Big deals and big money - the future of PPP and PFI looks profitable

30th January 2004 at 00:00
In the private finance initiative, across the public sector, construction companies have admitted they expect to make between three and 10 times as much profit through PFI deals as they do on traditional contracts, according to the Major Contractors Group. And public-private partnership contracts for running education support services such as advisers, IT and teacher training also look set to expand and diversify.

* Capita Strategic Education Services, which won a contract to help run education services in Leeds following a poor Ofsted report in 2000, has expanded from two directors to a team of 50 now working with 25 LEAs.

* Cambridge Education Associates' education business, which has a turnover of pound;50 million a year, sees a changing relationship between LEAs and the private sector based on voluntary partnership rather than compulsion.

It has been hired by Southwark council on a contract worth pound;2m a year to provide the top tier of "education leadership and management" for the schools' services.

* Vosper Thorneycroft, an engineering company, has established VT Education to form a joint venture with Surrey County Council called Four S (Surrey Schools Support Service). Eventually Four S plans to sell its services to other LEAs and already seven have expressed interest. The current pound;13m budget is expected to increase to pound;80m within seven years.

* The turnover of Nord Anglia plc, which runs services to LEAs and schools, rose last year by 3.9 per cent to pound;83.6m and profits were up 4.7 per cent to pound;5.1m.

Ian Harrison, managing director of Capita SES, agrees the market for outsourcing has changed. "The DfES has backed away from the compulsory outsourcing model partly because the contracts were too inflexible and punitive.

"Increasingly, LEAs are going to the private sector for consultancy and strategic planning for interim management and specific projects.

Potentially this is still a massive business because lots of LEAs are struggling on their own."

While some companies are looking to the service market, others have big expansion plans in PFI. Jarvis Education Services was recently awarded a second PFI contract with Kirklees council to design, build and operate four new schools in a 25-year deal worth pound;65m. This was despite delays to an earlier 30-year contract worth pound;313m to upgrade 20 schools.

Brighton and Hove council has also asked for a meeting with the company about problems with its construction contract there.

Despite the Southwark setback, Atkins has insisted that it will continue to expand in PFI ventures. A spokesman for their public relations company Brunswick said: "There is not enough of a comprehension of the difference between PFI and Southwark. Atkins has always been involved in PFI in education. That was the only contract which was a service contract running an LEA."

There is no sign, either, of Serco losing confidence in the education market, despite loss of management fees for missing performance targets in Bradford.

After announcing improved results in key stage 2 and 3 results, Mark Pattison, managing director of Serco's Education Bradford, said: "These are some of Bradford's best results for years - that suggests Education Bradford's partnership with schools and the council is working.

"We are determined to be a flagship for the future in education. We are aiming to combine the best of private enterprise with a commitment to public service."

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