Where now for BSF?

The coalition government's capital expenditure review has significant implications for Building Schools for the Future. Frank Suttie looks at what this means for authorities and examines how they might respond.

As part of a wide ranging review of public sector capital expenditure programmes the newly rebranded Department for Education has been required by HM Treasury to review major projects including Building Schools for the Future (BSF). The agenda is clear – there is a determination to make significant savings involving, where feasible, a reversal of the last government's expenditure policies, and there will be implications for all authorities involved in BSF programmes.

Thus far, no specific statement has been made regarding the future of the BSF initiative except for a brief message on the PfS website (10 June) indicating that delivery of new schools will continue but cost effectiveness and efficiency of the delivery programme is under review.  It is now well known that £1.7bn is to be saved by delaying and stopping contracts and projects, including immediate negotiations to achieve cost reductions from the major suppliers to government, and £600m is to be obtained by cutting the costs of quangos.

What might happen next?

It will take some time for the coalition government to get to grips with any issues that they perceive require attention. Those involved in the review are likely to take particular note of the way in which BSF investment is being delivered and the management of that delivery, starting with the role played by Partnerships for Schools.

Consideration will in particular have to be given to due process and the potential need to consult with stakeholders, both formally and informally, in relation to future intentions where these represent a radical departure from what has been expected to date. Yet, although there is likely to be consultation, a number of decisions may well be taken that avoid the government's intentions being compromised by continuing to follow existing processes.

There is now some doubt around Full Business Cases that may be presently under consideration and the process of appointing a selected bidder which can only be achieved by a local authority with the support of Partnerships for Schools.

What position will BSF authorities with a Local Education Partnership (LEP) find themselves in?

Access to a continuing stream of capital and PFI credits will have been assumed when the authority's LEP was established and a 10 year Strategic Partnering Agreement signed up to. The private sector partner and its supply chain will have committed to resourcing the LEP, carrying a level of overhead cost in consequence, and bid and development costs will also be carried forward.

There may also have been secondment of staff to the LEP, both from the private sector partner and from the authority.

Finally, the authority itself will have resourced its BSF programme at a level that assumed a particular level of activity in relation to new and existing projects. Some authorities have committed to dedicated BSF office accommodation – possibly shared with the LEP.

It is of considerable importance to also recognise that contractual exclusivity will have been given to the LEP under the Strategic Partnering Agreement in respect of the redevelopment of the secondary school estate.

The local authority will have agreed to a carry forward arrangement in relation to costs of the LEP. LEP Initial Set Up Costs are defined to cover bid and construct settlement costs and expenses, but excluding project specific costs.

What is the position of BSF Authorities at selected bidder stage?

BSF authorities who have selected their preferred selected bidder will need to consider carefully the status of their relationship with that party. Whilst bidders who were previously deselected under competitive dialogue have little basis upon which to make any claims against the uthority, the position as between the uthority and its selected bidder may well be very different.

If a selected bidder has just been appointed, then the authority should take urgent legal advice on its position. Significant additional development costs are incurred by the private sector partner and its supply chain through the selected bidder phase in the lead up to financial close. Reconsidering the position at an early stage will mitigate these costs – possibly very significantly.

Local authorities who on advice do have to consider claims for abortive costs would want to approach this on a forensic basis and appropriate legal and financial advisors should be appointed to assist the authority in assessing the quantum of any compensation that may have to be paid.

What about authorities at an earlier stage in the process?

Authorities who have issued an OJEU or are currently preparing an outline business case will be concerned to understand at the earliest possible date what benefits they will derive from continuing to commit expenditure to the programme.

Even at a relatively early stage in the process authorities will incur expenditure on consultancy and other costs that can quickly become a six figure number. There may be benefits that the authority will derive in any event from work undertaken, such as through the development of meaningful strategy for change statements, but the ability to see that through into a BSF procurement will now undoubtedly be viewed as problematic.

What about academies?

A new academy procurement framework took effect earlier this year with a number of construction companies appointed to undertake academies in a programme that is anticipated will go forward. It is hard to believe that the Department will require Partnerships for Schools to cancel the existing framework arrangement which can be useful in many respects going forward.

No commitment was given to contractors as to the quantity of design and construction works that would be undertaken through the framework and therefore any decision taken is unlikely to lead to any sustainable claims against Partnerships for Schools or the Department.

Contractors finding themselves in the position of having resourced specifically to undertake work under the framework will simply need to reassess the requirement for that resource in the light of decisions yet to be taken.

Local authorities currently procuring academies through the framework are entitled to ask questions at this time as to whether to continue to proceed with the procurement.

Responding to the new challenge

Local authorities will have spent considerable time developing their plans for the secondary school estate around BSF. They will, in consequence, have deferred repair and maintenance works that may have been planned to have been undertaken on existing schools anticipating that these assets would be ultimately removed from the school estate.

Local authorities will need to reassess their long-term strategy for the secondary school estate – perhaps with greater emphasis upon FM and the management of accommodation issues with particular emphasis upon health and safety considerations. They will be able to take advantage of one particular positive, and that is that the BSF process has led to FM contractors focussing on the requirements of the school estate and the demands of providing services within an educational environment.

This would be a good time to consider the development of a coherent FM strategy in the knowledge that there is an ability within the private sector to deliver an appropriately focused service which can be customised to the budget of the local authority and its schools.

Frank Suttie is a partner in the local government team at national commercial law firm Beachcroft LLP (www.beachcroft.com).