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Deals on funding the future

Two schools opening next year are set to be the first of many to be run by the private sector. Karen Thornton reports

Two very different schools with only three letters in common will be opening at opposite ends of the country next year.

But those letters - PFI (private finance initiative) - could spell out an alternative millennial experience for schools that has nothing to do with the Greenwich Dome.

Victoria Dock, a new 65-place primary school, is due to open in inner-city Hull in January. Colfox, a well-established Dorset secondary, hopes to move into its new buildings next September.

The two are leading a growing pack of PFI school projects in progress, and will be the first to be designed, built, financed and - crucially - operated by private- sector companies.

In return for annual revenue payments over the next 25 or 30 years, the two schools - and their education authorities will not have to worry about leaking roofs, replacing boilers, getting the hall floor re-varnished, or making good summer holiday vandalism.

Headteachers and governors, freed of day-to-day responsibility for "facilities management" (PFI jargon), will be able to focus on their own core business - educating pupils. Much has been made of the financial implications of PFI, but this educational spin-off is the added bonus as far as the Department for Education and Employment is concerned.

Converts talk avidly about the mutual benefits of the long-term partnerships involved in PFI (25 years is the standard contract length). Ultimately, service standards will be enforceable through financial penalty clauses in contracts, but most prefer to emphasise the positive effect of the profit motive and even altruism.

Sue Sanders, of the Public Private Partnership Programme (4Ps), the local government group advising councils on PFI, said: "Schools are a community resource and we don't want a contracting culture to erode that. Education appeals to the private sector because it provides a steady income stream. I have been pleasantly surprised by how concerned the private sector has been to take on board education issues. I put it down partly to the fact that education is something we all care about."

Sewell Construction Plc, the local family-owned business which will build and run Victoria Dock school, is keen to get its staff involved with school life, and there is talk of business mentoring and a place on the governing body.

But single school projects - like Victoria Dock and Colfox - make up only a proportion of those listed by the DFEE. The less-lucrative but crucial refurbishment and repair deals are based on groups of schools, within which individual institutions may not enjoy such close links with their private-sector partner.

Moreover, the requirement in multi-school deals to agree key principles with large numbers of governing bodies only adds to the length of a procurement process which the private sector already finds frustratingly time-consuming - as well as expensive.

Time and money remain the fundamental issues both dogging and underpinning PFI in schools. The projects in progress are averaging 18 months or more to get from initial idea to the award of a contract - with the delivery of the service still to follow. Education authorities are having to invest significant amounts of officer time in developing projects, while companies incur high initial costs in putting together bids and proposals.

"I don't think any of us would do this again because, with hindsight, no-one would take 18 months getting a contract agreed. But if you ask me to do it now, it would probably take a third of the time," said Robin Edwards, project manager on Dudley's information and communications technology deal.

And then there is the long-term financial commitment required not just from education authorities and central government but also from schools. Colfox's governors are committing about 12 per cent of their budget to their PFI to cover running costs - a large proportion of any school budget, when teaching costs eat up around 75-80 per cent of the rest.

"If you commit yourself to a large proportion of your budget for a long time, you loose flexibility and are left spending on fixed costs. Opportunities for schools to meet new challenges and come to grips with new initiatives become more limited," says Pat Petch, chairwoman of the National Governors' Council.

Doug McAvoy, general secretary of the National Union of Teachers, is also concerned about the long-term financial implications of PFI commitments.

"As with a low-start mortgage, there may be a period of deferment of repayment costs or part deferment which in later years could have serious implications for school budgets and thus the provision of education in the long term, " he said.

Sue Nicholson, assistant secretary of the National Association of Head Teachers, feels school governors need independent advice about PFI. "The DFEE says PFI is in the early stages and to see how it goes. But, if governing bodies have made the wrong decision or something goes horribly wrong, and they are left with no money in their budgets and no one to do the repairs, the buck stops with them," she said.

John Sutton, former general secretary of the Secondary Heads' Association, is nonchalant about PFI. "The general opinion is anything which provides capital finance which carries schools forward is probably worth doing. We don't see PFI as a major factor in the development of capital works."

Just how widespread the PFI experience will be is unclear. The DFEE lists nearly Pounds 700 million of school projects currently in development, but only around half of them have the Treasury approval that leads to government help with annual payments to contractors.

Cynics say PFI is an accounting technique for increasing capital investment in schools without adding to the Government's borrowing requirements. But it is a key part of ministers' pledge to double capital expenditure on schools over the next three years.

However, the PFI purse is no bottomless pit and officials are on the verge of rationing projects seeking financial support. Once the current schemes have been delivered, there may be a rethink on what kind of project is best suited to PFI.

All of which makes the question of whether PFI is as efficient or effective as traditional capital procurement methods of secondary importance.

"The first question is how are you going to get the money to meet schools' infrastructure needs into the next century. If current government policy remains enthusiastic about controlling public borrowing and limiting capital finance, we have got no choice but to go down the PFI route," says Greg Wilkinson, former associate director of the Audit Commission and nowa Labour councillor in west London.

"The next question is how do we do this so that we don't mortgage the future and don't end up being ripped off by private companies."

That sharing of information is already going on. The DFEE and other organisations are developing case studies and guidance on standardised procedures and contract clauses, so new projects don't have to re-invent the wheel.

What is clear is that both the private and public sector are only just beginning to get to grips with the potential - and pitfalls - of PFI.

At Greenford high school, Ealing, the dinner ladies clearing the plates after a busy Friday lunchtime could soon be resetting the tables for a wedding reception the next day. The school's Pounds 1m PFI project - currently waiting on planning permission and National Lottery funding applications - would provide it with new sports and catering facilities, built by a private company which would offset some of its costs by hiring out the facilities.

Headteacher Kate Griffin thinks PFI is exciting in principle - but frustrating in practice.

"PFI is going to have to become more streamlined if it's going to be a usual route for the procurement of capital. I don't think schools can go through this long and protracted business because that is not the main business of schools. "

* When Victoria Dock primary opens in January, it will be the first school in the country to be funded by the Private Finance Initiative.

The local company building the 65-place "village" school in inner-city Hull will also run all of its services - cleaning, repairs, building and grounds maintenance - for the next 25 years.

In return, the council and school will pay an annual, declining "rent". The capital value of the school will be around Pounds 2 million, with a total contract value over 25 years of Pounds 5 million - one of the smallest PFI deals currently in progress.

Kingston Upon Hull City Council went for a PFI deal because, with surplus places in the rest of the city, there was no alternative funding. The new school means parents and young children will no longer have to risk crossing one of Hull's busiest and most dangerous trunk roads.

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