Repairs slip through funding net

22nd December 1995 at 00:00
The private finance initiative is no help if you need less than Pounds 5m, reports Nicholas Pyke. The Government has been told that urgent repair projects in deteriorating school and college buildings will remain undone because they are too small to attract money through the relaunched private finance initiative.

College heads have warned education ministers that no PFI project costing less than Pounds 5 million can get off the ground because of the high overheads and risks involved.

The Further Education Funding Council this week conceded that a Pounds 5m threshold is likely for most PFI schemes. The FEFC intends to include the figure in formal guidance published in the New Year.

This would rule out much of the repair and refurbishment work currently bedevilling schools and FE colleges, and casts further doubt on the claims made for PFI, which the Government hopes will revitalise the public infrastructure using private money.

Gillian Shephard, the Education and Employment Secretary, announced that the initiative could raise Pounds 1 billion in educational investment over the next three years. The DFEE has put colleges under immediate pressure to find private investment, cutting Pounds 100m from their capital allocation over the next three years.

But potential developers have already expressed doubt about the viability of education projects. They point out that, unlike hospitals, schools and colleges do not have enough money at their disposal to pay investors a suitable return.

The Association for Colleges, representing college principals, has written to FE Minister James Paice warning that the PFI will be unable to make up the Pounds 100m shortfall.

"Smaller projects such as those required to maintain or improve existing building stock, or to replace equipment, do not appear to offer opportunities likely to be attractive to private financiers," writes the AFC.

"There is a considerable backlog of capital investment needs within the sector and any failure to address this will increasingly threaten the ability of colleges to deliver the objectives sought by Government."

"There is," says the AFC, "little or no evidence to show that PFI can provide a viable solution."

There is an estimated Pounds 20bn backlog of repairs in schools but most individual jobs fall well below the Pounds 5m mark.

"Most new primary schools cost less than that," said Alan Parker, education officer of the Association of Metropolitan Authorities. He dismissed PFI as "largely irrelevant to the education service".

To date only two schools' projects have been listed by the Private Finance Panel which oversees the scheme; neither of these has got beyond the initial stages.

The concern about smaller projects is shared by the investment bankers, Hambros, who describe the existing procedures as impractical. In advice compiled for Bournemouth and Poole College of Further Education, the bank says that the initial calculations of risk and return required by the FEFC are so expensive as to rule out all except major projects. It also says there is no way of judging whether or not individual education schemes are good value for money.

Philip Head, head of the FEFC's PFI unit, promised new guidelines to help colleges make faster assessments. "We have already taken the view that PFI testing procedures should be commensurate with the size and nature of the project," said Mr Head.

Below a cost of Pounds 5m, he said, projects were less likely to attract investors - although he urged colleges to keep an open mind.

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