1 Review of capital investment in the education sector

On Friday 8 April 2011 the Department for Education (the “DfE”) published a report setting out the findings and recommendations from its comprehensive review of all capital investment funded by the DfE led by Sebastian James (the “Review”). The Government is yet to issue a detailed response.

Whilst the drivers of capital investment remain the same: raise standards, decrease disadvantage, address building condition and meet the required school places resulting from an increased birth rate, the Review’s recommendations are made in the backdrop of the Government’s aim to decrease the structural deficit.

2. The recommendations

The Review highlights a need for strategic reform throughout the current system and encourages a “philosophical shift” by the DfE away from providing Local Authorities (and other Responsible Bodies) with funding to procure buildings, towards providing them with the building itself.

The previous subjective goal of educational transformation is replaced with a clearer more objective goal of providing buildings that are fit for purpose and efficient to run. Investment will also be prioritised on the more objective criteria of the condition of the local education estate and the need for pupil places, as opposed to the deprivation of the local area or exam results which were the criteria applied under the heavily criticised BSF programme. The aim being that capital investment is directed towards the educational facilitates most in need more quickly and efficiently. Effective maintenance, including lifecycle, is another clear recommendation of the Review to provide a safe and sustainable school environment.

To drive forwards towards these goals, the Review proposes that procurement is centrally managed by a “strong, expert, intelligent client” through a small number of new national procurement contracts and a centrally standardised design. This Central Body would have a much wider remit than the current Partnerships for Schools and would be responsible for procuring all major capital projects in the education sector.

To aid the prioritisation of investment, the Review suggests that a central database on the condition of all schools is set up and proposes that a building condition survey is carried out with 20% of the school estate being surveyed each year over a rolling five year period.

3. Is localism encouraged through central procurement?

The Review asserts that the proposed reform does not conflict with the Government’s localism strategy and acknowledges that Local Authorities are best placed to prioritise need at a local level. To give effect to this, each Local Authority would be allocated a single, flexible capital budget avoiding the need for multiple funding streams. The Local Authority would then set out a local investment plan identifying how they would allocate that budget in order to reconcile local priorities in line with the available capital budget and national requirements. The Review suggests that flexibility is retained for groups of Local Authorities to come together to create a single investment plan “if this would deliver the most strategic response to pressures”.

This part of the Review seems to be inconsistent with its overall and clear steer towards a centrally controlled and driven procurement strategy to provide and maintain facilities that are fit for purpose. This inconsistency is highlighted in the following areas:

The Review refers to the Local Authority’s capital budget as a “notional” budget which may only be used to fund the design and construction of centrally designed schools in accordance with centrally defined priorities. In fact the Review clearly places ultimate responsibility for managing the capital budget with the Central Body stating that the incentive to minimise costs could “be lost by devolving a set budget for a project to a local area”.

The Review states that the responsibility for using and managing new and improved facilities would be wholly devolved, but encourages the DfE to include contracts for routine and small-scale maintenance as part of the scope of centrally procured frameworks, which the Local Authority would then call-off locally on an annual basis.

The Review acknowledges the Government’s desire for parents to have a real choice of schools for their children and refers to a capital investment programme requiring sufficient flexibility to allow for providing oversupply where appropriate, as well as demand-led facilities (including Free Schools). However, the recommendation of the Review is that funding for new demand-led policy programmes should be held centrally.

The Review suggests that a simpler approach to procurement will allow smaller local contractors (including SMEs) to have access to capital projects work provided they agree to the terms of the national standardised contract. However, the Review does acknowledge the concern that only a few larger companies may dominate the national tender process giving them a competitive advantage.

The Review acknowledges that small-scale local operators, alongside leading industry facilities maintenance companies, currently deliver a range of maintenance and lifecycle services for schools. But it suggests that this results in Local Authorities failing to capitalise on economies of scale and other efficiency savings that could be realised through a more strategic and centralised approach to the procurement of these services.

The Review proposes that individual bodies could earn the ability to procure capital projects autonomously if they are able to prove their delivery capability based on cost, quality and delivery to time. However, this would only be the case where the Central Body approved it and the individual body would be required to adopt the centrally standardised design and procurement process. In the event of failure the Central Body would have the right to step-in.

4. The BSF legacy

The current BSF and Academies “pipeline” of projects may also be impacted by the outcome of the Review, with the Review suggesting that existing pipeline projects be subject to its recommendations, especially given the review team’s perceived success with its pilot project at Campsmount Technology College in Doncaster.

Even when the pipeline of projects has been developed, the role of the 30 Local Education Partnerships (LEPs) in existence remains unclear. The Review acknowledges that LEPs may have “exclusivity to deliver substantial secondary school projects where the funding is received by the relevant Local Authority” but does not go into any further detail in relation to the scope of this exclusivity.

5. So, what does this mean for the private sector?

Importantly, the Review acknowledges that “the vast bulk of schools will require investment” and therefore there is still likely to be a large scope for private sector involvement in capital investment projects in the education sector in the future.

However, capital investment in education is forecast to peak in 2010 to 2011 at £7.6 billion and the Review estimates that up to 30% cost savings are achievable, which the private sector will be expected to deliver.

The Review suggests that this cost saving could be supported by the DfE through: (i) further planned standardisation in the DfE procurement process, including the rationalisation in the variety of standardised contracts and the possibility of introducing a single process for the pre-qualification of all contractors; (ii) the creation of a standardised design for school buildings which would be continuously reviewed and improved to improve quality, establish best practice and reduce the likelihood of delays through planning; and (iii) clarification on the standardised quality and responsibilities relating to maintenance of education facilities.

Even though the Review goes into some detail on the possible cost-saving methods, there is little reference to the sources of capital funding for future projects and whether this will include PFI. There is, however, reference to the many different funding streams for capital investment that were in place prior to the spending review period, including BSF, the primary capital programme and Academies, which the Review refers to as each being “flawed”.

Clearly, changes will not be possible overnight and it will take time to establish a new central procurement body and process. Therefore, whilst the Review identifies a new philosophy for the DfE’s capital investment strategy, the detail remains to be developed and as the scale of the pipeline of future projects will be determined by the DfE, we await the Government’s response to the Review.

For further details, please click here to see the Review report.