Mission impossible?

Construction iStock 000002149516XSmall 146x219Peter Hill and Rebecca Hazeldine review the Department for Education’s recent announcements in relation to the Priority School Building Programme.

The Priority School Building Programme (PSBP) announced by the Coalition Government in summer 2011 is intended to replace and renovate those maintained schools and academies in the worst condition and to meet the demand for new school places. This demand is particularly marked in certain inner city areas.

Selection of 261 schools for inclusion in the programme was confirmed by the Secretary of State for Education on 24 May. This number is consistent with the forecast of 100-300 schools made earlier. Selection had been expected in December 2011, but over 580 applications were submitted. The volume of these significantly exceeded the available funding, so that stringent affordability testing has been applied.

The Labour Government’s predecessor Building Schools for the Future (BSF) programme was concerned with building new schools to improve the teaching and learning environment with the selection of projects heavily influenced by low educational attainment and social deprivation. In contrast, PSBP will focus on ensuring that irrespective of these factors, the condition of school buildings and facilities are fit for purpose, that is, with enough places and in good repair. PSBP aims to bring the most dilapidated schools up to standard. However, given the relatively modest scale of the funding for PSBP and the poor condition of many school buildings with the huge backlog of outstanding maintenance, there is not much prospect that widespread improvement of the condition of the school estate will be achieved in the foreseeable future.

As part of the Government’s struggle to reduce public spending, PSBP was conceived with the expectation that the programme would be privately financed and so off the government balance sheet. Financing would be by an improved version of PFI (Private Finance Initiative), delivering projects more cheaply, more quickly and providing better value for money than BSF.

The programme would respond to the numerous and sharp criticisms of education capital spending made by the James Review. As information about PSBP has trickled out, we can see that to achieve this, PSBP will involve:

  • Stricter business case affordability tests
  • Baseline design guidance from government (rather than standardised designs, as envisaged by the recommendations of the James Review)
  • Fast tracking through the design and planning authorisation process, with streamlined consultation
  • Centralised procurement by the Education Funding Agency (EFA) rather than by local authorities, with fewer procurement frameworks
  • Projects batched together to increase contract values, with better value for money through construction volume discounts
  • Project costs at least 20% lower than for comparable BSF projects, with strict cost control. The EFA may set even tougher cost reduction targets.
  • A financial mechanism which allows benchmarking of the cost of finance throughout the life of the project, and where the existing financing no longer offers good value, the ability to refinance on better terms.

Another reason why the programme has been slow to kick off at project level is the need to reconcile value for money in financing costs with current conditions in the financial markets. A consequence of the current turmoil in the euro zone is that UK gilt yields have fallen to historic lows, allowing the UK government to borrow 10 year and longer term money at less than 2% pa – borrowing which it is trying hard not to do. Commercial banks (increasingly reluctant to lend as another credit crunch looms) simply cannot offer private finance on more competitive terms than this.

The DfE are working closely with the Treasury to ensure that PSBP is aligned with a new PFI model. However re-inventing PFI is no easy task. Many think that even the best brains in the Treasury are finding it difficult to come up with a model which demonstrates good value, when government borrowing would be so cheap. Does this mean PSBP projects should be put back on the government balance sheet? The Chancellor of the Exchequer will be damned if he does, and damned if he doesn’t, and the only alternative is no projects at all.

Peter Hill is an Associate Director and Rebecca Hazeldine is a Trainee Solicitor at TPP Law. Peter can be contacted on 020 7921 3987 or by This email address is being protected from spambots. You need JavaScript enabled to view it..