Education public-private partnership (PPP) projects are not just another form of social accommodation PPP. They involve the assessment of a number of unique issues. For the most successful outcome, both the public and private sector should address these issues at an early stage in the procurement and implementation process. This will help all parties appropriately manage the structural, technical delivery, and risk allocation arrangements; ensure that such projects are financeable; and avoid any unexpected surprises.
We have sought to set out below a handful of some of the challenges that are relevant to or arise in the different phases of the project’s life.
Scoping the project
In structuring an education PPP, those involved should decide at an early stage how information technology (IT) will be delivered and operated. Simply adding IT delivery to the scope of project operations is unlikely to be the answer. In fact, the use of the PPP model in the IT market has historically been beset with problems. Challenges include performance management (e.g. monitoring and identifying performance failures and allocating responsibility), limitations on the availability of replacement IT contractors, and the refreshing of obsolete software and technology. In addition, IT contractors are frequently unfamiliar with PPP risk transfer principles, and IT technologies may be alien to construction contractors, so there can be a lack of appreciation of the complex interfaces that result.
Integrating IT installation into the education PPP is achievable but should be approached with caution. Its inclusion creates a number of issues, and should be balanced against any adverse impact on value for money given the contractor’s need to manage, for example:
- The interdependencies between the works and IT installation during construction and operations phases;
- The ongoing allocation of responsibility for performance of the passive and active networks;
- The scope of the IT installation tests during handover; and
- The consequences of IT contractor failure given the strength of IT contractor balance sheets and the value of the IT contract relative to the overall PPP project.
Often, procuring authorities (“Authorities”) will want to utilize their new asset to provide wider community opportunities and benefits. If the Authority envisages the school operating as a multifaceted community facility, a number of additional issues need to be considered. These include:
- Is the contractor entitled to generate revenue from third-party activities outside of school hours and if so, from which activities?
- Will these revenues be “hard wired” into the financial model to reduce the Authority’s availability payments or will they be shared as potential “upside” only?
- How will the number and type of Authority “community use” hours be identified?
- How much will it cost to keep the school open during community use periods?
- Which areas of the school will be used for community use and how will performance/availability deductions be calculated and allocated during community use periods?
It is important that each party’s responsibilities are fairly balanced.
Typically, Authorities will not want to move into new school buildings during term time. From the contractor’s perspective, this places stress on late completion risks, as minor delays may result in disproportionate “penalties” i.e., not just for the period of the delay, but until the next available holiday—when the school can be handed over.
The delay risk is exacerbated by several factors, such as the pressure that the handover restriction places on longstop default termination dates. This can be an issue where a contractor is ready to handover but is prevented from so doing until the next holiday and, as a result, hits the longstop termination date. Another risk factor involves the interfaces at play with multiple parties engaged in the handover process. Examples may include maintenance contractor mobilization to start operations, Authority relocation arrangements, and IT installation and testing processes.
These risks can and should be mitigated. Typically, the right combination of factors would include:
- Scheduling handover during the longer holidays;
- Giving the contractor some flexibility to amend the construction timetable;
- Incorporating reasonable “slack” in the construction timetable; and
- Negotiating adaptable interface and resolution arrangements among all involved in the handover process.
Further complications can arise where an Authority wishes to move into a school in stages, or procures a number of facilities under one agreement. Authorities should be cognizant of and structure around issues such as:
- Termination risks created by maintenance subcontractor default during the construction phase (particularly given the likelihood of limited maintenance subcontractor liability caps);
- How defaults/termination triggers are applied and calibrated at one school and across all of the schools (i.e., can performance failure at one school result in possible termination of the entire project?); and
- Changes to the contractual mechanics and associated arrangements required as schools are handed over (including with respect to termination triggers, deduction levels, and insurance coverage).
Once the school has been handed over, there is often an issue of how to program the “post- completion” works. This can refer potentially
to the demolition of the old school, laying playing fields, or any number of factors that arise. The solution for these post-completion works will vary depending on their value, nature, and importance to the provision of education. However, issues to consider include:
- The proportionality of the Authority’s remedies for failure to complete the works (i.e., termination, step-in, deductions);
- The trigger date for the period given to the contractor to complete the works; and
- Managing delays in handing over playing fields, etc., given seasonal planting restrictions.
Damage and vandalism
The operation of a school creates unique issues that relate to damage and vandalism. Allocating responsibility for damage or vandalism caused by (i) children, teachers, or the local community (present with permission); and (ii) anyone entering the school without permission can be a tricky line to draw. This is particularly true when the contractor has complied with its obligations and is not at fault.
It is important that each party’s responsibilities are fairly balanced. In particular, thought should be given to:
- Whether responsibility for damage/vandalism is to be allocated by reference to areas of “control”;
- How damage/vandalism is distinguished from “fair wear and tear”;
- Which party has the burden of proving responsibility for the damage/vandalism;
- Which assets fall within the damage/vandalism risk profile; and
- The adequacy of the standard project insurances in respect of vandalism risks.
Ashurst LLP is a market leader in the PPP education market, having closed over 80 education PPPs acting for the public and private sector with a capital value of over $9 billion. This has included working on projects in Australia, Egypt, France, Ireland, the U.K., and Singapore.