mike geraghty project director argyll and bute council npdo/ppp project mikegis@hotmail.co.uk
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Mike Geraghty
Project Director
Argyll and Bute Council
NPDO/PPP Project
mikegis@hotmail.co.uk
NPDO – An Alternative to PFI?
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2001 2006 2011 2016 2021
Scotland
Argyll and Bute
Population Projections – Argyll and Bute (base year 2001)
Age Band Projections – Argyll and Bute(base year 2001)
0%
10%
20%
30%
40%
50%
60%
70%
2001 2006 2011 2016 2021
0-15
16-44
45 andover
The Context
•Education – above average results – poor and deteriorating schools.
•Widespread dissatisfaction with condition of schools.•Technical – poor almost non-existent management
information re condition of buildings.•Financial – inadequate budget – borrowing power
restricted.•Conclusion – the Council could not undertake the
works necessary within the existing resources at the scale and pace required.
The Problem
• Commissioned property condition surveys.• Informed estimates suggested that it would take all of
the budget for the next 20 years just to overtake the backlog of repair and maintenance.
• Significant improvement to layout, design, accessibility etc was estimated to double/treble the cost/time.
• The Council’s ability to borrow money was restricted by legislation (Section 94).
• The Council could not undertake the works necessary within the existing financial resources at the scale and pace required.
PFI Model - Features
• The private sector contracts to design, build, finance and operate an asset-based service.
• The public sector client pays a fee over the life of the contract.
• The payment of the fee is dependent upon the asset/services meetings specified standards – failure to deliver results in payment deductions.
• The specification includes for a managed service, facilities management and on-going life-cycle maintenance.
Off balance sheetaccounting
Revenue fundingsupport available
Performance based payments
Initial capitalinvestment
Single pointdelivery system
Life-cyclemaintenance and
facilities management PFI
Improved service provision
What can PFI deliver?
The AuthoritySpecial Project
Vehicle/Company
Building Contractor
Maintenance Contractor
ToDeliver Services
Contracts
Building Contractor
Banks
Maintenance Contractor
Contracts With
Pays for this service delivery through the
AUC
Comprises
Typical PFI Structure
Why Not Use PFI?
• Criticisms of some early PFI from influential bodies.• Lack of democratic input into what had previously
been provided by the public services.• Accusations of excessive ‘profit taking’• Only game in town – perception of no choice and
imposition.• The Council’s ruling administration has said no
more PFIs.
Context:- Timing is Everything
•PFI was re-badged as PPP and adopted as a major policy plank by the incoming Government.
•Uptake of PPP schemes was patchy.•Locally – budgets were under pressure and schools
were deteriorating.•Options/alternatives/solutions required to be
developed.
The Alternative to PFI in the Making
Four Imperatives
• The model had to be classed as a PPP in order to gain ongoing revenue support.
• It had to be acceptable to:-- Politicians- The market- The community.
• It had to evolve from the PFI model but be sufficiently distinct from it.
• It had to be attractive to the private sector – so changes to the familiar PFI model had to be minimised.
Achieved unanimous Council support for PPP/NPDO model
Secured community support
Secured Scottish Executive endorsement for Pathfinder status
Problems of the school estate remained
Drivers for Council Support
Council Starting Position
Differentiated PPP/NPDO from PFI
Secured private sector agreement that the model was bankable
Secured private sector agreement to a cap on profits, stakeholder
representation on Board and recycling operating profits
Not supporting a PFI model
Greater value for money
Attracted cross-party support
Stakeholder involvement included as a right
No profit taken beyond sub-
contractor payments
At least as cost effective as a PFI
All surplusesre-cycled back into
Education NPDOImproved service provision
What can NPDO deliver?
New NPDO Structure
SPV is an NPDO
Public Sector
Bank Debt
Construction Co
Characteristics• The Special Purpose Vehicle (“SPV”) is
established by the private sector consortium bidding for the design, build, finance and operate (“DBFO”) concession
• The public sector lets the DBFO contract in open competition to the private sector to deliver the required service over a period of 25 to 30 years..
• Contracts are increasingly standardised by sector and build upon best practice ie, whole life costing; competition and external due diligence.
• The NPDO is funded 90% senior and 10% junior debt. Senior debt supplied by Royal Bank of Scotland (RBS) and the European Investment Bank (EIB) the Junior debt by RBS and Quayle Munro.
• Trading surpluses will be re-cycled back into education via charity or CLG
• Stakeholder and Independent director appointed to SPV Board – ‘golden share’
• Board majority lies with private sector
DBFO
Concession
Facilities Management Co
Charity orCLG
ABC Schools (Holdings) Ltd
Junior Debt(c. 10%)
Equity(nominal)
Royal Bank of ScotlandQuayle Munro
Construction Contract
ManagementContract
FacilitiesManagement
BarrMansell
hbg
NavigantConsulting Mitie
Cash FlowSurpluses
Charity
Royal Bank of ScotlandEuropean Investment Bank
Senior Debt(c. 90%)
Argyll and Bute Schools NPDO Project
ABC Schools Ltd.
Argyll and Bute Council
Project Agreement
NPDO - Detail
•Reference model - governance- finance
•No shareholders - junior debt 10%- senior debt 90%
•Private sector classified- Assessable for corporate income tax- Adopts contract debtor accounting and composite trader tax treatment.
Much the same as any other PPP Company
Board
•Junior debt entitled to provide up to five directors.•Independent Director.•Stakeholder Director.•No Council representation on Board.•Articles of Association stipulate no distribution to
shareholders – surpluses must flow to charity.
Council
• Meets Council objectives
• Secure the Revenue grant Value for money
• Achieve risk transfer and off balance sheet status
• Affordable and Sustainable
Users
• Responsive to their needs
• Step change to the condition of school buildings
• Alignment of user objectives and provider objectives.
Government
• Synergy with Government policy and objectives
• Balance sheet treatment
• Value for money
• Risk transfer
• Affordability
Funders
• Commercial deal – first and foremost – therefore had to be commercially attractive
• Robust Business Case – due diligence
• Profitable
• Minimise risk exposure
NPDO/PPP
Model
SQUARING THE CIRCLE
Being Delivered
Oban Pre-five including Gaelic pre-fiveSt Columba’s RC and Rockfield PrimariesDrummore Learning Centre – mainstream
Lochgilphead Pre-fiveLochgilphead PrimaryLochgilphead HighWhitegates Learning Centre – mainstreamMid-Argyll Sports Centre
Bute Pre-fiveRothesay PrimaryRothesay AcademyArgyll College
Dunoon Dunoon Grammar School
Helensburgh Hermitage Academy (tbc)
Features
•Brand new schools.•Artificial sports pitches at all schools – only one not floodlit.•Facilities management, life-cycle and
maintenance included in contract.•33% of all Argyll and Bute pupils (60% of all
secondary and 16% of all primary) will occupy the new schools.
•Community use included in the contract.
Any Questions?
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