The Cost of Schooling
One of the favourite memes of the moment is "tough decisions", currently getting most of its airing by Dem Across De Water now that our Budget's been and gone. It comes to mind now, with the news that the inquiry into banking practices - you know, a public inquiry, not a visit from the fraud squad or anything - is announced with the news that it won't include any of the government's actions in propping up the bank. This has been widely described as shocking, although it's that alternative use of the word "shock" that implies no surprise whatsoever.
It's a common trait of power that it avoids scrutiny; our current rulers dislike examination every bit as much as their predecessors. What makes them interesting isn't that they don't want their Tough Decisions to be scrutinised by the general public at large - this is standard. At the moment, you can go further; more or less everything that's been done in the last few years seems to be borne of a wish to avoid making any decisions at all. It's so systemic that, more than protecting the wealthy or remaining in power, it can now be seen as their main raison d'etre.
The big example's looming here, so there's no choice but to address it. NAMA's been described by most commentators as a waste of money; it may not make sense economically, but it makes perfect sense if you view it as a mechanism to take decision-making away from the government - in fact, this is more or less the only 'advantage' it has over a case-by-case nationalisation model. The Taxation Commission, or An Bórd Snip, are more examples of outsourcing the process of decision-making; the ongoing protection of business is motivated by a desire to let the status quo proceed untouched. Altering that would be a hell of a decision, and decision is no longer what government does.
It's within this framework that we might look at Public Private Partnerships.
Public Private Partnership is an increasingly important part of how we build major projects in Ireland. The government's PPP site states that PPP Projects will account for 13.6% of the National Development Plan 2007-2013: that's €7.7billion, not including another €1.6 billion for public tolls.
In short, we spend a lot of money on them. There's all sorts of PPP Projects - toll roads, water treatment, and the LUAS are notable types - and there's a list of the live projects here: scroll across to the right hand side and you can see, indicatively, how much these projects generally cost. The numbers are impressively vague, but they aren't small. The theory is simple; get a private company to build and run capital projects for a certain number of years, pay them off year-on-year, and take ownership of the project down the line, having taken advantage of the (drumroll please) Greater Efficiency Of The Private Sector.
In September 2005, the government announced that they would be building 27 schools using the PPP model. The model is effectively borrowed wholesale from the UK; the true cost of them has been called into question more than once, as with this example (Monbiot, on-form). The first bundle of four schools should be opened by next year, and the second bundle of 6 has seen designs and costs submitted to the government. These competitions generally entered by large companies, often UK-based, who have made bidding for Public Private Partnerships the backbone of their income.
Before the 2005 announcement, 5 schools had been built as a pilot project by a UK company called Jarvis PLC. They're repeatedly described by the government as a "learning experience", which is effectively code for "disaster".
The build cost of the schools is approximately €80m, which is more than traditional methods would have cost. The twenty-five year cost - that's for building the schools, maintaining the building, and providing IT support - isn't known exactly, but the current estimate is €283 million.
Yes. €283 million.
Subtract the construction costs and you're looking at €203 million to maintain five newly-built schools, whose average attendance is 700 pupils. That's an average of over €1.6m per school, every year, for twenty-five years. This is basic building maintenance, cleaning, and security; it doesn't include teachers' salaries, or even energy bills. The best indicator of the undemanding nature of the contract is that the winning company, Jarvis, doesn't even have an office in Ireland*. The Auditor General's estimates put this as being 8-13% more than a traditional public procurement would have cost. On the face of it, this looks like a conservative estimate.
So the pilot failed, and failed badly; the government pushed on anyway, maintaining the line of the faster, better, quicker nature of the private sector.
As for Bundle 1...
Well, there's the rub. The figures for Bundle 1 aren't available. Nor is Bundle 2, or indeed any detailed breakdowns or value-for-money analyses from the Pilot Bundle. They are exempt from - say - Freedom of Information requests, because they are commercially sensitive. Apparently:-
"The disclosure of this record would have a negative impact on future negotiations on PPP procurement as it would disclose the Department's position on its requirements and the detailed criteria by which each bid was evaluated and the results of that evaluation as well as negotiations and positions taken by bidders in this process."
(That's from the response of my own, refused, Freedom of Information request. Thankfully, this might be reconsidered when the PPP programme is complete. Hooray!)
This is nonsense, of course. Firstly, because the more a company knows about a clients' requirement, the better they can meet their needs; the notion that that the projects will be damaged because the companies know the government requirements is ludicrous. Secondly, the bidders are privately debriefed anyway, and the same companies tend to be involved in these projects. They already know how they fared and where they failed. If anything, it gives repeat bidders an unfair advantage.
And so we simply don't know whether they're good value or whether they're not, because the figures aren't available. All we know is that the Pilot Bundle wasn't; that they're proving not to be so in the UK; and that hundreds of million of euro of exhequer funds are already being spent (the Department of Education alone spent around the €30m mark in 2009), but the precise figures aren't considered fit for public consumption.
As for the other advantages? Quicker? It'll be the best part of 5 years after the announcement that the first schools open. Innovative? Construction firms don't do 'innovative', they do cheap, traditional, and quick. The schools are, in design terms, strictly bog-standard stuff - since the projects are fast-tracked there's almost no consultation, and everyone is under pressure to keep costs as low as possible. The bundling of the schools - this is to make the projects worthwhile for the private sector - means that a good design can be excluded if it's bundled with a few poor ones, or a series of good schools might be let down because the maintenance company prices the job too high.
And yet, for all the Tough Decisions we're making, this particular project shows no sign of slowing down. Bundle 2 has appointed a preferred tenderer, and Bundle 3 is in the pipeline. You might wonder why, given the halt on capital expenditure. An interesting point to consider, of course, might be that DBOM (Design, Build, Operate and Maintain) projects - such as the schools - aren't actually classified as General Government Debt. No wonder governments love them.
But that isn't really it. We should return to that "avoid decisions" mantra. One of the other listed benefits of Public Private Partnership is that it removes risk - a meaningless term when applied to schools. More accurate to say that it removes responsibility; it removes the possibility of headlines for late delivery, it prevents the government taking flak for leaky roofs. That's worth any amount of money, when the papers are on your back about classes in portacabins. The only decision the government has to make is who to pay; and, perfectly, that decision is taken behind closed doors. By the criteria it sets itself, this is perfect government.
*Although they have had a series of high-profile problems with the rail networks in the UK, as a result of which their reputation plummeted, and at one stage their share price fell from £6.50 to 3p. Because that's how efficient they are.
It's a common trait of power that it avoids scrutiny; our current rulers dislike examination every bit as much as their predecessors. What makes them interesting isn't that they don't want their Tough Decisions to be scrutinised by the general public at large - this is standard. At the moment, you can go further; more or less everything that's been done in the last few years seems to be borne of a wish to avoid making any decisions at all. It's so systemic that, more than protecting the wealthy or remaining in power, it can now be seen as their main raison d'etre.
The big example's looming here, so there's no choice but to address it. NAMA's been described by most commentators as a waste of money; it may not make sense economically, but it makes perfect sense if you view it as a mechanism to take decision-making away from the government - in fact, this is more or less the only 'advantage' it has over a case-by-case nationalisation model. The Taxation Commission, or An Bórd Snip, are more examples of outsourcing the process of decision-making; the ongoing protection of business is motivated by a desire to let the status quo proceed untouched. Altering that would be a hell of a decision, and decision is no longer what government does.
It's within this framework that we might look at Public Private Partnerships.
Public Private Partnership is an increasingly important part of how we build major projects in Ireland. The government's PPP site states that PPP Projects will account for 13.6% of the National Development Plan 2007-2013: that's €7.7billion, not including another €1.6 billion for public tolls.
In short, we spend a lot of money on them. There's all sorts of PPP Projects - toll roads, water treatment, and the LUAS are notable types - and there's a list of the live projects here: scroll across to the right hand side and you can see, indicatively, how much these projects generally cost. The numbers are impressively vague, but they aren't small. The theory is simple; get a private company to build and run capital projects for a certain number of years, pay them off year-on-year, and take ownership of the project down the line, having taken advantage of the (drumroll please) Greater Efficiency Of The Private Sector.
In September 2005, the government announced that they would be building 27 schools using the PPP model. The model is effectively borrowed wholesale from the UK; the true cost of them has been called into question more than once, as with this example (Monbiot, on-form). The first bundle of four schools should be opened by next year, and the second bundle of 6 has seen designs and costs submitted to the government. These competitions generally entered by large companies, often UK-based, who have made bidding for Public Private Partnerships the backbone of their income.
Before the 2005 announcement, 5 schools had been built as a pilot project by a UK company called Jarvis PLC. They're repeatedly described by the government as a "learning experience", which is effectively code for "disaster".
The build cost of the schools is approximately €80m, which is more than traditional methods would have cost. The twenty-five year cost - that's for building the schools, maintaining the building, and providing IT support - isn't known exactly, but the current estimate is €283 million.
Yes. €283 million.
Subtract the construction costs and you're looking at €203 million to maintain five newly-built schools, whose average attendance is 700 pupils. That's an average of over €1.6m per school, every year, for twenty-five years. This is basic building maintenance, cleaning, and security; it doesn't include teachers' salaries, or even energy bills. The best indicator of the undemanding nature of the contract is that the winning company, Jarvis, doesn't even have an office in Ireland*. The Auditor General's estimates put this as being 8-13% more than a traditional public procurement would have cost. On the face of it, this looks like a conservative estimate.
So the pilot failed, and failed badly; the government pushed on anyway, maintaining the line of the faster, better, quicker nature of the private sector.
As for Bundle 1...
Well, there's the rub. The figures for Bundle 1 aren't available. Nor is Bundle 2, or indeed any detailed breakdowns or value-for-money analyses from the Pilot Bundle. They are exempt from - say - Freedom of Information requests, because they are commercially sensitive. Apparently:-
"The disclosure of this record would have a negative impact on future negotiations on PPP procurement as it would disclose the Department's position on its requirements and the detailed criteria by which each bid was evaluated and the results of that evaluation as well as negotiations and positions taken by bidders in this process."
(That's from the response of my own, refused, Freedom of Information request. Thankfully, this might be reconsidered when the PPP programme is complete. Hooray!)
This is nonsense, of course. Firstly, because the more a company knows about a clients' requirement, the better they can meet their needs; the notion that that the projects will be damaged because the companies know the government requirements is ludicrous. Secondly, the bidders are privately debriefed anyway, and the same companies tend to be involved in these projects. They already know how they fared and where they failed. If anything, it gives repeat bidders an unfair advantage.
And so we simply don't know whether they're good value or whether they're not, because the figures aren't available. All we know is that the Pilot Bundle wasn't; that they're proving not to be so in the UK; and that hundreds of million of euro of exhequer funds are already being spent (the Department of Education alone spent around the €30m mark in 2009), but the precise figures aren't considered fit for public consumption.
As for the other advantages? Quicker? It'll be the best part of 5 years after the announcement that the first schools open. Innovative? Construction firms don't do 'innovative', they do cheap, traditional, and quick. The schools are, in design terms, strictly bog-standard stuff - since the projects are fast-tracked there's almost no consultation, and everyone is under pressure to keep costs as low as possible. The bundling of the schools - this is to make the projects worthwhile for the private sector - means that a good design can be excluded if it's bundled with a few poor ones, or a series of good schools might be let down because the maintenance company prices the job too high.
And yet, for all the Tough Decisions we're making, this particular project shows no sign of slowing down. Bundle 2 has appointed a preferred tenderer, and Bundle 3 is in the pipeline. You might wonder why, given the halt on capital expenditure. An interesting point to consider, of course, might be that DBOM (Design, Build, Operate and Maintain) projects - such as the schools - aren't actually classified as General Government Debt. No wonder governments love them.
But that isn't really it. We should return to that "avoid decisions" mantra. One of the other listed benefits of Public Private Partnership is that it removes risk - a meaningless term when applied to schools. More accurate to say that it removes responsibility; it removes the possibility of headlines for late delivery, it prevents the government taking flak for leaky roofs. That's worth any amount of money, when the papers are on your back about classes in portacabins. The only decision the government has to make is who to pay; and, perfectly, that decision is taken behind closed doors. By the criteria it sets itself, this is perfect government.
*Although they have had a series of high-profile problems with the rail networks in the UK, as a result of which their reputation plummeted, and at one stage their share price fell from £6.50 to 3p. Because that's how efficient they are.
posted by Nyder O'Leary at
21:47
8 Comments:
"Commercially sensitive" is my favourite excuse as it really doesn't make sense. Correct me if I'm wrong, if the price is determined at current market prices, indicating efficent use of knowledge of the prices of materials and labour, then it would seem that the state is positioning itself to protect certain market actors.
I'm not an advocate for a particular philosophy but if a functional viewpoint was taken then the state is, when represented by the current government, is being purposefully wasteful in order to satisfy their preferences.
I guess the only thing to do sometimes is smile and hope for the best when you hear phrases like "the national interest", "held to ransom" and "long-term economic value" repeated ad naseum.
Brilliant article.
283 million? Just to shirk responsibility? Beggars belief. If anything goes wrong the government will still be responsible for the schools.
'Not classified as general govenment debt' is a top fudge, but even for a coalition driven by private sector ideologues in the PDs, this programme makes no sense to me without kickbacks: either as party donations, or of the other kind.
Just to clarify - can you explain the nuts and bolts of the average PPP? You say build cost is 80m and 25 year cost is about 283m, but it doesn't quite explain how the private sector builds and then rents the buildings back. Is the 1.6m per school per year a rental income?
Hi Will
It's not rent exactly, because Jarvis remain in possession of the schools. They're being paid to operate them - although viewing it as the schools renting the buildings from Jarvis isn't far out.
A private company Designs, Builds, Operates and Maintains the school (they're called DBOM contracts); they have to finance all these costs themselves. In return, the government pays them a set fee every year for 25 years. This fee includes maintenance, operating costs, the capital cost of the building, and profit.
At the end of the 25-year period, the property reverts to government ownership.
The €283m the government will be paying is the "all-in" figure for the full contract. The €80m figure I quoted is from Jarvis' own website. The €1.6m figure is illustrative - averaging out €203m (the total cost, minus the build cost) over 25 years, between five schools. This is effectively what we're paying a company to run them.
It's also worth noting that the government paid Jarvis the VAT on the construction costs up-front.
Jarvis keep any proceeds from the day-to-day trading, e.g. vending machines, canteen, etc.
The €283m figure is described as an "estimate", so I can only assume some areas of this agreement are variable - however, since the tender reports weren't released, I don't know what they are!
Disgracedminister:
You're right. If anything, the refusal to release the figures acts as a barrier to other companies successfully bidding - as they'll be less well-informed than those who were involved the first time out. Doesn't exactly seem to be fair competition.
It seems there were only three parties bidding for Bundle 2, so it's not exactly hotly-contested. The bids are extremely detailed and cost a lot of money to put together, so not many companies can afford to enter these competitions. In the UK, the same names tend to feature over and over again.
The other thing to note is that, if the schools are constructed by the state, they are assured that expenditure remains within the Republic (bar debt repayment). Whereas the money being paid to Jarvis, as a UK company, is gone. No tax clawback, no multiplier effect, nothing.
Another great advantage to the efficiencies & innovative solutions of the private sector; knowing that the building will revert to state ownership in 25 years, a building can be very efficiently constructed to achieve only a 25 year lifespan, yielding great savings to a bidding consortium, and indeed free up yet more sites for future PPP projects in time. Actually quite flawless.
Did the (RC) Church submit any bids? It seems they're keen to keep a presence in the sector.
Further clarification to 285 million figure, Schools are given a capitation grant per pupil. At primary level this grant was 81 euro per child in 2000, and stands at 178euro per child at present. When the public accounts Committee were finding Bundle 1 PPP did not show value for money they factored in the amount they would have paid in capitation to these schools. I expect a very limited capitation is now paid to the PPPschool's boards. From 2009 on, after the withdrawl of book grants etc to schools, Boards of management are now being encouraged by the Department of Education to use Capitation Grants and secretarial and caretaker grants, the vast bulk of which goes to the Private Company in PPS schools," to support book rental schemes and otherwise provide books for individual pupils" So will jarvis or whatever company ( French ?) has taken over from them be putting their hands into their 285 million to help pupils in need? Don't hold your breath! This is the company who placed fizzy drink vending machines in the schools to raise a few extra bob for themselves. And the installments for Jarvis /newjarvis come out of the education budget every year- thats why they're not debt. A budget that is withdrawing help from travellers, children with english as a second language, children with special needs is still putting the cash into the PLCs across the waves. Thje fun goes on and on.
I'm doing my thesis on this and i'm really glad i found this article. Seems to be the most honest opinion i've heard yet on PPPs.
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