, including PFI.