The PFI Model & Its Effect on Educational Outcomes

Prepared by Michael Latham

Mlatham@cfbt.com

October 6th 2005

J F Kennedy School of Government

Harvard University

Format of the Presentation

• Introduction to the PFI Model• Difficulties in Correlating the PFI Capital Model

with Educational Outcomes• Brief Summary of Effects on Value for Money

in Procurement of Services

Part 1: Introduction to the PFI Model

1.1 What is the Function of the PFI?

• A means of delivering better and more cost effective public services

• Involves private financing and accounting• Aims to exploit the full range of private sector

management, commercial and creative skills• Involves the local education authority buying

asset-based services from the private sector (e.g. buildings – facilities – equipment – services)

1.2 What are the Steps in a PFI Education Contract?

• Define project outputs and decide whether PFI provides best value for money (VfM)

• If PFI option selected, draw up contract• Usual terms:

– Private operator owns and operates the buildings, facilities and equipment over a 25 year period;

– Private operator receives agreed unitary charge in return for meeting defined performance and accessibility specifications;

• Fees for the contract are not fixed or guaranteed but depend on performance

1.3 What is the Rationale for Using the PFI Route?

Besides accessing private capital, PFIs improve the services that the private sector provides, by improving

• School buildings (enhancing the learning environment)

• Classroom facilities (enabling teaching of a modern curriculum)

• School services (assisting teachers to teach rather than having to remedy non-teaching distractions)

1.4 Some Financial Data on PFIs in the UK

• UK > US$5.4 billion of PFI credits have been allocated to education projects (1997/8 – 2003/4)

• PFI credits are expected to amount to around a quarter of the total funding available for school building projects in 2004/5

• Nearly US$3 billion is currently under contract and over US$ 2.5 billion is operational

• In Northern Ireland traditional investment in schools in 1997/98 was US$90 million, with PFI it has risen to US$300 million in 2003/4

Part 2: Educational Outcomes

Critical Questions

• Is it possible to provide an empirical analysis of the impact of capital investment on educational attainment?

• Essentially is it even possible to establish the additional effect in terms of pupil’s attainment for every £1 or $1 invested in a school’s capital?

A Suggested Response…

• Surveys have examined inputs v agreed outcomes • But, trying to accurately ascertain the direction

and magnitude of any links between resources funded through PFIs and attainment is still controversial

• Thus, the only agreement perhaps is that there is a critical need for more research into the issues relating to the allocation of these resources and their impact upon attainment

2.1 Literature Review

Strand Concerned With Summary

Economics School resources in general, not specifically capital investments

Ambiguous evidence of specific relationship between capital resources and academic performance

School Effectiveness

Capital spend as merely one of a wide range of factors

Capital spend is a necessary variable on intermediate factors

Architecture School building condition and design

Positive relationship between environment and performance

2.2 Quantitative Studies

Input Impact

Expenditure per student

Expenditure itself does not necessarily raise student achievement

Class size Reduced class size has a positive influence on outcomes but to what extent and at what cost?

Teacher characteristics

Experience - +ve effect with up to 2 years experience (Hanushek et al 1998);

Education - little evidence that aggregate measures (e.g. degree, years in field) systematically have any +ve effect;

Salaries - robust evidence that teacher experience and salaries have +ve effect.

Future Research Needs to Take into Account the Following

1. The interconnectivity of theory, data, methodology and model specifications

AND

2. The need to take into consideration myriad issues, inter alia…

Issues to Consider

• Interactions between and among both teachers and students;

• The quality and mix of the resources purchased among the different schools;

• Current databases are not designed for assessing the impact of capital spending on performance;

• There is a time lag between capital investment and its impact on performance;

• There is a significant need to test the sensitivity of results to a variety of different methodological approaches.

2.3 Qualitative Study

Area Impact

Teacher motivation •Reduced overcrowding

•Boosted morale

Pupil motivation •New facilities shows education valued

•Improved pupil behaviour

Amount of learning •Enhanced breadth of teaching with the provision of specialist spaces

•Increased learning time/extended day

Other factors affected

•Increased parental support

•Better teacher leadership and recruitment

Part 3: Conclusion

3.1 Advantages of PFIs

1. Access to considerable capital investment from the private commercial sector

2. Access to investment enables a rebuilding of the school estate that would not be attainable through public revenues

3. Project management skills for design and delivery of capital works

4. On-going facilities management and maintenance of those facilities

5. Lifelong management of the building and equipment.

3.2 Some Problems with PFIs

1. Affordability

2. Marketability

3. Effectiveness of benchmarking

4. Role of employees

5. Allocation of Risk

6. Contract formats

3.3 Towards a Conclusion

PFIs do…• provide access to capital investment; and• involve an ever-increasing number of building and

operational contracts in the UK education sector.

PFIs are not definitively…• proven to be a cheaper form of delivery; or• proven to provide enhanced educational quality

outcomes.

Cost Comparison

• Before PFIs, 73% of government construction policies ran over budget, and 70% came in late

• Under PFIs, by 2003, 22% of construction projects were over budget (and always due to changes in public sector client requirements), and 24% were late, but with the public sector no longer bearing cost of running late

Final Conclusion

Paul Boetang, Chief Sec. to the Treasury (2003):• There is no one-size fits all solution• VfM can be hit when inexperienced public sector

negotiates a deal with the private sector• Identifying and spreading best practice is crucial

Thus, there is considerable scope in the UK for further research into the relationship between PFI capital investment and educational outcomes.