Difficult sums

Of the entire public spending bonanza, the spree in education looks one of the safest bets for the industry. "There is increased determination and a lot of money going in," says Mike Pocock, business development director at Balfour Beatty. "In PFI especially there are good relationships at the moment and a process that is speeding up. We are putting a lot of effort into education."

Publicly funded new-build work is continuing, although this is largely confined to projects of about £1m. The bulk of taxpayers' money is being aimed at the politically visible problem: the country's £7bn repair backlog. The aim is to cut this by one-third in the next three years. Money is also being spent on providing an extra 250,000 school places as well as a £220m package for disabled access.

This sounds encouraging, but local authorities, so long overwhelmed by underinvestment, are finding it difficult to believe that the promises are for real. "There is scepticism on the ground," says Martin Hewes of construction analyst Hewes & Associates. "Authorities have heard extra money is coming but they are hesitant to move forward until they actually see it."

The problem is the sheer complexity of the financial relationship between local and central government. An attempt was made earlier this year to streamline decision-making by having councils report on local assets, but so far this has had little impact.

Prospects for the PFI
For contractors, the key to the educational experience is to do their homework on the government's pet procurement route, the PFI. Although the public is still unpersuaded of its merits – a MORI poll in The Times revealed that two-thirds of the electorate believe education funding and delivery should remain in the public sector – it seems that education has been a secret success. "PFI in schools is excellent right now," says Martin Lipson, schools officer for the Public Private Partnerships Programme (an advisory service for councils, also known as "the 4Ps"). "The sector is showing the way; those involved are unsung heroes."

The number of projects, and the money being poured into them, reflects this confidence. On top of 20 PFI schools already up and running, there are signed contracts of bundled schools totalling 451. These have a total capital value of £800m. Coming soon are a further 23 bundles endorsed by the Treasury, which, when signed, will add an extra 148 schools to the PFI sector. Including deals for refurbishment, the total number of schools to get the PFI treatment will be about 600. From the government's kitty there will be at least £450m available in 2001/2, £750m in 2002/3 and £850m in 2003/4 (see graphic to the right).

The figures are mouthwatering, but there are still significant question marks. Besides the wearily familiar problem of the PFI's drawn-out procurement process, there is the issue of whether the funding is being distributed efficiently.

We’re in a blank space. Things are progressing, but it’s baited breath

Mike Roberts, Amec Education

The sticking point has been the schools' PFI credits toolkit – a best-value model developed by the Department for Education and Skills with Pricewaterhouse Coopers. It was devised as a way of determining how much money a project should be allocated, but some schools have reported that the figures it generates are way off the mark. For one upcoming scheme in Sheffield, the toolkit recommended £25m – some way off the £30m that was required.

Although funding guarantees a project, some firms, especially those eager to get into the sector, want to know what the government's ballpark figures mean in reality. They are arguing that Whitehall should give them more help – preferably formal guidance on winning work. So far, ministers have responded with a white paper that gave much less guidance than they had hoped for. "We are in a blank space at the moment because we're waiting for the government," says Mike Roberts of Amec Education. "Things are progressing, but it's a baited-breath scenario."

Is bundling best?
The move towards "bundling" PFI schools - grouping several schools into a single tender process – has simplified things, but is controversial. Some of these bundles are huge: Norfolk recently put out 86 schools to a single bid, while Stoke-on-Trent is offering its entire education estate of 125 schools. The major contractors argue that this bundling saves money by creating economies of scale – especially during the facilities management phase. It also ensures that smaller, less profitable projects do not get missed.

The monster bids do require stronger cash flows to underwrite them, however. This has left the market largely to bigger firms: national players such as Jarvis and Balfour Beatty. "On prequalification, smaller local firms may be booted out in favour of the big boys," says Richard Tierney of financial adviser RSM Robson Rhodes. "It is a significant barrier to entry and arguably means that if you're not in education PFI now, you'll find it very difficult to get in later."

This could lead to a less competitive market and less innovation. Another problem with bundling is that a firm is then dealing with a multi-headed client, a hydra of school governors and teachers. "The process of keeping everyone on side can be a bit of a rollercoaster," admits 4Ps schools officer Lipson.

The complicated bidding process can also be expensive, with development costs between consortiums and a local authority sometimes as high as £3-4m. One common complaint is of risk and delay in the judicial review period, when a bid goes up for planning permission. This can drag on for as long as three months, which construction firms argue is unnecessary and expensive.

One frustration being squeezed out of the process is the failure of local authorities to share their PFI experiences. This meant that each one had to start from scratch – one of the reasons for the high development costs of first-generation PFI schools. The situation has improved now that the Treasury's Project Review Group road-tests schemes as they develop. The 4Ps has also contributed, with network meetings to pool knowledge – so far these have attracted 22 local authorities. Again, though, formal government guidance is what is really being sought.

If the government wants 50% to go to universities, they will be the next big area

Patrick Gardiner, managing director, Jarvis Projects

What's in it for designers?
One of the government's set texts is design, and contractors, knowing they will have to live with a bad building for 25 years, make assiduous pupils. "We have to demonstrate the ways design can save costs over the whole life of a building and help deliver education," says Sunand Prasad, board member of the Commission for Architecture and the Built Environment and partner of Penoyre & Prasad. "Good architecture helps firms to run schools, as well as deliver education, by boosting morale."

A range of initiatives has been set out to do this. In Sheffield, the university's architecture department is helping the council to spend its grant on high-tech laboratories and classrooms designed to stimulate children with special needs. Then there is the £9m School Works scheme, a body set up by the Architecture Foundation to rethink every aspect of design in the failing Kingsdale School in south London. Part-sponsored by CABE and badged as a Movement for Innovation scheme, the school was developed by teachers, parents and pupils as an extended client. Work on the de Rijke Marsh Morgan design starts on site next summer.

Elsewhere, signature architects are moving into the sector, with Foster and Partners last month starting design work on its first UK school project in 20 years – two £10m schemes in London.

The aesthetics of a building are becoming more important to contractors taking on facilities management. Being pushed into the foreground means that firms are increasingly identified with the final look of a building. And if they are smart, there are community benefits to be reaped: construction bosses are regularly invited to join boards of governors, and some have even been invited to talk at speech days. This is a good way to see and understand the sector from the inside.

"At Barnhill, I was shaking hands for hours," says Patrick Gardiner, managing director of Jarvis Projects. "I talked about construction and how it makes you value the work you do – it went down without too many yawns."

Schools are the focus of the government invest and rebuild programme, but colleges and universities are being eyed up as well. Last year, two capital project schemes worth a total of £449m and a £40m laboratory refurbishment programme were set up to drip-feed cash into the sector, again with a bias towards the PFI. To date there are 11 signed and five unsigned projects, with Sheffield University taking the lead with a £270m scheme to rehouse its student body.