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Public Private Partnerships in the Higher and Further Education
Sectors Introduction Many Universities and Colleges ("HE/FE
Providers") are currently looking to improve and extend their
campus facilities so that they can:
- improve the standard of services they provide to their students;
- attract more students to study with them; and
- increase the range of courses they can offer.
The main obstacle holding back the investment needed is
the lack of funding available from Government. More and more HE/FE
Providers are now realising that they can use partnership with either
the public or private sector ("PPP") as a way of overcoming
this problem and getting the new facilities that they need today.
We will address here the following commonly asked questions about
PPP:
- What is PPP?
- What types of PPP projects are being undertaken in the Education
Sector?
- What are the benefits and concerns in relation to using PPP?
- What sources of funding are available for PPP projects?
- What do the Higher Education Funding Council for England ("HEFCE")
and the Learning and Skills Council ("LSC") say about
PPP?
- What initial steps should a HE/FE Provider take if it is considering
embarking on a PPP project?
What is PPP? PPP is being used particularly
in developing new student accommodation. Under a typical scheme
the private sector partner ("PSP") will finance, design,
build, maintain to a predetermined high standard and operate the
new student halls for the HE/FE Provider for 25 years. The
Private Finance Initiative ("PFI") is a form of PPP under
which the Government funds the capital repayments to the PSP. It
is being used in the construction of schools, libraries and other
public facilities. What types of PPP projects are being undertaken in the
Education Sector? The following types of the PPP projects are being undertaken in
HE/FE sector:
- Student Accommodation - A number of
HE/FE Providers have used PPP to enable new halls of residence
to be constructed or existing halls of residence to be maintained.
- Libraries - Some HE/FE Providers are
entering into joint ventures with their Local Authorities for
the development of joint library facilities.
- Academic Facilities - PPP is also
being used in the construction of academic facilities, such as
management development centres, where there is scope for generating
income from third party use.
- Sports Facilities - with the ability
to generate significant amounts of income from third party use,
this is another area where PPP has been used.
[In relation to Secondary Education, the delivery of schools
capital projects is now channelled through the Building Schools
for the Future programme ("BSF"). This is a fifteen year
programme covering approximately 150 local authorities and around
3,500 schools with the aim of rebuilding or refurbishing every secondary
school by 2015. Funding for the programme is provided through PFI
credits.] The benefits and concerns in relation to using PPP Using new student halls as an example, the main reasons why so
many HE/FE Providers are turning to this approach are:
- the schemes can be completely self-funding. The PSP should be
able to recover the costs of construction from the student rental
income. The HE/FE Provider does not have to pay any costs towards
construction.
- the burden of maintaining and operating the new halls is taken
away from the HE/FE Provider, freeing up its time and resources
to focus on its core educational priorities.
- at the end of the 25 year period, the HE/FE Provider gets the
new halls returned to its control at no cost.
As PPP is a relatively new method of procurement in the HE/FE
sector, there are often concerns raised about trying it. However,
many of these concerns arise simply from a lack of familiarity and
experience of working with PPP. Some of the common concerns raised
are:
- The difficulty of attracting sufficient competition
from bidders - Among other things, the high cost
of bidding for PPP projects and the rising level of conventional
tendering opportunities for construction firms have led to problems
in attracting sufficient bidders on some projects. In this climate,
it is important to make the project as attractive as possible
to bidders by doing such things as:
- structuring the procurement process in such a way as to
keep bid costs to the minimum consistent with effective competition;
and
- demonstrating the deliverability of the project by showing
the support of the HE/FE Provider, a strong project team and
providing all appropriate information.
- It is a complex procurement process - It
is true to a certain extent that it is a complex procurement process.
This is because of the funding structure and the fact that both
construction works and facilities management services over a 25
year period are being procured from a single service provider.
However, there are now established precedent documents and guidance
which can be used to streamline the process, and an experienced
set of PPP advisers can help guide the HE/FE Provider effectively
through the actions it needs to take.
- Pockets of political resistance against PPP - There
can be resistance from unions where their members, who are currently
employed by the HE/FE Provider, will be transferred across into
the employment of the new incoming service provider. This resistance
can be overcome by ensuring that the terms of the agreement reached
between the HE/FE Provider and the service provider (in addition
to general employment legalisation) protect the rights of those
transferring employees.
- It is not viable for small capital projects -
Because of the costs involved in setting-up PPP projects, the
route is generally not used where the capital project values are
small. The Government has stated that, in relation to its buildings
programme, the PFI route should only be used in projects with
a capital value of £20M or more. There are however no rigid
rules in the HE/FE sector and there have been several successful
PPP projects with capital values of under £20M. One way
of avoiding the problem is for the HE/FE Provider to "bundle"
together a number of small capital projects into a single scheme
and thereby reduce costs and make the scheme more attractive to
bidders.
- Loss of direct control over the new facility - Under
a typical PPP scheme, management and maintenance of the new facility
is not under the direct control of the HE/FE Provider. The HE/FE
Provider will be protected by the project agreement ("Project
Agreement") which it enters into with the service provider
through which it will be able to monitor how well the services
are being performed and impose sanctions where there is a drop
in standards.
- Lack of Flexibility - As these schemes
are typically of 25 years or more in duration, there are concerns
as to the HE/FE Provider entering into such a long term commitment,
when circumstances could change substantially during that time
period. In order to deal with this, the Project Agreement will
have a detailed change mechanism under which changes can be made
to the services provided by the service provider at the request
of the HE/FE Provider.
What sources of funding are available for PPP projects?
As mentioned above, new student halls can be completely self-funding,
and so HE/FE Provider will not need to secure any additional funding.
In relation to other types of PPP projects there may be a range
of funding grants available from bodies such as:
- HEFCE
- LSC
- Regional development agencies
- Local Authorities
- the European Regional Development Fund
- the National Lottery Fund
What do HEFCE and the LSC say about PPP? HEFCE is supportive of PPP projects in their role as promoters
of value for money. Research conducted on behalf of HEFCE has indicated
that current demand for PPP solutions in the HE sector are concentrated
in student accommodation, rationalisation of estates, property management
and IT/telecommunications,. Further work is being undertaken by
HEFCE to identify other areas in the sector that may benefit from
PPP solutions. The LSC are also supportive of PPP and their Capital Projects Criteria
also states that it will give preference to PPP projects when determining
grant allocations. What initial steps should a HE/FE Provider take if it is
considering embarking on a PPP project? The HE/FE Provider will initially need to do a feasibility study
on the proposed PPP project and then go on to develop a business
case and an assessment of the costs, benefits and risks. Specialist
PPP financial and technical advisers will be needed for this. Specialist
legal advice will also be useful in respect of structuring the procurement
process to ensure the best possible bids are obtained. In the Higher Education sector, HEFCE may also be able to assist.
They support a number of institutions in the development of pathfinder
PPP projects, designed to develop improved value for money solutions,
in new areas. In addition they provide a number of good practice
publications and case studies of current PPP projects. Of course, the best way of addressing any concerns about following
the PPP route is to talk to other HE/FE Providers who already have
first hand experience of it and we are seeing this type of knowledge
sharing taking place between institutions. Only a relatively small number of HE/FE Providers have used the
PPP route to bring about campus improvements so far. However we
are seeing a strong interest from other HE/FE Providers who are
keen to follow their example. More and more HE/FE Providers are
realising that the substantial benefits of the PPP route far outweigh
any imagined negatives. For further information please contact Catherine Burke: Catherine Burke
Partner, Head of Projects
catherine.burke@martineau-uk.com Martineau's publications are no substitute
for taking advice before reaching a decision on your individual
problems. If you would like any further information about any of
the issues raised in our publications please email us at lawyers@martineau-uk.com.
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