Private cash may yet save crumbling classrooms

The buildings and grounds of England's state schools are probably worth Pounds 50 billion. This year, we are spending a measly Pounds 700m on replacing and repairing them.

No wonder successive reports by Her Majesty's Chief Inspector have pointed to the crumbling state of the country's schools. As John Whitaker, head of the schools capital and building team at the Department for Education and Employment, told a conference in London last week, the replacement cycle for school buildings is three or four times what a commercial firm would think reasonable to keep its stock in good order.

What is to be done? A big increase in capital spending sanctioned by the Treasury is most unlikely under this Government or a Labour successor. Instead, both the Government and the Labour Party are pinning their hopes on the injection of private money to rebuild and spruce up school buildings.

The Private Finance Initiative (PFI), launched by the Chancellor, Kenneth Clarke, in 1992, has so far made little headway in local government. Attention has focused on big central government projects such as the Pounds 3bn Channel tunnel rail link. Local authorities have been reluctant to embrace financial links with the private sector, and cumbersome regulations originally designed to cut down on "loony left" abuse have stood in their way.

The private sector, for its part, is unwilling to get involved with schools. John Whitaker's description of the common business view- "a school system fragmented into thousands of small quasi-businesses run on a shoestring" - elicited nods of recognition from his audience at a PFI conference last week.

Now, however, the Government has got rid of many of the constraints on local government participation in the scheme. New rules make it possible for them to enter into "design, build, finance and operate" (DBFO) contracts with the private sector, and most of those contracts are expected to be for schools.

Under the new rules, local authorities can replace a school with another building to be used for the same purpose, but DBFO-funded. The buildings can be either renovations or completely new, and can be on a different site. The contractor must be responsible for both buildings and facilities management and must assume the full risk of any increase in costs.

The school or authority pays the private operator a fee for using the buildings, the level of payment being based on the performance of the private sector against agreed levels of service.

A less ambitious model is "dual-use" schemes. Under these, the school never parts with any cash. The private sector operator undertakes to build or renovate a facility on the school campus, such as a sports hall, the school and private operator share access to the facility, and the private operator gets a return on the investment by charging for its use out of school hours.

Ministers have persuaded the Treasury to accept that money spent by councils on PFI schemes should be additional, and not count as part of their capital spending, and that revenue spent on PFI should not be liable to capping. Robin Squire, the schools minister, announced last month that the Government is to give Pounds 50m in revenue support for PFI investment for schools in English local authorities this year and next.

These carrots, the Government hopes, should finally lead private sector capital to a union with public sector schools. The Department for Education and Employment, the Private Finance Panel Executive and the "4Ps" - a unit set up by the local authority associations themselves - are all trying to help.

The aim is to get so-called "pathfinder projects" going that can form templates for other similar projects. Although no contracts have yet been signed, three DBFO schemes are well advanced and should go ahead next year. The most widely publicised of these is the Pounds 18.5m scheme to replace Pimlico School in Westminster with a new building, now awaiting a long-delayed government decision on whether to list the current building.

Further advanced is the Pounds 9.5m project to replace the Colfox School, a secondary school in Dorset, where contracts should be signed next March. St Wilfrid's, a grant-maintained school in Blackburn, is awaiting a planning decision by the local council on its Pounds 8m plan to rationalise its buildings on to a single site.

These are schemes for the complete rebuilding of schools. Others among the 12 pathfinder projects identified so far include an Pounds 8m project to develop a dual-use sixth-form and conference centre and all-weather sports pitch at a county secondary and a number of more modest schemes to provide information technology, catering and modern energy management systems for groups of schools.

By devising schemes for groups of schools the public sector can make less radical schemes attractive to private finance. Many schemes for individual schools would be too small to be suitable.

Mr Whitaker admitted at last week's conference that the PFIwas not " a universal panacea". The private sector would not be able to get sufficient return for the risk in many cases, he pointed out, because the market for leisure facilities might already be saturated in a town.

But he stressed the positive side: the scope for school building work arising from factors as diverse as school reorganisation, the flat roofs of the 1960s and voucher-fuelled nursery expansion; the experience of LEAs and church authorities in dealing with property; and the exhaustion of other means of paying for school buildings. Some 25 to 30 LEAs had already approached the department with ideas for schemes, he said.

David Curry, local government minister, told the conference: "No LEA is forced to use the PFI. But those who don't will be providing a less good service and may be kept waiting quite a long time. The winners, inevitably, will be those who are fleetest of foot."

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