In 1997 many of the schools in Stoke-on-Trent were in a dilapidated state and not fit for modern teaching and learning practice. The schools included buildings dating back to the nineteenth century, some of which had not been upgraded or refurbished for 50 years. Furthermore, the annual budget for maintenance of all the schools was £120,000; totally inadequate when one large replacement boiler would cost £80,000. The City Council’s annual expenditure was already stretched to its absolute limit so a radical brave new way of thinking was required.
In November 2000, after three years of intense planning and negotiation, one of the first PFI partnership charters in the UK was signed to cover the refurbishment and maintenance for 25 years of all Stoke-on-Trent’s 122 schools. This five-year capital expenditure scheme was very much a pioneer in PFI school projects. There was no precedence to follow and no standard contracts were available at the time. It is noted that the Treasury Task Force later issued guidance for standardizing the terms of PFI contracts.
The project cycle followed the 4ps process with independent Gateway Reviews at key points, all as the OGC Gateway Process model (www.ogc.org.uk). The different procurement options were considered before selecting the PFI approach. Feasibility studies were undertaken using the public sector comparators as the benchmark. Output specifications were developed embracing such issues as minimum temperature in classrooms. Sophisticated financial models, which included sinking funds and risk allowances, were developed and rigorously tested.
The winning bid was received from a special-purpose company called Transform Schorest of the portfolio. One of the principal reasons that Balfour Beatty succeeded in securing the contract was its innovative proposal to replace nine schools rather than refurbish them. Once the SPV was chosen there was a 12-month intense period of activity in which the architects Aedas worked with the school governors to develop acceptable designs. The construction contracts were let on a design and build basis.
The PFI Board, comprising City Counsellors, representatives from the Department for Education and Skills (DfES) and 4ps together with the authority’s project director, met on a monthly basis. The PFI team comprising the authority’s project director, lawyers, financiers and the technical team met on a two-weekly basis. Some meetings comprised over 40 participants so one of the biggest challenges facing the project team was capturing the knowledge and expertise and incorporating the feedback into the project.
The key lessons learned from this project include the following:
A real belief in the partnering ethos by all the parties. There were difficult problems to resolve throughout the negotiation period but the parties kept talking until these were finally resolved. The original contract, with 9 new schools, was extended to a total of 17 new schools; 15 were built by the SPV contractor and 2 by other contractors.
Detailed identification and evaluation of the main risks throughout the 25-year period to be passed to the SPV. In this contract, the additional risks were estimated at 17%. Some risks were considered unreasonable for the SPV to carry and were retained by the authority, for example vandalism in school time.
The importance of teamwork with the complete integration of the key stakeholders in an open forum.
Attention to detail in the innovative contract which included
a. a clause requiring the contractor to demonstrate a 20% saving in energy consumption in each school in the first five years by 2006 and a further 5% saving by 2010;
b. an agreement on the refinancing provision with the authority retaining 25% of any profits; this was a particularly difficult point for the negotiation team with the SPV wanting to retain the whole benefit, while the authority wished to take a 50:50 split;
c. the client’s involvement in securing a quality design, for example, they could comment at the point of handover and the contractor might be required to make changes at their own expense if not acceptable;
d. a stipulation that at the end of the 25-year period the estate should be in a position where there would be no major repair necessary for the next five years;
e. change or variation clauses allowing the authority to bring in other contractors to do the work if the SPV contractor’s price for the variation was considered too high.
This pioneering PFI project not only provided one of the best portfolios of school buildings in England but also resulted in other positive features including employment of 500 local labour during construction; apprentices taken on by the SPV contractors and sponsorship of a local community football team. Most significantly, there has been a dramatic reduction in school vandalism and a raising of student and teaching staff morale. It is anticipated that the improved buildings will also result in improved student performance in the years to come.
The main parties involved in this pioneering project were as follows:ols (Stoke) comprising shareholders Balfour Beatty Capital Projects (50%) and Innisfree (50%). The project is unique in being the largest bundled refurbishment scheme ever attempted in England and is valued at £153 million of which £80 million is for building nine new schools and refurbishing the assessments), Hurst Setter (health and safety), Capita (M&E and structural ), Walker Cotter (planning supervisor) and Atkins Faithfull & Gould (monitoring engineer/technical advisor to the lending banks);
Service Provider: Transform Schools (Stoke) Limited; Shareholders (providing the equity): Balfour Beatty Capital Projects 50% Innisfree 50%; Funders (providing the senior debt funding): Lloyds TSB and Dexia Public Finance Bank; Subcontractor 1: Stoke Schools JV comprising Balfour Kilpatrick Limited (Design and Build) and Balfour Beatty (Design and Build); Subcontractor 2: Haden Building Management Limited (Hard FM).