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OUTPUT-BASED EDUCATION THE EVOLUTIONOF CONTRACTSOR SCHOOLSN THE U.K.

rather than how it is to be delivered (box 1). weighted less than classrooms. DeductionsThat transfers the risk of cost and time overruns could also be made if' rooms were available bufrom the school and local authority to the con- the performance standardls hadl not been met.tractor, whiclh is paid only when the otutptuts are Payments are made in roughlv equal installdelivered. In most cases the private contractor ments (minus any penalties) from the date omust raise finance in the private sector to cover first availability over the life of the contract.the initial construction works. They are partially indexed to reflect the fiact ha

Ulnder this approach the contract goes sorne of'the contractor's costs (suclh as runniiin2 beyond just the provision of the asset-the costs) will rise with inflation, while its capital

school. By transferring responsibility and risk for costs will be incurr-ed early in the contract,the ongoing management, maintenance, and financed by borrowing at a fixed -ate, and tlhee-operation of the asset to the contractor, it gives fore do not require indexation.the contractor the incentive to develop design The next step was to bunldle groUps osolutions that take into account the costs of inan- schools into one project. This approaclh offeredaging the asset over its entire life. This ensures a range of benefits, incltding lower transactionthat the contractor does not design an asset that costs for both the public and the private sectoris cheap to build but unaffordably expensive to Several such projects are now in operation. Themanage and maintain over the rest of its life-as new facilities have generally been deliver-ed othe public sector often has in the past. tine and to cost andl have met-and in some

This approach offers important advantages cases exceeded-expectations. But the projectsto the government, not only more efficient risk have involved little innovation.allocation and access to private sector expertise The next stage of contracting began tbut also the deliverv of' new assets without pres- address this issue. The Stoke schools project, coVsure on government resources. The approach ering all 122 schools in Stoke on Trenit, dlefinedstarted later in education than in other asset- its requirements in terms of' standards thaintensive service sectors, largely because local should apply to categories of accommodation iauthority regulations constrained it until 1996. anv school, rather than school by school as in pre

vious contracts. The specification docunienit waSingle and bundled contracts brief-much briefer than those for many singleTIhe first stage of the Private Finance Initiative in school schemes, which have typically givenl a loU.K schools was an output-based contract for a of detail abotit such issues as site constraints andsingle school in the Dorset area of southwest design aesthetics. Covering, as before, only suchEngland (table 1). This first contract set a prece- areas as thermal comfcort, ventilation, lighting,dent in defining outputs that has been widely fol- and fixtures, the specifications defined for eachlowed as school projects have evolved. The standard a performance level that would makecontract defined output requirements in terms of the accommodlation available, a level at whiclh the conditions that would make a room or space would be available but performanice deductionis available for use, such as the level of lighting, could be made, and a level at wlhiclh t was nonheating, and ventilation. It also defined standards available and no payment would be ma(le. Bfor ongoing services, such as cleaning, catering, focusing purely on accommodation stanldardsand building and grotnds maintenance. the local authority gave the contractor- complete

The contractor's incentive to meet the discretion over how to meet the standards.requirements was established mainly through As a result of the Stoke project's focus othe fact that payment would occur only when high-level otitputs, the contractor's solution hathe output standard was met. If a space (or the shown mulch more innovation thani those ientire school) swasnot available for use, no pay- many single-site schermes. For example, manyment relating to that space would be made. schools that the local couincil expected to bDeductions for nonavailability were weighted to refurbished or repaired are being demolishedreflect the operational importance of different and replaced, because this solution is more cosareas-with faculty offices, for example, effective over the 25-sear life of the contract.

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TableSelectedoutput-basedschools ontracts n the United KingdomLocal uthority Value millionsand contract date Schools Requirement Pupils of U.S.dollars)Dorset 997 I Repla(eecondarychool 1,000 35.6Stoke,000 122 Refurbishr replacellschools 38,000 185.0Dudley,999 104 Provideanagednformationnd 44,000 49.8communicationsechnologyervice

for allschoolsGlasgow,000 29 Refurbishr replaceecondarychools 0,000 540.6 3

and rovideanagednformationndcommunicationsechnologyervice

Source:uthor sompilation.

The payment arrangements in the Stoke availabilitv of the required services and facilitiesscheme have higher-powered incentives too. If for use at the required standards, and usage pay-nonavailability continues for a long time or ments on the number of pupil log-ins during eachrecurs often, the payment deductions can school term. The usage payments are designed toexceed the total payment for the affected space give the contractor an incentive to make the ser-and start to eat into payments for other parts of vice utseful to pupils in doing their work: the morethe contract. Thus the contractor's incentive to they use it, the more the contractor will be paid.meet the output requirements increases as its The learning gain payments increase overexposure increases. the life of the contract, after performance

benchmarks are established in the early years.Extending standards to learning In the second half of the contract period, inContracts developed from the focus on school years 5-10, 15 percent of the payment will bebuildings to encompass the installation and based on the impact on education outcomes.maintenance of information and comInunica- This irnpact will be assessed by an independenttions technology systems across many school third party on the basis of such criteria as pupils'properties. These contracts have extencled out- and teachers' attitudes about using technologyput requirements to education performance. in learning, attendance levels, and educational

Output standards and incentive structures attainment, includinig performance on nationalcentering on education performance began with achievement tests.the Dudlev Grid for Learning scheme. In this By including payments linked to educationproject the contractor is providing a managed outcomes, the Dudley contract begins to matchinformnation and communications technology the contractor's objectives much more closelysenice-an integrated network, wvith hardwvare with those of the teachers. Equally important(computer labs with PCs and printers, a PC in from the contractor's point of view, the riskeach classroom) and software (word processing, related to education outcomes is a relativelyspreadsheets), access to email and the Internet small part of the total project risk and so is pro-for everyone, school administration systeims, user portionate to the level of influence that the con-support such as data backup and help desks, and tractor's performance can have on educationmaintenance. The project includes refreshing outcomes.the technology over the 10-vear life of the con- A snore recent project, the Glasgowtract and extending use of the facilities to the Secondary Schools Project, is unique in manywider community to support lifelong learning respects, but its key feature is its strategic focusand strengthen community links. on achieving rapid improvemenit in education

Payment for the senice is based on perform- performance across the whole secondary schoolance against availability, usage, and learning gain population in a big city. This project is the onlvtargets. Availability payments are based on the one that has combined a whole system approach

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OUTPUT BASED EDUCATION THE EVOLUTION OF (ONTRACTS FOR SCHOOLS IN THE U.K.

to accomnmodationi requireInients with a require- comparator, thie contractor will do all this for 9ment ftor fdllv maniaged iniformiationi and coin- percent less cost thani the counlcil could have if'itmullications technology service. 'T'he Glasuow had car-ied oit the project itself.schools contract was sigiie(l at the end of July2000 by the local council and the 3ED consor- Could the scopebe widened?tinin. The principal service providers tinder Better school facilities and tip-to-date techlnol-MED's contir-act are a constrLctionl company, a o