Building schools for the future programme

United Kingdom

The production of standard form documents for the Building Schools for the Future (BSF) Programme continues to be progressed although with some concerns on the detail of the proposed model being revised by the private sector.

The BSF Programme is one of the Government's recently announced flagship programmes. This contemplates the public and private sectors setting up a joint venture delivery vehicle (the Local Education Partnership, or LEP) on a 20-80% ownership basis to coordinate the procurement.  This will be through a traditional PFI structure, design and build structure or otherwise, of the capital investment and ongoing services necessary for selected schools.  The intention is that the LEP will enter into a 10-year Strategic Partnering Agreement (SPA) with the relevant local authority, which, amongst other things, sets out the regime that governs the LEP's rights to exclusivity in relation to subsequent projects.

The PPP Forum, the industry body sponsored by 93 organisations that play a leading private sector role within the PFI/PPP industry, has recently provided comments on the draft standard form documents (comprising a SPA, Shareholders' Agreement and Project Agreement, as well as a number of ancillary documents and sub-contracts) issued in August 2004 by Partnerships for Schools (PfS) in relation to the BSF Programme.

Acknowledging that exclusivity significantly enhances the attractiveness of the programme, concerns have been voiced that although the LEP's exclusivity to undertake any approved project extends to the 10-year term of the SPA, after the 5th anniversary, its preferred supply chain must be mandatory market tested. The reality is that the private sector partner in the LEP may only have a 5-year exclusivity period. While the private sector understands the need for the public sector to show value for money, it is concerned that the suggested approach may not be appropriate and would seek an alternative and more balanced methodology.

Further criticism was also levelled against the "New Project Approval Procedure" as set out in the SPA. The proposed payment structure means that the LEP would not recover any costs incurred during the approval process until financial close of the relevant project when such costs would be remitted to the LEP by way of a management fee. This raises questions as to how a LEP would fund such costs which could be extensive given the detail required for the proposals. The logic of a 2-stage process has been questioned and the need to address the LEP's recovery of costs in more detail.

Comments on the Shareholders Agreement, including in relation to the public sector pre-emption rights, evidenced certain concerns about the potential for 100% ownership by the public sector of the LEP, as well as issues in the secondary markets.  Detailed response was also provided in relation to certain of the entrenched minority shareholder rights, which the public sector would hold.

PfS is currently consulting with a number of interested private sector participants, as well as liasing with the Forum in relation to its comments, with a view to producing redrafts of the standard form documentation thereafter.

For more information on this topic please contact Jonathan Beckitt on +44(0) 207 367 2113 or at [email protected], Nancy Eller on +44(0) 207 367 3412 or at [email protected] or Carina Radford on +44(0) 207 367 2536 or at [email protected]