TITLE
/GROUPED SCHOOLS PFI PROJECT UPDATE AND
APPOINTMENT OF AUTHORITY’S REPRESENTATIVEREPORT FROM / THE DIRECTOR OF CHILDREN’S SERVICES /
CONTACT
/Name
/ Kaye Mount /Tel / 01642 444346 /
DATE
/ 12/07/05e-mail / / CATEGORY /
Category 1
DECISION MAKER (S) / CabinetTYPE OF DECISION
(Tick applicable box)
Policy Matter / Budget Setting / In-year decision / üDelegated Decision / Information only
Key Decision
/ Date in Forward Plan / 20 May 20051.0 PURPOSE OF REPORT
1.1 This report is to update members on the progress that has been made with the Grouped Schools PFI Project. The report also seeks members’ approval for delegated powers to be granted to the Director of Children’s Services to appoint the Council’s authorised representative for administration of the project through the construction and operational phases.
2.0 ANALYSIS
2.1 AIMS AND DESIRED OUTCOMES
The Private Finance Initiative (PFI) contract is for the design, build and operation of five new school buildings.
After entering into a PFI project agreement the Council is obliged to nominate an Authority’s Representative to deal with the future administration of the project. This report seeks to delegate to the ‘Director of Children’s Services’ the power to nominate an Authority’s Representative and advise the PFI contractor of the identity of that nominated person and to revise that advice from time to time as the identity of the individual changes.
2.2 BACKGROUND INFORMATION
On 25 January 2005 a Group Schools PFI Project update report was presented to Cabinet. That report advised of the intent to enter the final stage of negotiation to complete a PFI agreement with Mowlem PLC for the replacement and management of five schools, the agreement being entered into under the delegated powers granted by Cabinet on 26 May 2004 to the Director of Education in consultation with the Director of Finance, Performance and Procurement, and the Assistant Chief Executive Legal & Democratic Services.
Extensive negotiations were carried out during February, March and April. The project was closed commercially in advance of the Department for Education and Skills (DfES) deadline of 31st March 2005 and a promissory letter of PFI credit was issued by DfES. Intense negotiations to achieve financial close within a deadline that would not affect the construction programme with consequential implications for affordability, continued with Mowlem plc, DfES and Partnerships UK (PUK) (the advisers to DfES).
Negotiations concluded successfully and the PFI Contract was signed on 20th April 2005.
Despite the fact that the contract was not signed until into the new financial year, Mowlem PLC agreed to hold the price quoted and the Government held the Treasury discount rate for this project. Had this not been the case the impact on the affordability position could have been quite severe. Two additional factors also helped the overall affordability position of the project. The DfES agreed to an uplift in our PFI credits from £48.97m to £52.202m as a direct result of the contract signature delay. The “swap” rate, the interest rate that is agreed for the project, is not determined until after contracts are signed. Variations in the rate can have a major impact on the affordability position. The rate obtained for this scheme was 4.875%, slightly lower than the rate that had been anticipated.
The total value of the project over the whole of its life i.e. up until 31 March 2035 is £238,334K. This figure includes estimates of inflation for some elements of the contract but not the initial construction work.
Funding for the project overall is :-
£000
Formula Spending Grant for PFI Credits 118,254
DfES Grant for VA Schools 53,806
Revenue contributions from schools
and other local authority users 39,659
Council General Fund 5,492
Education Funds – DRF 10,976
Other 7,993
236,180
The balance of the funding required (2,154k) is generated through interest earned through the investment of early receipt of Government Grants and early investment of education funds relating to the project.
The first school will open in April 2006 at which time the full payment of Formula Spending Grant will be received by the Council in respect of the community schools. The Council will not, however, start making the full payment to the contractors until the Secondary Schools are operational. This means that a sizeable amount of money is available for investment throughout the life of the project. Surplus resources will be invested via the mechanism of a cost equalisation account. The financial model ensures that sufficient resources are available to meet the unitary charge in each year of the contract with any surplus earning interest at 5.1%.
The first full financial year of the contract will be 2007/08, when the unitary charge will be £7,696,770.
This will be funded:-
£
Formula Spending Grant 4,089,580
DfES Grant 1,816,830
Schools Contribution (1) 949,830
Other Authority users (2) 32,310
Council (General Fund) (3) 134,480
Education Funds – DRF (4) 262,660
– Other (5) 191,290
Interest from cost equalisation account 219,790
7,696,770
All of the figures quoted include an estimate of inflation and are shown at 2007/08 outturn price base.
(1) Schools’ Contributions
The schools have agreed to contribute an amount equivalent to their formula funding for those services that will become the contractors responsibility, including: caretaking; cleaning; repairs and maintenance; grounds maintenance; catering etc. Their contributions will become due when the new schools open.
It should be noted that if pupil numbers fall the schools will contribute less. The unitary charge will however remain relatively constant. Additional resources will be required in this scenario.
(2) Other Users
Other users including Adult Education and the Youth Service will have access to the new school buildings. They will be required to pay a contribution for the premises occupied equivalent to a rent.
(3) Council (General Fund)
The Council Executive agreed to underwrite any potential shortfall in the financing of the PFI to a maximum of £128k subject to a review of affordability at FBC (minute 971 4th March 2003). Inflationary increases uplift this figure to £134k in 2005/06 prices. The first contribution will be required in 2006/07.
(4) Education Funds – Direct Revenue Financing (DRF)
The Authority will not have any responsibility for capital expenditure in the new schools during the contract term. Based on the floor areas of the new schools this will save approx £250k p.a. which will be invested into the project.
(5) Education Funds – Other
During the Summer of 2004 it became clear that the project was not going to be deliverable within the financial resources available. The Schools’ Forum met to discuss the issue and reluctantly agreed to further underwrite the potential shortfall to a maximum of £300k. This figure has been built into the 2005/06 budget as highlighted to and approved by members. The circumstances leading up to contract signature and described above mean that £182k will be required and not the full £300k.
Immediately following the execution of the contract the construction teams moved to all five sites and started work. Work is currently progressing well and the Project Management Team are now engaged in monitoring progress and dealing with the day to day operational matters for all the sites, including continual liaison with the schools as the work proceeds.
The project agreement requires that ………“The Authority shall appoint an individual to be the Authority’s Representative and as such to liaise with the Contractor’s Representative, and shall keep the contractor informed of the identity from time to time of the Authority’s Representative”…..the agreement describes the role and remit of the Authority’s Representative; ……”The Authority’s Representative shall have full authority to act on behalf of the Authority for all purposes of this Agreement.” In practice the person will act as the main point of contract with the Authority for the Contractor and will negotiate any potential failures in service delivery and consequential deductions. N.B. This is not an additional post. The role will be taken on by an existing member of staff.
For the purposes of managing this project for the full term of the contract, a period of approximately 28 years and 9 months, it is proposed the Cabinet grant delegated power to The Director of Children’s Services to nominate an individual to act as Authority’s Representative which will from time to time be amended and the Contractor notified accordingly.
2.3 CONSULTATION
Throughout the process of the negotiations consultation continued with PUK and DfES to ensure compliance with the contract terms and with their requirements. Consultation with District Audit was carried out to ensure they were satisfied with the financial arrangements of the project. DfES, PUK and District Audit all provided satisfactory sign off prior to contract signature.
Close consultation took place with the project Steering Group and all stakeholders throughout the process.
2.4 OPTIONS APPRAISAL
There are no other options. The appointment of an Authority’s Representative is a requirement of the Project Agreement.
2.5 REASON FOR RECOMMENDED OPTION
3.0 RECOMMENDATIONSIt is recommended that the Cabinet should:
3.1 note the progress that has been made with the Group Schools PFI Project; including the financial implications for the Authority.
3.2 agree to factor the financial implications of the contract into the Medium Term Financial Plan
3.3 approve delegated powers for the Director of Children’s Services to nominate an Authority’s Representative for the administration of the project through the construction and operational phases. To advise the PFI contractor of the identity of that individual and of any future changes in identity of the person.
3.4 note that the PFI project team will continue to manage the project on behalf of the Authority up to the point that the new schools have all been certified as complete, operational service has commenced, the former premises have been demolished and the associated ground works have been completed.
4.0 IMPLEMENTATION PLAN
4.1 PERFORMANCE MEASURES
The measure of performance of the project will be the successful completion of the construction programme and continuing on to the operational phase to the satisfaction of the Authority and the Stakeholders. Monitoring methodologies are clearly identified in the project agreement schedules.
4.2 TIMESCALE FOR IMPLEMENTATION
The timescale for the project is identified in the project agreement. The primary schools are due to open in April 2006 with the Secondary Schools in October 2006. Milestones are set for the schools to reach practical completion, service commencement and for the residual works to existing schools to be completed (i.e. demolition and site reinstatement)
4.3 RESOURCE APPRAISAL
Human Resources
An existing member of staff will be required to take on the role and responsibilities of the Authority’s Representative.
Finance
See details in body of report.
4.4 COMPLIANCE WITH LEGISLATION & REGULATIONS
There is no negative impact on: / Please tickHuman Rights Act 1998 / ü
Crime and Disorder Act 1998 / ü
Children Act 2004 / ü
Diversity and Equalities Impact Assessment form attached / ü
4.5 RISK
A full risk assessment has been carried out for this project and forms part of the project agreement documentation.
4.6 REVIEW PROCEDURE
Responsible Council (or other) Officer / Kaye Mount[Appropriate] Member’s monitoring committee / Children’s Services Scrutiny Committee
Deadline for Review / 29 June 2005
5.0 APPENDICES
None
6.0 INFORMATION SOURCES
Kaye Mount
Assistant Director (Resources)