Mowlem’s bitter lessons

Mowlem’s PFI schools programme in Exeter is becoming a nightmare, and is just the type of problem contract that led to this week’s £73m pre-tax loss.

September has not been a kind month to Mowlem. The construction giant has taken a £70m hit on a mixture of building, infrastructure and PFI contracts. And its most high-profile difficulties at Bath Spa – five years late, £27m overbudget and culminating in Mowlem’s withdrawal from the project in April – have increased with allegations of further faults by Bath council's project manager, Capita Symonds, including sub-standard internal fire doors and a crack in the basement. This could add another £1.3m to the pricetag.

But it is a project in Exeter that perhaps best shows the impact problem contracts are having on Mowlem and its clients. Four of the six schools it was building in the city as part of a £95m PFI contract were due to open their doors to students on 1 September. Three of them did not, and will not until January at the earliest. It is a PR disaster. Hundreds of kids are crammed into mobile teaching units – 20 of which have had to be bought in at a cost of several hundred thousand pounds to the local education authority. This had led to calls for Mowlem to publicly apologise.

The row looks set to escalate, with a disagreement over payment brewing between a client looking to get the best possible deal and a contractor trying to avoid losing money on delays for which it does not believe it is responsible.

Mowlem was due to have rebuilt vast chunks of these schools in a massive reorganisation of Exeter’s education system from first, middle and high school system to one that fitted the modern curriculum of primary and secondary tiers.

This meant allowing children into the senior schools a year earlier – aged 11 rather than 12 – and therefore increasing capacity in those buildings 25%.

Appointed in June 2003, having been part of what is now an extraordinary-looking shortlist of three – the others were Jarvis, which today is £380m in debt, and Ballast, which has long since been left for dead – Mowlem was given an extremely tight deadline to rebuild six schools in two years. Four of the schools had to be ready by September this year – St Luke’s, St James, Isca and one primary school, which the contractor actually finished early. The other two secondaries, called West Exe and St Peter’s, were not due for completion until this November and January respectively. Both are now unlikely to be ready until the start of 2006. As Ingrid Fisher, assistant director of education at Devon council, says: “We always knew it was an ambitious programme.”

Too ambitious, perhaps. The local education authority had people on sites to keep tabs on any problems that might occur during construction, but the pace of work meant that the client missed faults: “To meet the timescale the projects got off to a flying start; it speeded ahead so a lot of things happened concurrently,” says Fisher.

What was initially missed has proved crucial. In the technical areas of each of the schools, such as science and design technology facilities, fixtures and fittings were in the wrong places. As a result, the schools and LEAs wanted the facilities redesigned. It wasn’t immediately apparent that this would cause delay, but the knock-on effects – such as being unable to decorate rooms while gas pipes were moved – have moved the schools back. It was only about three months ago that the LEA realised that the schools would not open on time, despite the fact that many of the design faults were discovered a year ago.

Isca College of Media Arts
Isca College of Media Arts had been renamed having been known until last year as Priory High School. It was due to open on 1 September to 700 pupils aged 11-16, but the revamped school will not be completed until January.

There are several possible reasons why there was the misunderstanding between what the client wanted and what Mowlem thought it should be constructing. One is the output specification of the PFI document. In this, the school has to explain what it needs from certain rooms – for example, to accommodate 30 students and teach them science. Unfortunately, these documents are not particularly specific. “A risk of output specifications is that they do leave things open to interpretation,” says one industry source. Felicia Hart, the head teacher at St James’, adds: “We weren’t able to say you need a room shaped in a particular way to teach effectively – we know what’s effective because we’re working in education on the ground. Putting teachers’ expertise on top of an architect’s doesn’t work.”

The longer it took, the further the gap between what the client wanted and the team’s assumption

Source close to Mowlem schools consortium

As a result, the layouts were the wrong shape, and Mowlem’s team would assume rather than know precisely what the client wanted. This led to fundamental problems such as children sitting in particular seats being unable to see the blackboard. Such a major revamp of moving the fixtures to fit the layout takes time, and by May the school was questioning Mowlem as to how the development could possibly be ready by September, having noticed unfitted ventilation pipes and loose wires.

At St Luke’s, Mowlem thought that the client wanted modern pod design units in its science laboratories, in which children work in a central area. But the staff actually wanted a more traditional layout, with rows of desks fitted with gas pipes for Bunsen burners. As St Luke’s head teacher, Terry Hammond, puts it: “The reason for the delay was that to meet with our requirements certain services have to be relocated to specific positions within the science areas.”

A source close to Mowlem argues that the mistakes were caused by the client’s failure to come up with its furniture, fittings and equipment needs until late last year: “The consortium was waiting for detailed information but it came late. The longer it took, the further the gap between what they wanted and the team’s assumption.”

However, some senior education sources in Exeter say that Mowlem should have taught them how to read designs properly. That way they could have spotted the design differences earlier. For example, one senior staff member showed a Mowlem employee a wall on the designs where she wanted to place a teaching board, only to later find out that it was nearly entirely earmarked for window space. The Mowlem employee didn’t initially notice this either.

Because of the problems that have arisen, Mandi Street, head teacher at Isca, challenges the whole procurement method: “PFI projects are very complicated and as a result so are the communication and change mechanisms.”

In a traditional contract, had Street wanted to adjust designs, she would have gone to the LEA’s property department, who would contact the builder immediately, or even just have talked to Mowlem directly herself. PFI is a much more prolonged process, as the schools have to make the case for change to the LEA, which then does the same with the contractor. Any change could potentially contradict a heavily detailed PFI contract, so time is taken as the parties pore over the document.

Although the other two secondary schools have not been subject to design changes, the extra time taken over the initial three has subsequently delayed those programmes as well. A source in Mowlem’s consortium complains that the client did not notice the problems early enough and is therefore responsible for any delay – whereas many on the opposite side argue that the contractor hasn’t pulled its weight, having been asked and confirming at the shortlist phase that it would be able to meet such a tight schedule.

Mowlem and the council are currently in negotiations over the extra money the consortium requires to complete the project. It seems the council is willing to provide additional funds – “When there is an authority change order [on designs] you expect the builder to ask for reimbursement of the costs incurred,” says the council’s Ingrid Fisher – but there are grumbles that Mowlem is seeking more cash than it needs. Some sources close to the council jokingly admit that they would do the same in Mowlem’s position, but whether the demands are actually high or not, they insist they will get Mowlem’s price down: “We’re not going to pay anything extra,” says one.

Mowlem declined to comment on the financial terms, but in a statement the contractor hints that the delays are down to the client: “We are proactively engaging with Exeter council in order to reschedule the completion dates for the schools following the council's instruction to make significant changes to the scheme. It is hoped that we will reach agreement at an early date.”

So, September might not have been Mowlem’s best month, but it looks like this particular row could get even worse.