As governments across the globe grapple with the demands of providing services to growing populations, infrastructure investment takes an increasingly central role in their planning. In South Africa, the National Development Plan places a significant emphasis on education as a key driver of economic development. Funding is the cornerstone of the government’s plans to accelerate the delivery of better education infrastructure through its Accelerated Schools Infrastructure Delivery Initiative, which aims to deliver 150 new schools in the 2014/2015 financial year.
KPMG’s global Education Centre of Excellence has assisted a number of governments in delivering large-scale infrastructure projects across the globe, including schools. The firm’s experience in a number of jurisdictions is that governments are increasingly using Public Private Partnerships (PPPs) as a vehicle for funding, procurement and delivery of large-scale school building programmes. By no means is the PPP model appropriate for all school building projects, and in many instances governments have used the traditional public finance investment model. However, PPPs offer significant benefits in cases where a number of schools must be built in a relatively short period of time.
This was the case in Alberta, Canada, where the government implemented its flagship Alberta Schools Alternative Procurement programme. The programme, the largest schools PPP in Canada, saw the delivery of 40 schools across a number of municipalities in the province and was completed in three waves. In the first wave (which took approximately three years from planning to delivery) 18 schools were delivered, and in wave two and three 10 and 13 schools were delivered respectively.
The Alberta Department of Education and schools boards recognised that they did not have the capacity or ability to build schools on a large-scale basis. The province’s solution, based on consultation, was a PPP that would allow the project to be completed on a bundled basis. The Alberta model comprised four components, which included the design-build phase, financing, maintenance, turnover of maintenance and a facility condition review.
The province also recognised that constructing a large number of schools at once would lower the cost per school and deliver design efficiencies, optimise supply chain management by using a single consortium, and accelerate the construction schedule.
When the government in England faced similar needs, it opted for a similar approach in its Priority School Building Programme, which is the current schools capital investment programme. Although the project would largely be funded by way of direct capital investment from government, it will use a private finance model developed specifically for the building of approximately 46 schools across five locations, with each location constituting a batch.
Each batch, which comprises seven to 12 schools, will require between £120 and £160-million in capital spend, which will be raised through senior debt financing using an aggregator vehicle. The aggregator vehicle, which will pull funding from various sources including bank debt, government and private bonds, is a distinctive solution to raising finance in a constrained funding environment and allows each batch of up to 12 schools to be completed concurrently. This means that detailed designs of what is required from the procuring authority, as well as planning approvals, must be completed ahead of the project going out to tender, which in turn will alleviate some of the challenges that may arise in the procurement of major infrastructure projects.
PPP model: pros and cons
In both England and Canada, the governments opted to bundle the delivery of schools, which has obvious benefits. However, one of the key drawbacks of this approach for bidders is the requirement to deal with multiple stakeholders, including various public sector bodies and school governing bodies. In South Africa, this is less likely to pose a significant challenge as the Department of Basic Education is sole procurer, although dealing with multiple municipalities will bring its own set of challenges.
Timing is a key challenge. Typically, the duration of a school build project is 18 months, and in England the project is expected to be delivered in 12 months. This necessitates that scheduling of all aspects of the project from procurement to construction and delivery are timed meticulously with little room for project delays.
Schools, in particular, present a unique challenge as construction needs to be completed in time for the new school year in order to minimise disruption to learners. In building roads, for example, deadlines may be more flexible. Contractually, construction companies are required to meet the deadline, and there may be penalties built into the contract should this not happen. However, there is flexibility. With schools infrastructure builds, timing is critical. This relates particularly to the procurement of land and land usage rights. It is acutely important that these fundamentals have been put in place as this could significantly delay the project build.
A crucial concept in PPPs is that risk needs to be allocated to the party best placed to manage it. Schools are at major risk of vandalism and it is important to define clearly with whom the cost of repair lies. The benefit for the public sector in the PPP model is that the private sector assumes the risks of construction; an added benefit of the Alberta model is that the private sector will maintain and manage school infrastructure for 30 years. As planning and funding is to be completed on a long-term basis, the PPP model adds an asset management perspective to the procurement of infrastructure under the school build programme.
Although each PPP will need to be fit for purpose, there are a number of benefits that result from their implementation. They are more useful in communities or countries experiencing economic growth where finance is available for large-scale projects. PPPs can work in many, but not all cases. This model may not work for the building of individual schools projects. However, if there is a need for a large-scale build, a PPP process may be best suited. Governments will ultimately need to select the right projects.
Ntsiki Mpulo is a Communications Manager at KPMG
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