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Revision History

AA Projects – Internal Sign-off

Review of the

Pilot PPP Schools Bundle -

2019 - 2021

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AA PROJECTS LTD About AA Projects

AA Projects is a management and property consultancy, established in 1999, with extensive experience and expertise in both the public and private sectors, including significant experience in the Western European PPP market. The firm works across the United Kingdom, Europe and the Americas and has 8 offices located in the United Kingdom.

We provide innovative, client focused consultancy solutions that are supported by best practice, with quality and sustainability at the heart of our thinking. We pride ourselves on achieving best value for clients, providing up-to-date knowledge of property management, estate strategies, procurement, financing, and the complete management of the construction process. We also provide several specialist consultancies including facilities management, energy and sustainability and rights of light.

We have significant experience of working in the PPP sector, with over 1.5m square meters of PPP assets surveyed each year, technical advisory roles across multiple Primary PPP projects and considerable expert witness work for several parties on the Procuring Authority and Investor side.

Our portfolio of clients is extensive and spans a wide range of sectors including commercial, education, defence, health, heritage, regeneration, industrial & manufacturing, leisure & arts, government agencies, residential, retail and transport & infrastructure.

The Review of the Pilot PPP Schools Bundle Commission

The Review of the Pilot PPP Schools Bundle has been commissioned by the Department of Education1 with the principal objective of examining all aspects of delivering the Pilot Schools under the PPP model relative to delivering schools under the conventional delivery model, and to assess whether the objectives of Pilot Schools have been met to date.

Our Consultants

Our highly skilled team includes strategic property consultants, PPP experts, building surveyors, quantity surveyors, sustainability specialists and facilities management consultants.

James Ryan

Director – Strategic Management & Lifecycle

Nikki Carters

Consultant - Strategic Management & Lifecycle

Aggie Juszczyk

Data Analyst - Strategic Management

1Following a Government Decision of the 26th June 2020 the Department of Education & Skills was renamed the Department of Education.

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CONTENTS

Executive Summary ..................................................................................................................... 10

Part 1 – Introduction ................................................................................................................... 19

Context of this Review........................................................................................................................... 19

Pilot PPP Schools Bundle ....................................................................................................................... 20

Conventional Schools ............................................................................................................................ 22

Methodology ......................................................................................................................................... 23

Part 2 – Comparison of the Pilot PPP Schools Bundle and the Conventional Schools ...................... 28

Design & Functionality .......................................................................................................................... 28

Building Condition ................................................................................................................................. 33

Lifecycle and Residual Value ................................................................................................................. 36

Maintenance & Facilities Services ......................................................................................................... 43

Energy Management & Performance.................................................................................................... 47

Administration ....................................................................................................................................... 49

Risk Profile ............................................................................................................................................. 50

Flexibility of Contracts ........................................................................................................................... 52

Third Party Usage .................................................................................................................................. 53

Value for Money Analysis ...................................................................................................................... 55

Part 3 – Extent to which the Pilot PPP Schools Bundle objectives have been met .......................... 59

Value for Money .................................................................................................................................... 59

Innovation ............................................................................................................................................. 60

Administration ....................................................................................................................................... 60

Part 4 – Conclusions .................................................................................................................... 63

Key Findings ........................................................................................................................................... 63

Conclusions ............................................................................................................................................ 64

Recommendations for Further Reviews ................................................................................................ 64

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APPENDICES

A Review Objectives as per Scope of Services

B Key Events in Pilot PPP Schools Bundle

C Financial Analysis Assumptions

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REPORT CONTRIBUTORS PPP, Construction, Operations, Facilities Management and Whole Life Costing Jon Birch MIWFM, AIOSH David Bailey BA (Hons) MBA Nicola Carters BSc (Hons) James Ryan MSc MRICS Aggie Juszczyk MA, BA (Hons)

Jaime Sullivan BA (Hons), PGDip, PGCert Surveying Sam Hardwick BSc Hons MRICS Tim Hughes BSc Hons MRICS Luke Cousins BSc Hons Jason Rostron BSc Hons Jack Mappin BSc Hons Malcolm Lavin CEng PGDip Energy and Sustainability Richard Murray BSc (Hons), MRICS, CEnv, Erika Rankin BA, MA, PG Cert Scott Rushton BEng (Hons), MSc, MEI Milo Kenny BSc (Hons), MSc Rebecca Tehan BSc (Hons) Norr – Architectural Review Brian O’Donnell HNC CIAT Kevin Cooper B.Arch Hons M.Arch RIBA FRIAS

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GLOSSARY

Abbreviation Term Definition

- Additional Bank of Hours

Quota of FM services to enable use by the school or other third parties (Third Party Usage) outside of opening hour for community or other use. These hours are already paid for within the UC.

- Backlog Maintenance The cost to bring condition C and D assets up to condition B as identified within the condition survey and priced within the Lifecycle cost model.

BER Building Energy Rating A rating of the overall energy efficiency of a building. The rating is on a scale of A-G, with A rated buildings the most energy efficient and G the least.

BMS Building Management System

A computer-based system that controls and monitors the building's M&E equipment such as ventilation, lighting, power systems, fire systems, and security systems.

CAPEX Capital Expenditure Refers to the construction and transaction costs for the PPP and Conventional Schools.

CIBSE Chartered Institute of Building Services Engineers

International professional engineering association.

C&AG Comptroller and Auditor General

-

CAFM Computer Aided Facilities Management

Utilising information technology to support the management and delivery of FM services.

- Concession The contractual period for which the Project Company is responsible for the finance and operation of the PPP project. This is 25 years for the Pilot PPP Schools Bundle.

- Conventional Schools The collective name for the 4 schools selected by the DoE as the group for comparison against the Pilot PPP Schools Bundle.

The Conventional Schools were developed by the DoE by way of traditional procurement using up-front Exchequer funding and external support, including the design team and contractors.

DoE Department of Education

-

DPER Department of Public Expenditure and Reform

-

DBFO Design, Build, Finance and Operate

DBFO services are procured by the authority and delivered by a private sector partner.

DFHERIS Department for Further and Higher Education,

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Research, Innovation and Science

ETB Education and Training Board

-

EWG Emergency Works Grant DoE grant for works required in emergency situations such as health and safety matters. Grants are awarded based on an application and review basis.

FM Facilities Management Management and delivery of services that ensure the facilities meet the needs of the client and building users e.g., maintenance, cleaning, grounds maintenance, statutory compliance.

FMA Facilities Management Agreement

The contract between the Project Company and the FM Contractor which details the scope of the FM services.

FC Financial Close The point at which the PPP financing documents have been signed and prior conditions for the availability of financing have been met.

- Financial Model A digital spreadsheet computer file that incorporates, for the duration of the contract, all the investments, revenues, costs, and taxes as well as several analytical parameters and the relative inflation. The tool also incorporates the free cash flow of both the project company and the equity investor. The model utilised in this review is the model at FC.

FRA Fire Risk Assessment Under section 19 of the Safety, Health and Welfare at Work Act, employers are required to carry out risk assessments and to record these in the Safety Statement. A fire safety risk assessment should be conducted and should include Fire Prevention, Detection and Warning, Fire Detection and Warning and Emergency Escape.

- FM Contractor The party contracted to deliver the FM services as per the FM Agreement.

GIFA Gross Internal Floor Area

The area of a building measured to the internal face of the perimeter walls at each floor level.

HICP Harmonised Index of Consumer Prices

The EU Harmonised Index of Consumer Prices for Ireland.

- Lifecycle Renewal or replacement of building fabric and M&E plant, including significant overhaul. Costs assessed are as per the PPP Financial Model and broken down within the Conventional School accounts. AAP has produced Lifecycle cost models in line with industry guidance.

LPG Liquefied Petroleum Gas

Source of fuel at some Pilot PPP Schools.

M&E Mechanical & Electrical Mechanical systems include elements of infrastructure, plant and machinery within systems such as heating and ventilation. Electrical systems include power supply and distribution, telecommunications, and lighting.

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NDFA National Development Finance Agency

-

NPV Net Present Value The current value of a series of cash flows over a period where the value decreases over time based on the value of money decreasing with time. This is the standard method (in line with other reviews and with the preparation of value for money/comparator exercises) for comparison of cash flows over variable periods of time.

OPEX Operating Expenditure Refers to the Lifecycle costs, FM Service delivery costs, Utility costs, and backlog maintenance costs for the PPP and Conventional Schools.

- Payment Mechanism PPP contract schedule/section outlining payment of the UC and the process for performance and availability based financial deductions.

- Pilot PPP Schools Bundle (the Pilot PPP Schools Bundle)

The five schools delivered as part of the Pilot PPP Schools Bundle, reviewed within this report.

PAT Portable Appliance Testing

Under section eight of the SHWWA Act, employer’s duties cover the design, provision and maintenance of (i) safe workplaces (ii) safe means of access to and egress from the workplace and (iii) safe plant and machinery.

PA Project Agreement The contract between the Procuring Authority and Project Company for the financing, design, construction, operation and maintenance of the infrastructure being provided by the Project Company.

PPM Planned Preventative Maintenance

Scheduled maintenance routine as required under the Project Agreement.

PPP Public Private Partnership

A partnership between public and private sector organisations with shared objectives for designing, building, financing and operating new infrastructure. PPP is a form of procurement available to the public sector.

- Project Company The private sector partner of the Procuring Authority, namely ‘Schools Public/Private Partnership (Ireland) Limited’ for the Pilot PPP Schools Bundle.

PSB Public Sector Benchmark

Comparing the cost of the PPP with achieving the same objective by traditional procurement/upfront Exchequer funding.

- Residual Value The cost of replacing an asset with its modern equivalent less deductions for physical deterioration.

RICS Royal Institute of Chartered Surveyors

World's leading professional body for qualifications and standards in land, property, infrastructure and construction.

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- Senior Debt The main form of debt raised by the private partner which usually has priority for repayment and decision-making powers in priority of other lenders.

- Services Specification The detailed requirements for the services being provided by the Project Co as outlined by the Authority in the Project Agreement (e.g., helpdesk provisions/energy management requirements).

- Statutory Compliance Compliance with health and safety regulations set out in law in relation to the management/operation of facilities. Legal compliance with these requirements is incumbent on all asset operators, owners or other responsible persons.

SWS Summer Works Scheme Devolved funding to individual school authorities to undertake small-scale building works which, ideally, can be carried out during the summer months or at other times that avoid disrupting the operation of the school. Grants are awarded based on an application and review basis.

TPI Third Party Income Income received in line with the PPP contract for use of the facilities by third parties.

TPU Third Party Usage Use of the facilities by third parties in line with PPP contract.

- Transaction Costs Pilot PPP Schools Bundle – architect, civil, structural, mechanical and electrical engineers, project management, employer’s agent and FM consultant.

Conventional Schools - architect, civil, structural, mechanical and electrical engineers and employer’s agent.

UC Unitary Charge Monthly payments from the Authority to the Project Company in line with the Payment Mechanism.

VfM Value for Money Consideration as to whether the value of a service received equals or exceeds the amount spent.

WRA Water Risk Assessment Under the Safety, Health and Welfare at Work (SHWWA) Act 2005, every employer must prepare a safety statement which is based on an identification of the hazards and an assessment of the risks to the Safety, Health and Welfare of his / her employees. In carrying out the risk assessment, consideration must be given to the risk of exposure to Legionella bacteria.

WTE Whole Time Equivalent Unit of measure to compare staffing resource based on hours of resource available considering different patterns of part-time and full-time working.

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Executive Summary Background

1. In 1999 the Government approved a pilot programme of Public Private Partnership (PPP) projects. One of these projects was the Pilot PPP Schools Bundle proposed by the Department of Education and Science and the focal consideration of this Review.

2. As the first PPP projects in the country, any issues and problems encountered during the implementation of the projects would provide information and learning to develop policy and enhance the process for future PPP projects.

3. The Pilot PPP Schools Bundle is a 25-year design, build, finance and operation PPP of five post-primary schools that commenced in 2002. The five schools cater for 3,4752 pupils and provide 35,834m² of accommodation space over the 25-year concession with a total FM contract delivered through the PPP Project Company.

This Review

4. The DoE commissioned this Review to examine all aspects of delivering the Pilot Schools under the PPP model relative to delivering schools under the conventional delivery model, and to assess whether the Pilot Schools project objectives have been met. All analysis in this Review has been undertaken prior to the start of the COVID-19 Pandemic and no impact of this on the figures reported is assessed as part of this report. The Review is part of a wider framework to assess and review the success in delivery of the objectives of a PPP project throughout its life. This framework consists of three key stages: Post Project Review, Mid Term Review, and Post Expiry Review.

5. The objectives of the Review were:

To compare the Pilot Schools with a DoE-selected comparator group of conventionally delivered schools, hereafter referred to as the ‘Conventional Schools’. Including comparison of design/functionality, energy efficiency, building condition, residual life, facilities and maintenance services, flexibility, administration required, risk, and Third-Party Usage.

To assess the extent to which the following DoE objectives in delivering the Pilot PPP Schools Bundle have been achieved, namely: - To test the value for money of delivering school provision on a design,

build, finance, manage and maintain basis over a long period through the PPP model.

- To obtain and realise new ideas and private sector innovation on school design through an output-based approach.

- To reduce school Principals’ responsibility for managing school buildings, allowing them instead to concentrate on their core educational and school management functions.

- To achieve better use of State-funded school buildings outside of regular school hours.

2 Design Capacity

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To develop a methodology and template for use by the DoE in Reviews of other PPP projects in the education sector.

Methodology

6. The Review has been completed based on a framework of four stages: Planning and Methodology Identification, Gathering and Selecting the Information, Review and Assessment of Information, and production of this final report.

7. Evidence has been collected from a variety of primary and secondary data sources to enable the objectives of the Review to be met. The following analysis has been completed to inform the following key findings and conclusions:

Literature Review

Document Review

Interviews

Building Condition Surveys

Lifecycle Cost Modelling & Residual Value Calculation

Facilities Management & Statutory Compliance Review

Energy Analysis

Architectural Surveys

Discounted Cashflow Financial Analysis

8. It should be noted that since the pilot programme of PPPs, all potential PPP projects must complete a Public Sector Benchmark (PSB) comparison, comparing the cost of the PPP with delivering the same standard facilities and services by traditional procurement. The PSB also values the risk transferred under the PPP model. Due to an absence of a PSB for the Pilot PPP Schools Bundle, this Review is unique in that it considers an actual operational comparator group, the services delivered to that group and the costs associated with it to date instead of a comparator to the PSB model. All subsequent PPP School bundles have completed a PSB, therefore the reviews of the subsequent PPP School bundles would reference the PSB model. As a result of this, the comparison of value for money here is based on the information available and outlined herein and is not comparable to full PSB comparator exercise that would otherwise be undertaken. The limitation on the availability of information, primarily due to the age of the schemes, means that a full VfM analysis is not possible; however, assessment of individual elements is somewhat possible.

Key Findings

9. The Pilot PPP Schools Bundle are assessed as being of an overall higher standard from the design review conducted, they provide a greater consistency in terms of design and construction quality, when compared to the conventional schools procured and delivered at the same time.

10. The Pilot PPP Schools are maintained in a very good condition overall. No significant condition issues were identified at the Pilot PPP Schools with any such issues being dealt with via the Latent Defects procedure, FM services, and Lifecycle replacement programmes. There was a general lack of investment evident across the Conventional

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Schools which resulted in a higher number of poor condition assets being identified. Maintenance was not to the same standard as the Pilot PPP Schools Bundle although some was undertaken and evidenced. Overall, there is a clear disparity between the very good condition of the Pilot PPP Schools and the relatively poor condition of the Conventional Schools.

11. Under the FM Agreement, which incorporates Health and Safety and Statutory Compliance obligations, the Pilot PPP Schools have robust maintenance regimes and records in place. There is no FM risk for the DoE in relation to the Pilot PPP Schools Bundle as the risk is transferred to the Project Company and subsequently the FM provider. At the Conventional Schools there is no external party contractually bound to manage compliance and the Principal is ultimately responsible for health and safety and statutory compliance. The Conventional Schools evidenced very limited maintenance planning and document management. Following an audit of compliance with Statutory health and safety requirements the Pilot PPP Schools Bundle were determined on average as 97% compliant, and the Conventional Schools 35% compliant. Since the undertaking of the audit, several measures have been put in place to remedy non-compliance issues identified at the Conventional Schools.

12. With regards to energy management, the Pilot PPP Schools were designed to a slightly higher specification, consequently BER ratings for the Pilot PPP Schools are higher.

13. The electricity consumption for the Pilot PPP Schools Bundle is currently 10.7% (on a 1-year basis) less than that at the Conventional Schools, 25 kWh/m² versus 28 kWh/m². The heating consumption for the Pilot PPP Schools Bundle is a significant 26.9% (on a 1-year analysis basis) less than that at the Conventional Schools, 49 kWh/m² versus 67 kWh/m². This is largely because the Pilot PPP School buildings have higher insulation and airtightness standard and there is an efficient operation of the heating system by its users. The total energy costs forecast over the entire Concession are higher for the Pilot PPP Schools Bundle, based on the financial model data; however historic records and current use show a lower figure at present. An assessment of the total Energy Consumption and Cost over the whole Concession should be undertaken at the end of the Concession.

14. TPI at the Conventional Schools is marginally (7%) above that at the Pilot PPP Schools on a €/m² NPV basis. TPI income assumptions at the Pilot PPP Schools are based on the forecast within the project Financial Close Model.

15. The Pilot PPP School Principals reported significantly less time spent managing the facilities demonstrating that this risk has been successfully transferred to the Project Company.

16. The DoE and the NDFA evidence higher levels of resource required to manage the PPP contracts versus the Conventional Schools, so whilst the operation and maintenance risk has been transferred in the PPP context, there is an ongoing contract management resource required for the DoE and NDFA.

17. The indicative Financial Analysis NPV Outputs (€/m²) prepared as part of this Review are shown below. NPV comparison is the assessment methodology used in line with wider guidance on Value for Money comparisons:

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Cost/Income Element

(NPV)

Conven-tional

PPP

Variance (PPP – Conv.)

Variance (PPP to Conv.)

Group Element

Variance (PPP to Conv.)

€/m² €/m² €/m² % %

Construction Costs

1,133.09 865.63 -267.46 -24%

CAPEX -21% Transaction Costs

138.97 144.22 5.25 4%

Lifecycle Cost 103.76 196.98 93.22 90%

OPEX 52%

FM Service Delivery

217.94 516.26 298.32 137%

Energy Costs 79.16 93.64 14.48 18%

Backlog Maintenance

135.61 10.36 125.24 -92%

Residual Asset Value

702.92 891.38 188.45 27%

VALUE 27% Third Party Income

2.32 2.15 0.17 -7%

18. On an NPV basis, the Pilot PPP Schools construction costs are 24% lower than the

Conventional School costs, whereas PPP transaction costs are 4% higher than Conventional School costs. The cost of finance (i.e., the debt payment to fund the long-term repayment of the initial construction cost) is likely to have diminished this benefit. However, the higher cost of finance must also be weighed against the risk transfer that occurred under the contract and which is not costed within this analysis. In later PPPs, a value is attached to the risk transfer within the context of the PSB.

19. While the cost of finance is not included within the scope of this Review, debt cost for the Pilot PPP Schools Bundle, based on information provided by the NDFA, is understood to be c.6%. Debt makes up the majority of funding for the scheme.

20. The Lifecycle costs for the Pilot PPP Schools Bundle are almost double that of the Conventional Schools on an NPV basis (90% higher); however, the level of works undertaken to the Pilot PPP Schools Bundle to date is greater. In addition to this, there is no risk for the Pilot PPP Schools Bundle of early failure of assets resulting in an immediate budget requirement for replacement or major repair of assets as this risk is fully passed down to the Project Company. This risk is still present for the Conventional Schools.

21. The cost of FM Service Delivery to the Pilot PPP Schools Bundle is some 137% higher than the cost of FM delivery to the Conventional Schools on an NPV basis; however, a significant number of failings in the compliance of the Conventional Schools with Statutory Requirements, PPM undertakings and good FM practice were identified in the reporting. None of the same issues were identified with the Pilot PPP Schools which were considered to be maintained to an excellent standard and demonstrated full Statutory Compliance and a high level of Contract compliance.

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22. The residual value calculation undertaken shows that the Pilot PPP Schools are expected to have a higher residual value at the end of the 25-year Concession period than the Conventional Schools will at the same point in time. The residual value of the Pilot PPP Schools Bundle is 27% higher than that of the Conventional Schools. This is a result of the higher specification of the Pilot PPP Schools and resulting higher rebuild costs and the significant backlog maintenance costs at the Conventional Schools.

Key Conclusions

23. This Review has demonstrated that the Pilot PPP Schools outperform the Conventional Schools on several elements (financial and non-financial). The Pilot PPP Schools are in better condition, were designed to a higher standard overall, designed consistently, were designed to, and also perform to higher energy ratings, and are fully compliant with statutory health and safety requirements. The indicative financial analysis, on NPV basis, demonstrates a lower construction cost for the Pilot PPP Schools Bundle and higher Lifecycle and FM Service Delivery costs. It is also clear from the analysis that the higher Lifecycle and FM Service Delivery costs have some attributable value (such as better condition facilities and a higher residual value of the assets forecast);however, it is not always clear that this value is sufficient given the higher cost of the Pilot PPP Schools Bundle.

24. Within the PPP contracts the risk for all these elements: design, construction, construction defects, availability, performance, and maintenance have been transferred to the Project Company and/or FM provider. The contracts enable availability and performance deductions to be made where the building is not available or maintained to the standard as per the service specification. The analysis completed here has evidenced that the Pilot PPP Schools Bundle is operating well, and the minimal deductions to date further corroborate this. Subsequently, the DoE has access to a bundle of well maintained, compliant and modern schools with few risks retained (Change in Law and usage).

25. By comparison, the Conventional Schools have not been maintained to a high standard, resulting in high backlog maintenance requirements and Schools that are not evidenced as fully compliant with statutory health and safety requirements. While the DoE is ultimately responsible for the availability, condition and services to the Conventional Schools, there is a responsibility on individual schools to have an appropriate maintenance regime in place. This is funded by the DoE by way of a capitation grant which is paid to all Post Primary schools on a yearly basis. Maintenance costs in Conventional Schools are liable to fluctuate more based on market rates and school requirements and as evidenced throughout Condition and FM reviews, there is no guarantee that a certain standard will be met. The Conventional Schools do however allow an increased level of flexibility not permitted within the PPP contracts and require less DoE management time overall.

26. When considering the financial analysis, it is evident that the standard of the Pilot PPP Schools Bundle comes at a cost that (including debt) is likely to be higher than the Conventional Schools costs. However, the higher cost is also underpinned by a material transfer of risk that is not explicitly costed within this analysis. This risk transfer relates to both the Construction and Operational phases and has been demonstrated on other similar PPP schemes to insulate the Procuring Authority (in this case the DoE) from the cost of Project Co or Contractor failure or similar such events. The PPP cost is a known

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annual cost to the DoE that increases only with HICP inflation and the DoE has no risk for facilities related items. Spend on the Conventional Schools fluctuates based on the maintenance/renewal deemed necessary in each year and no risk is transferred from the DoE (or individual schools) to an external party.

27. The Pilot PPP Schools Bundle’s NPV CAPEX costs are 21% lower than the Conventional Schools’ costs (taking account of both construction and other transaction costs). The cost of finance (i.e., the debt payment to fund the long-term repayment of the initial construction cost) is likely to have diminished this benefit.

28. The OPEX costs for the Pilot PPP Schools Bundle are 52% higher on an NPV basis than they are for the Conventional Schools. These OPEX cost differentials are predominantly reflective of the lower FM Service Delivery and Lifecycle costs at the Conventional Schools rather than any material variance in the energy costs for the Schools.

29. The Lifecycle costs for the Pilot PPP Schools Bundle are almost double that of the Conventional Schools on a NPV basis (90% higher); however, the level of works undertaken to the Pilot PPP Schools to date has been found to be significantly greater than that demonstrated across the Conventional Schools. This has ultimately resulted in the excellent condition of the Pilot PPP Schools as evidenced in the condition surveys. In addition to this, there is no risk for the Pilot PPP Schools Bundle of early failure of assets resulting in an immediate budget requirement for replacement or major repair of assets as this risk is fully passed down to the Project Company. This risk is still present for the Conventional Schools.

30. The cost of FM Service Delivery to the Pilot PPP Schools Bundle is some 137% higher (on an NPV basis) than the cost of FM delivery to the Conventional Schools. As outlined, the variance in cost is in part caused by the variance in the scope of services provided across each comparator group. The comprehensive FM services provided at the Pilot PPP Schools have also contributed to the excellent condition of the Pilot PPP Schools Bundle. Furthermore, a significant number of failings in the compliance of the Conventional Schools with Statutory Requirements, PPM undertakings and good FM practice were identified in the reporting. None of the same issues were identified with the Pilot PPP Schools which were considered to be maintained to an excellent standard and demonstrated full Statutory Compliance and a high level of Contract compliance.

31. The school condition, Lifecycle and FM outputs together indicate that the higher OPEX costs provide a level of value for money, when considered against the cost, with enhanced value achieved by the Pilot PPP Schools in their condition, residual value, Statutory Compliance, and lower operational time requirements. Ascribing a specific value to these outputs is, however, difficult. Until the final total cost of the PPP schemes can be compared to other schemes (Post Expiry of the PPP Contract), it will not be fully possible to assess the quantum of the value added. See section 2.10 – 2.20 for details of the condition of the schools.

32. The residual value calculation undertaken shows that the Pilot PPP Schools are expected to have a higher residual value at the end of the 25-year Concession period than the Conventional Schools will at the same point in time. This comes as a result of the higher specification of the Pilot PPP Schools Bundle witnessed in the Architectural Review and the higher Backlog Maintenance requirements of the Conventional Schools.

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33. The scope of this Review does not extend to consideration of the long term forecast for the end of life timings for the Schools (i.e. when the buildings fail to be economically viable to maintain and a replacement school would be required); however, the trend identified by the Backlog Maintenance would support a conclusion that the useful life of the Conventional Schools’ facilities would be shorter than that of the Pilot PPP Schools Bundle if the maintenance regime was continued at the same level and specification.

Have the Pilot PPP Schools Bundle met the original objectives:

To test the value for money of delivering school provision on a design, build, finance, manage and maintain basis over a long period through the PPP model - As shown above, when financial analysis of the costs of each comparator

group is completed on a service element basis and in the context of the actual service delivered, then there is additional value for money that can be determined. For example, the schools are compliant with statutory requirements and in excellent condition. However, apportioning the value achieved against the higher FM and Lifecycle costs is subjective. Higher debt costs would also impact on value for money; however, this needs to be weighed against the value of the risk transferred.

To obtain and realise new ideas and private sector innovation on school design through an output-based approach - The Pilot PPP Schools were determined as designed to a higher standard;

however, this enhanced value is not greatly significant. Developments in design over the last two decades, which will likely be evidenced through subsequent School Bundle Reviews, may evidence this further.

To reduce school Principals’ responsibility for managing school buildings, allowing them instead to concentrate on their core educational and school management functions - The Principal Interviews evidence that the Pilot PPP School Principals

spend less time managing school buildings. However, the duration and complexities of the PPP contracts mean that the NDFA and DoE resources for the Pilot PPP Schools Bundle replace this Principal resource, with the DoE utilising more staff per Pilot PPP School than per Conventional School.

To achieve better use of State-funded school buildings outside of regular school hours - Each Pilot PPP School has access to an Additional Bank of Hours of FM

resource which may be used by the school or to facilitate TPU outside of regular school hours. For any TPU outside this allowance, the TPI is shared between the DoE and the FM provider. Data shows that TPU accounts for a portion of the Bank of Hours available; however, based on the discussions with the DoE and Principals, the amount of TPU under the Bank of Hours appears to be impacted by both school management decisions, e.g., when the school needs to be available for educational/school purposes, and demand within the local areas. As the Conventional Schools only hold records of the community space charged for, and not for all out of hours community use, it is not possible to make a direct comparison.

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Part 1 Introduction

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Part 1 – Introduction Part 1 of this report details the foundation for the Review to provide the context for the review findings in parts 2 and 3, and explains the following:

Context and objectives of the Review

Background to the Pilot PPP Schools Bundle and the original objectives

Background to the Conventional Schools

Outline methodology of the Review

Context of this Review

1.1 The DoE commissioned the Review to examine all aspects of delivering the Pilot Schools under the PPP model relative to delivering schools under the conventional delivery model, and to assess whether the Pilot PPP School objectives are being met at this stage in the PPP. The Review is part of a wider framework to assess and review the delivery of the objectives of a PPP project throughout its life. This framework consists of three key stages: Post Project Review, Mid Term Review, and Post Expiry Review. Only on completion of the Post Expiry Review it is possible to fully assess the success of the PPP in meeting the objectives.

1.2 The 2004 Comptroller and Auditor General (C&AG) Report on Value for Money was akin to a Post Project Review for the Pilot PPP Schools Bundle. The report assessed how the DoE developed and managed the project through the construction phase, evaluated the tender proposals and assessed value for money in the procurement process. The scope of the C&AG report was restricted to the early project stages and did not assess any operational matters.

1.3 The analysis within the C&AG report suggests that the projected cost of the final PPP deal was 8% to 13% higher than the projected cost of procuring and delivering services to the schools using the conventional procurement route, as opposed to a 6% saving forecast through a cost comparison exercise based on the preferred bidder price. The report highlights that ultimately, the value for money achieved from the project will be determinable only over the 25-year life cycle of the project and recommended that a review is conducted at a suitable later date to determine if the Pilot PPP Schools Bundle is delivering Value for Money. The report recommended that a review commencing after 5 years of operation would provide a suitable timescale to assess VfM. This Review was commenced in contract year 18 of 25, providing cost data over a longer period than originally envisaged. This assessment takes into consideration facilities management, energy and Lifecycle costs for the schools which would be less prevalent after 5 years when the schools would be expected to be in very good condition.

1.4 This Review is the first of its kind assessing the Government’s PPP projects. As such, and as part of the scope of the exercise, AA Projects, with input from the NDFA and the DoE have developed a detailed methodology (explained further below) for use in future reviews.

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1.5 It should be noted that since the pilot programme of PPPs, several recommendations from the C&AG report have been put in place and the NDFA was established to procure and manage PPP projects as requested by State authorities. Currently, all potential PPP projects must complete a Public Sector Benchmark (PSB) comparison, comparing the cost of the PPP with achieving the same standard facilities and services by traditional procurement. The PSB also systematically values the transfer of risk. Due to an absence of a PSB for the Pilot PPP Schools Bundle, this Review is unique in that it considers an actual operational comparator group, the services delivered to that group and the costs associated with it to date instead of a comparator to the PSB model. All subsequent PPP School Bundles have completed a PSB, therefore the Reviews of the subsequent PPP School Bundles would reference the PSB model.

1.6 The objectives of the Review are:

To compare the Pilot Schools with a comparator group of conventionally delivered schools, hereafter referred to as the ‘Conventional Schools’. Including comparison of design/functionality, energy efficiency, building condition, residual life, facilities and maintenance services, flexibility, administration required, risk, and TPU

To assess the extent to which the DoE objectives in delivering the Pilot Schools have been achieved (the Pilot PPP School objectives are detailed in the following section)

To develop a methodology and template for use by the DoE in reviews of other of PPP projects in the education sector

1.7 The full breakdown of the Review objectives is detailed in Appendix A as per the Scope of Services.

Pilot PPP Schools Bundle

1.8 A PPP is a partnership between public and private sector organisations with shared objectives for designing, building, financing, and operating new infrastructure. PPP is a form of procurement available to the public sector which differs from the more traditional method of upfront Exchequer funding, with design, build, financing and operational services either procured or provided (in the case of operational services) by the public sector.

1.9 Following the Government approval of a pilot programme of PPP projects for development, one of these projects was the Pilot PPP Schools Bundle. The Pilot Schools Bundle is a 25-year design, build, finance, and operate PPP of five post-primary schools which went into operation in 2002. As of January 2020, the Pilot PPP Schools Bundle is in year 18 of the contract term. The five Pilot PPP Schools are shown in Table 1.1.

1.10 The DoE had four key objectives in delivering the Pilot PPP Schools Bundle:

To test the value for money of delivering school provision on a design, build, finance, manage and maintain basis over a long period (i.e., using the PPP procurement model)

To obtain new ideas and private sector innovation on school design through an output-based approach

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To relieve school Principals of the responsibility for managing school buildings, allowing them instead to concentrate on their core educational and school management functions

To achieve better use of State-funded school buildings outside of regular school hours.

1.11 The procurement process commenced by way of a notice in the European Journal (OJEU) in June 2000. The DoE, as the contracting authority, selected the PPP consortium in 2001. A Project Agreement is in place between the DoE and PPP Project Company. The DoE details the requirements for the delivery of the services, financing, and operation of the facilities over the term and the Unitary Charge that is to be paid by the DoE for the PPP. The Project Company is liable for all Lifecycle and maintenance works during the 25-year contract term but does not have a role in the delivery of education services.

1.12 A key element of PPPs globally is optimising the risk allocation between parties to ensure that the risk sits with the party best placed to manage the risk. Typically, risks are transferred from the Procuring Authority to the Project Company for construction risk, maintenance risk, funding risk and insurance. This is the case with the Pilot PPP Schools Bundle and all payments are managed through an availability and performance-based Payment Mechanism where deductions can be levied for non-performance of services or unavailability of spaces.

Table 1.1 – Pilot PPP Schools Bundle

School Location County Service Commencement

Long Term Projected Enrolment - LTPE

Ballincollig Community School

Ballincollig Cork Dec 2002 1000

Largy College Clones Monaghan Dec 2002 500

Maria Immaculata Community College

Dunmanway Cork Dec 2002 700

St. Attracta’s Community School

Tubbercurry Sligo Dec 2002 675

St. Caimin’s Community School

Shannon Clare Dec 2002 600

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Conventional Schools

1.13 In line with the objectives of the Review and as a recommendation from the C&AG report, the Review compares the Pilot Schools with a group of four Conventional Schools. The schools were selected by the DoE based on the time they were constructed and their locations.

1.14 The total Gross Internal Floor Area (GIFA) of the Conventional Schools is smaller than that of the Pilot PPP Schools (Figure 1.2). All financial comparisons are drawn on a Euro per metre square basis.

Figure 1.2 – GIFA by School

1.15 The Conventional Schools have been chosen as a comparator group to the Pilot PPP Schools, taking account of the absence of a Public Sector Benchmark for this project. Since the pilot programme of PPPs, frameworks have been developed and all potential PPP projects must complete a PSB comparison. This Review is unique in that it considers an actual operational comparator group, the services delivered, and the costs associated as opposed to a theoretical PSB. Reviews of the subsequent PPP School bundles would reference the existing PSB.

1.16 The Conventional Schools were developed by the DoE by way of traditional procurement using up-front Exchequer funding and external support, including the design team and contractors. Payment for the design and construction of these schools is on a pay as you go basis and is linked to progress and agreed milestones during the design and construction stages. Operational and maintenance matters are the remit of the school authorities with costs paid for directly by the school authorities from grants provided by the DoE and, in some cases, funding raised separately by school authorities. ETB operational and maintenance services are procured across schools under ETB governance, whereas other schools procure services individually. All Conventional Schools have a caretaker to deal with everyday maintenance issues and do not have a FM Contractor in place for delivery of all services.

1.17 There are two routes for schools to apply for funding to deliver major maintenance (replacement, overhaul or major repair) works that would be defined under the PPP Agreements as Lifecycle: The Emergency Works Grant and Summer Works Scheme. These funding routes require the schools to apply to the DoE for the funding; this is

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granted based on the applications’ merits and the available funding at the time. Both funding routes prioritise need for the works and maintenance of educational provision along with consideration for the risk of not undertaking the works. Smaller-scale works may be funded by the schools using their capitation grants.

Table 1.3 - Conventional Schools Group

School Service Commencement

Long Term Projected Enrolment - LTPE

School 1 2003 575

School 2 2003 300

School 3 2003 560

School 4 2003 650

Methodology

1.18 The Review has been completed based on a framework of four stages: Planning and Methodology Identification, Gathering and Selecting the Information, Review and Assessment of Information, and production of this final report.

1.19 Evidence has been collected from a variety of primary and secondary data sources to enable the objectives of the Review to be met. Information has been provided from several sources and has been subject to a request process from AA Projects to the DoE, NDFA and individual schools.

Not all information requested is available due to the time elapsed since delivery of the Pilot PPP Schools Bundle and the Conventional Schools. Table 1.4 outlines the research and analysis completed throughout each stage of the project.

Table 1.4 - Methodology

Element Summary of Methodology

Literature Review

The Literature Review completed provides an overview of documents relevant to the Review. Literature has been assessed from several sources, including: DoE, DPER, House of Oireachtas, European Commission, European Investment Bank, European Parliament, and the National Audit Office and Department of Finance in the UK.

In addition to informing the detailed methodology to deliver the Review, the Literature Review established:

Definitions of a successful PPP

Examples of PPP assessment similar to the review previously undertaken and models in use for such assessments

The definition of VfM in a PPP Context

Previous conclusions on PPP market VfM and objective meeting

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Document review

Multiple sources of information were collated from various parties, including the DoE, NDFA, school Principals, and the ETBs including:

PPP Contract

PPP Financial Model (from Financial Close)

PPP FM reports

Conventional School accounts

DoE summer and emergency works details

Additional data collated for individual reviews including as built drawings for the condition surveys and Statutory Compliance evidence for the FM/Compliance review

Interviews Semi-structured interviews were completed with the DoE (with input from the NDFA in relation to the Pilot PPP Schools Bundle), the Project Company, and school Principals/Caretakers. The interviews provided wider context around non-financial aspects of the PPP and Conventional Schools to assess the advantages and disadvantages of each procurement route against cost. The operational benefits, experience of delivering educational services in the facilities and PPP relationships were all topics of discussion.

Questions to the DoE/NDFA focussed on advantages and disadvantages of both models and the objectives of the Pilot PPP Schools Bundle.

Questions to the school Principals focussed on 12 non-financial categories as agreed with the DoE/NDFA during development of the methodology. It is noted that many of these categories have corresponding data collection/analysis and that the interviews are supplementary to conclusions made from actual data; these methods are named in brackets and detailed under the individual methodology sections below).

1. School Condition (Building Condition Surveys and Financial Analysis)

2. School Design (Architectural Review and Financial Analysis) 3. Flexibility of Design (Architectural Review) 4. Flexibility of Contracts (Contract Review) 5. Quality of on-site Maintenance (FM/Compliance Review and

Financial Analysis) 6. Quality of FM services (FM/Compliance Review and Financial

Analysis) 7. Energy Efficiency (BER/Energy Analysis and Financial Analysis) 8. How well the building promotes Wellbeing and Sustainability 9. Cleanliness (FM/Compliance Review and Financial Analysis) 10. Building User Satisfaction 11. Third Party or Out of Hours Usage (Contract Review and Financial

Analysis) 12. Availability (Financial Analysis)

Outputs from the interviews are detailed in the appropriate sections throughout this report.

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Building Condition Surveys

A detailed survey of building fabric and M&E installations has been completed for each school. Data has been captured for individual assets on a component by room level (e.g., the floor finish within one classroom, or a single hot water circulating pump present in a plant room) which provides highly granular condition data.

This data has been utilised to inform the Backlog Maintenance and Residual Value calculations within the Financial Analysis, as well as detailed breakdowns of each school condition and the likely future Lifecycle requirements for the facilities.

Facilities Management Review

The FM Review has been completed to compare the FM functions across the PPP and Conventional Schools, and measure compliance against statutory maintenance and health and safety requirements across all schools.

The Review included onsite audits of records, a contract review of the PPP FM services, discussions with key parties such as the Principals, Caretakers, FM technicians and Project Company representatives.

Energy Analysis

Each school has had a thorough energy assessment completed to determine energy efficiency across the two comparator groups including:

Production of a Building Energy Rating

Energy performance analysis

Review of energy management practices

Architectural Surveys

NORR, the architectural sub-consultant for the Review completed a comprehensive Architectural Review including, but not limited to, assessment of the following considerations. This Review will have assisted in determining whether the Pilot PPP Schools Bundle brought innovation and new ideas to school design in line with the original objectives of the Pilot PPP Schools Bundle.

Site Arrangements

Construction Quality

Building Layout

Internal Learning Space Quality

Internal Environmental Quality

Internal Finish Quality

Overall Architectural Quality

Financial Analysis

The Financial Analysis has been completed to assess if project objectives for the Pilot PPP Schools Bundle are being met and to provide a comparative basis with Conventional Schools. The financial information available for the Pilot PPP Schools Bundle was the Financial Close financial model which is now not reflective of the Unitary Charges paid. Variations, inflation changes and other movements are included on monthly invoices but have not been captured and retained back to commencement of the Concession, rendering the Financial Close model too outdated to allow a full financial comparison. However, it was used to inform the financial analysis undertaken.

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The following cost elements have been incorporated in the analysis:

Transaction Costs - Pilot PPP Schools Bundle – architect, civil, structural,

mechanical and electrical engineers, project management, employer’s agent and FM consultant

- Conventional Schools - architect, civil, structural, mechanical and electrical engineers and employer’s agent

Capital Costs

Third Party Income

FM Service Delivery

Lifecycle Costs

Utilities Costs

Residual Value of Assets (incorporating the Backlog Maintenance costs as identified within the Lifecycle Model)

Each of the above listed financial inputs is assessed with a discounted cashflow analysis of the annual costs over the construction period and 25 years from the point at which the buildings were operational, using the project specific nominal discount rate (5%) provided by the NDFA in line with the Department of Public Expenditure and Reform guidance.

The following elements have been excluded from the quantitative analysis: debt, tax, shareholder returns, ongoing contract management costs, and financial risk allowances. These elements have been heavily considered in the conclusions and key findings but based on the available information, and particularly in the absence of a PSB, a suitably accurate comparison between the funding costs and returns was not possible. In the financial model it was not possible to include the debt cost while also excluding the other elements listed above. Accordingly, it was not possible, or appropriate, to compare the full Unitary Charge to the Conventional Schools costs as fewer services are provided (e.g., lesser FM services) and therefore it would not be a like-for-like comparison. Inclusion of these costs in future reviews is recommended and will be more likely to be possible due to the requirements for a PSB that was put in place after the Pilot PPP Schools Bundle and some additional financial data that are collected as part of newer PPP contracts. As recommended below, consideration should be given to additional data reporting.

The Financial Analysis assumptions are detailed further in Appendix C.

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Part 2 Comparison of the Pilot PPP Schools Bundle and the Conventional Schools

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Part 2 – Comparison of the Pilot PPP Schools Bundle and the Conventional Schools

Part 2 details the comparator assessment outcomes between the Pilot PPP Schools Bundle and the Conventional Schools, based on the below factors:

Design and Functionality

Building Condition

Lifecycle and Residual Life

Maintenance and Facilities Services

Energy Management and Performance

Administration

Risk Profile

Flexibility of Contracts

Third Party Usage

Value for Money Analysis

Design & Functionality

Architectural Review

2.1 The Architectural Review consisted of a comprehensive site inspection and design review of each school. For each school, an assessment of the categories below was completed, and a score determined for each in accordance with the Building Regulations at the time of construction or on a scale of consideration against similar facilities. DoE General Design Guidelines for Post Primary Schools (2004)3, and relevant to the Pilot PPP Schools Bundle only, the User Requirements prepared by the DoE (2001), were also considered in the scoring assessment.

Architectural Review Categories:

Site arrangement & facilities

Construction quality

Building layout

Adaptability

Quality of internal learning spaces

Quality of internal space generally

Quality of internal environment

Flexibility and variety of learning spaces

Internal journey/pupil movement

3 While “General Design Guidelines for Post Primary Schools” was first published in 2004, earlier drafts of this document were in circulation within the Planning and Building Unit of the DoE from 2001 and would have been used as a basis for evaluating the design and layout of new post-primary school buildings and extensions at the time the Conventional Schools were procured.

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Physical Education and ancillary spaces

Pupil social & dining experience

Staff facilities

Sanitary facilities

Internal finishes

Universal access

Health, Safety & Security

Community facilities

Quality of cleaning & maintenance

Overall architectural quality

Figure 2.1 – Architectural Review Scores by Group

Table 2.2 – Architectural Review Findings

Pilot PPP Schools Bundle Conventional Schools

The layout of each of the Pilot PPP Schools is consistently compact and efficient, and all function well from an educational perspective.

The layout of the Conventional Schools is less consistent, with two of the four schools suffering from being part of a wider campus arrangement, consisting of building blocks that have developed more organically, rather than as part of a pre-conceived master plan.

The quality of teaching spaces is reasonably good across all nine schools (all are generally in accordance with DoE design guidance); however, the quality of the more public internal spaces is less consistent. The highest scoring Pilot PPP School and the highest scoring Conventional School are excellent examples of genuinely interesting, light, bright and airy spaces, with excellent views to the outside, whilst at the other end of the spectrum, there are PPP and Conventional Schools presenting relatively poor examples, which do not really have any memorable internal spaces at all.

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All Pilot PPP Schools subscribe to a relatively standard specification and material palette (with just a few subtle differences in some schools) and relatively modern design typical of PPP developments.

There is a greater variation in specification between the Conventional Schools. Two follow a very traditional design template whilst the other two are closer in specification and form to the Pilot PPP Schools.

Internal finishes are utilitarian across all schools except for one Pilot PPP School which was of a higher specification. Consistency in quality and approach is again greater across the Pilot PPP Schools Bundle.

Internal finishes are quite utilitarian across each of the schools, except for the highest scoring Conventional School (which scores higher overall than all the Pilot PPP Schools) which incorporates several higher quality materials such as timber wall panels, ceramic tiled flooring, and plank-type suspended ceilings in the most public places. Conversely, two of the Conventional Schools demonstrated a disappointing quality of finishes.

2.2 For overall design quality, all Pilot PPP Schools considered together scored higher on

an average to the comparator group, however, one of the Conventional Schools scored highest overall. The Pilot PPP Schools Bundle provide a greater consistency in terms of design and construction and are assessed as being of an overall higher specification from the design review conducted.

2.3 School design and pedagogy have developed significantly since these buildings were designed (nearly two decades ago) and therefore the briefs for future school building projects will inevitably call for less cellular spaces and a greater range of more flexible and collaborative spaces that will be more suitable to deliver a contemporary curriculum.

Interviews

2.4 During the Principal interviews three questions were asked relative to the Architectural Review in relation to quality of the school design, flexibility of the space designed, and how well the building overall supported wellbeing. Overall, the Pilot PPP Schools Bundle scored higher against all categories (Figure 2.3), and similar to the NORR review, the range of responses received varied greatly across the Conventional Schools. With regards to qualitative feedback received, this was very similar across both groups who noted the lack of social and corridor space however were cognisant of the fact that school design has progressed over the last two decades.

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Figure 2.3 – Interview Scores for Design

Financial Analysis - Capital and Capital Related Transaction Costs

2.5 Capital and transaction costs for the Pilot PPP Schools Bundle are as per the financial close figures within the Financial Model and have been spread over the 25-year Concession period in line with the actual payments of the financing. Construction variations have not been included in the costs from the Financial Model. Transaction costs include the Design Team fees and costs associated with gaining planning, contracting and mobilisation payments for service providers.

2.6 Capital and transaction costs for the Conventional Schools are fully funded by the DoE at the time of construction and are as per the final account costs provided by DoE. They therefore do include construction variations; however, these were minimal according to discussions with the relevant persons. Costs have been inputted into the actual years the costs were incurred, with an estimated split over the years in the form of a typical ‘S Curve’ form of construction expenditure as agreed with the DoE. All costs are actual except for the costs for equipment and fittings and furnishings at one Conventional School which are an average of costs for the other three Conventional Schools.

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Figure 2.4 – Capital and Transaction NPV (€/m²)

2.7 The Pilot PPP Schools Bundle construction costs are 24% lower than the Conventional School costs, whereas PPP transaction costs are 4% higher than Conventional School costs. When considered together, PPP CAPEX costs are 21% lower (Figure 2.4).

2.8 Whilst this conclusion shows that the PPP offers some 21% better value from an NPV perspective due to the amortisation of the repayments, the financing costs of the CAPEX are not considered in this analysis and would be expected to diminish the benefit achieved from the lower NPV capital costs. However, the higher cost of finance also must also be weighed against the risk transfer to the private sector, which is not costed within the financial analysis.

2.9 The debt cost for the Pilot PPP Schools Bundle, based on information provided by the NDFA, is understood to be c.6%. Debt makes up the majority of funding for the scheme.

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Building Condition

2.10 Building Condition has been assessed through completion of a detailed survey of building fabric and M&E plant at each school. Data has been captured for individual assets on a component by room level (e.g., the floor finish within one classroom, or a single hot water circulating pump present in a plant room).

2.11 This data has been utilised to inform the Lifecycle cost model, Backlog Maintenance costs and the Residual Value.

2.12 Figure 2.6 summarises the condition survey findings with each component assessed on a condition A-D basis (Table 2.5).

Table 2.5 – Condition Ratings

Rating Condition

A In new condition.

B Meets required standards and is aging as expected with no anticipation of replacement or repairs in the short-term relative to the life of the asset.

C Asset meets the required specification standards but is expected to fail within the short term (20%-30% of life expectancy). May also be indicative of obsolete or worn assets with difficult to locate spare parts.

D Asset fails to meet the required standard under the terms of the contract and required immediate (within 1 year) replacement or repairs.

Figure 2.6 – Condition Breakdown by Group

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2.13 The Conventional Schools have a significantly higher proportion of assets assessed as condition C and D. This indicates a generally poorer condition and the need for greater spend on asset maintenance and replacement. For the Pilot PPP Schools Bundle, the percentage of poor condition assets would be expected to be low given the maintenance contracts and Lifecycle funding in place.

Overall condition of the Pilot PPP Schools Bundle

2.14 M&E equipment is well maintained, with robust maintenance and replacement regimes in place. All plant spaces appeared well looked after and FM staff were knowledgeable in relation to maintenance completed on the plant, ongoing issues, and planned replacements. As expected of assets of this age, several M&E items are approaching the end of their serviceable life, however, are all currently in good working order. Replacements for these assets are covered within the PPP Lifecycle plan.

2.15 No significant issues requiring further investigation were identified at the Pilot PPP Schools with any such issues being dealt with via the Latent Defects procedure, FM services, and Lifecycle Replacement programmes. During the Principal interviews, it was clear that there have been condition issues with the Pilot PPP Schools over the years, such as building defects with roofs, heating, and external drainage, however, that these issues have been promptly resolved.

2.16 Compared to the Conventional Schools, internal condition issues tend to be minor or cosmetic such as repairing ironmongery or redecorating a wall.

Overall condition of the Conventional Schools

2.17 The vast majority of M&E equipment is in working order; however, a portion of components have been assessed as condition C and are likely to require investment/replacement in the near future. Despite most of the equipment currently

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being in working order, there appears to be a general lack of maintenance and investment to M&E assets resulting in an overall poor condition with room for improvement. Plant rooms are generally untidy, which does not assist with maintenance being undertaken or demonstrate a proactive maintenance of assets.

2.18 Several items were highlighted across the Conventional Schools which require further investigation to fully determine the cause and solution. These issues are more significant such as damp, roof leaks, staining to external walls suggesting defective gutters, and cracks to walls.

2.19 Similar to the Architectural Review, condition varies across the Conventional Schools with the higher specification school in better condition. This is not necessarily due to the specification alone, as this school also demonstrated higher levels of maintenance.

2.20 Overall, there is a clear disparity between the excellent condition of the Pilot PPP Schools and the relatively poor condition of the Conventional Schools.

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Lifecycle and Residual Value

2.21 Lifecycle works at the Pilot PPP Schools are procured and managed by the Project Company and FM Contractor, and funded from the Lifecycle fund as per the project Financial Model. From the outset, the Pilot PPP Schools Bundle have a dedicated fund to ensure that the facilities remain in a condition B. Risk for Lifecycle is transferred from the DoE to the Project Company, therefore if Lifecycle costs are above that available in the fund, the Project Company must complete and fund these works.

2.22 Whilst there is no contractual demarcation of Lifecycle works for the Conventional Schools, the definition for the purposes of this comparator exercise considered the same types of investment as at the Pilot PPP Schools, where Lifecycle works include repair of buildings (other than standard maintenance), purchase of equipment (building related), and major overhaul of fabric and M&E plant. The Conventional Schools fund these works from DoE grants (Capitation, Summer Works, and Emergency Works) and from other income sources such as community use and fundraising. All Lifecycle works are procured and managed by the schools.

Effect of Condition on Forecast Lifecycle Costs

2.23 Condition data collected has been used to produce a Lifecycle model for each group of schools in line with industry guidance.

2.24 Over the remaining nine years of the PPP Concession, the Conventional Schools are profiled to cost and estimated additional €8.77/m²/annum (29% higher than the PPP costs), where the PPP costs are forecast at €30.66/m²/annum and the Conventional costs are forecast at €39.43 (Figure 2.7). The PPP costs incorporate the contractual 10% FM Contractor preliminaries mark-up. This 10% mark-up is not applicable to the Conventional Schools, where the management team manage and procure works as part of their day-to-day role.

Figure 2.7 – PPP and Conventional Schools Lifecycle Forecast (€/m²/annum)

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2.25 For the purposes of the forecasting model, there is a significant additional spend forecast at the Conventional Schools in the next three years (see Figure 2.8 beneath). This spend reflects the anticipated cost of Backlog Maintenance required to be completed at the Conventional Schools were they to be brought up to Condition B standards. These works required are as evidenced within the conditions survey data. Backlog Maintenance at the Pilot PPP Schools is very minimal, and the € per m² rate reflects the typical Lifecycle replacements that would be expected to occur during these years. In the first 3 years the €/m² of the Conventional Schools averages at €42.08/m², whereas the €/m² at the Pilot PPP Schools Bundle averages at €6.20/m².

Figure 2.8 – PPP and Conventional Schools Lifecycle Profile (Total forecast annual costs - €)

2.26 Figure 2.9 shows the variance in forecast Lifecycle costs by group element based on the condition survey data collected. The forecast costs are higher for the Conventional Schools across each category; this is typically due to Backlog Maintenance identified and the subsequent spend required to rectify these condition issues. Costs for the superstructure are significantly higher, predominantly due to condition issues highlighted with the roof and external walls. Whilst there is less of a difference between costs for Services (M&E), the overall condition at the Conventional Schools was poorer resulting in higher costs; however, the specification/different types of critical M&E systems at the Pilot PPP Schools are higher, increasing replacement costs. For example, the Pilot PPP Schools each have a BMS system unlike the Conventional Schools and have higher numbers of lifts (two of the four Conventional Schools are single storey).

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Figure 2.9 – PPP and Conventional Schools Forecast Group Elemental Lifecycle Costs

2.27 The PPP Financial Close Lifecycle model for the remainder of the Concession is very similar to the profile forecast as part of the Review (based on current condition of the facilities) on a €/m² basis over the remaining concession period measured (Figure 2.10). The profile shape differs, with the Review forecast being influenced by actual condition on site. The similarity in profiles suggested that the Financial Close profile offers some value over the remainder of the Concession; however, spend to date is not known and the profiled spend in the earlier years of the contract may be significantly higher than the actual spend. It is not possible from the available information to tell if the whole concession profile offers suitable value based on actual spend. Figure 2.10a shows the whole concession financial close Lifecycle profile in comparison to market benchmark data. The profile falls below the low benchmark for a project of this type and location, indicating that the Lifecycle fund provides some suitable value relative to the wider PPP market.

Figure 2.10 – Current PPP Financial Close Profile and Forecast PPP Profile Comparison

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Figure 2.10a – PPP Financial Close Whole Concession Lifecycle Profile Benchmark

Effect of Condition on Residual Life

2.28 Residual Value4 is the cost of replacing an asset with its modern equivalent less deductions for physical deterioration. The Residual Value is a key element for consideration of the whole life cost, as at the end of the PPP contract the schools are handed back to the DoE. The Residual Value at the end of the 25-year analysis period is greater for each of the Pilot PPP Schools than the Conventional Schools. This is due to the poorer condition of the Conventional Schools when compared with the Pilot PPP Schools as assessed in the condition survey, and the higher level of Backlog Maintenance works required.

4 The methodology is in line with the RICS DRC (Depreciated Replacement Cost) method of valuation for financial reporting and considers the re-build cost and Backlog Maintenance costs. This methodology is the same as that referenced in the 2004 C&AG report.

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Figure 2.11 – Backlog Maintenance by Group (€/m²)

2.29 As shown in Figure 2.11, Backlog Maintenance at the Conventional Schools is significantly higher than at the Pilot PPP Schools. This is indicative of maintenance and/or Lifecycle replacement works not being undertaken as and when required, as evidenced during the condition surveys.

2.30 Backlog Maintenance is minimal across the Pilot PPP Schools Bundle. Where Backlog

Maintenance was recognised, this is either the responsibility of the FM Contractor as per the FMA or to be renewed/replaced from the Lifecycle fund as the risk has been transferred from the DoE to the Project Company. These low Backlog Maintenance costs also evidence that the Pilot PPP Schools are being maintained in a condition consistent with that required in the Services Specification.

2.31 The Backlog Maintenance by group element is shown in Figure 2.11a.

Figure 2.11a – Backlog Maintenance by Group Element

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2.32 The Residual Value by comparator group is shown in Figure 2.12, with the average Residual Value of the Pilot PPP Schools Bundle being €705/m² higher than that of the Conventional Schools.

Figure 2.12 – Residual Value by Group (€/m²)

Financial Analysis - Actual Lifecycle Costs

2.33 Lifecycle costs for the Pilot PPP Schools Bundle are as per the costs within the Financial Model on a year-by-year basis. These figures are not the actual spend to date as the Project Company is not contractually obliged to provide this data. Analysis is therefore based on the forecasts.

2.34 Lifecycle costs for the Conventional Schools are as per the school accounts, which are inclusive of SWS and EWG monies that may have been granted to the school by the DoE. No Lifecycle costs are included for operational years 1-3 as this is typical of Lifecycle profiles where the likelihood of Lifecycle works being required is low. One Conventional School does have actual Lifecycle costs in years 2-3; these costs have been included as they are a fair representation of actual costs incurred. Where accounts are unavailable outside of years 1-3, the average spend has been utilised.

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Figure 2.13 – Lifecycle NPV (€/m² NPV)

2.35 The Lifecycle costs for the Pilot PPP Schools Bundle are almost double that of the Conventional Schools on an NPV basis (90% higher) (Figure 2.13). It is important to note that the level of works undertaken to the Pilot PPP Schools to date has been found to be significantly greater than that demonstrated across the Conventional Schools. In addition to this, there is no risk for the Pilot PPP Schools Bundle of early failure of assets resulting in an immediate budget requirement for replacement or major repair of assets as this risk is fully passed down to the Project Company. This risk is still present for the Conventional Schools.

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Maintenance & Facilities Services

Pilot PPP Schools Arrangements

2.36 FM requirements for the Pilot PPP Schools Bundle are outlined within Annex D: Service Requirements of the Project Agreement between DoE and the Project Company. Responsibility for all repair, renewal, maintenance, and statutory obligations is transferred to the FM Contractor under the FM Agreement. Most of the risk is transferred to the FM Contractor.

2.37 Where the FM Contractor does not deliver against the requirements of the Services Specification, the Payment Mechanism facilitates availability deductions against the FM fees. Monthly monitoring reports evidence that the FM Contractor is generally compliant with the terms of the contract, as verified in a remote audit completed by AAP in 2019. The DoE has advised that deductions of c.€14,000 were applied during 2020 due to issues around reactive maintenance and service deficiencies; however, while deductions had also been applied in the past due to performance shortfalls, the level of deductions was limited during recent years.

2.38 The Pilot PPP Schools each have an on-site FM Manager supported by a Caretaker and approved sub-contractors for completion of specialist maintenance and Lifecycle works. The FM Managers report to the Area Manager, and the Project Company is responsible for monitoring FM performance through liaison with the Area Manager and subsequent reporting to the NDFA/DoE.

Conventional School Arrangements

2.39 At the Conventional Schools, arrangements are managed by the Principal on a day-to-day basis with support from the Caretaker. This places a responsibility on the Principal or their team to have a certain level of knowledge of FM services and all building-related Statutory Compliance requirements. In addition, the Principal needs to ensure the Contractors instructed to undertake works on site are competent to do so, that accurate documentation is received and required remedial works are completed in a timely manner.

2.40 Since there is no external party contractually bound to manage compliance, as with the Pilot PPP Schools Bundle, the school management is ultimately responsible for health and safety and Statutory Compliance.

2.41 Two of the four Conventional Schools operate under an ETB. Services such as cleaning and security are procured by the ETB for schools falling under its jurisdiction. Non-ETB schools rely on the Principal and team of staff engaging local companies, a majority of which are engaged based on an annual purchase order with no formal service level agreements or performance management measures in place.

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Statutory Compliance Audit

2.42 The Statutory Compliance and health and safety audit consisted of an assessment of compliance against the following items, the results of which are shown in Figure 2.14.

Water Risk Assessment

Water Management (L8 Control Measures)

Fire Risk Assessment, Review & Remedials

Fire Safety Processes (Logbook & Fire Drills)

Fire Safety Systems (Alarm, Call Points, Extinguishers, Smoke Vents, Suppression, Doors & Exits)

Security Systems (Roller Shutters & Automatic Doors)

Gas Safety Inspections

Pressure Systems

F-Gas

Air Conditioning Inspections TM44

Ventilation systems (Extract, Air Handling Unit, Ductwork Cleaning)

Local Exhaust Ventilation & Fume Cupboard Systems

Lifts (Service & Examination)

Access Equipment

Electrical Testing

Lightning Protection

Ladder Inspections & Register

Asbestos Management

Waste Management

Figure 2.14 – Statutory Compliance Audit Percentage Scores

2.43 The Pilot PPP Schools were able to demonstrate robust evidence of both compliance with statutory requirements and the requirements of the PPP contract. The Pilot PPP Schools were 100% compliant except for an unavailable Fire Risk Assessment (FRA) at three of the five Pilot PPP Schools. FRAs are the responsibility of the school, not the FM Contractor, so the sites can be 100% compliant from an FM contract perspective.

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2.44 Whilst DoE guidance is in place for Principals, there was a general lack of understanding across the Conventional Schools regarding the Statutory obligations. The Conventional Schools evidenced very limited maintenance planning and often rely on contractors to advise what maintenance works are required. Where inspections were complete, document management and evidence of this was generally poor, unlike with the Pilot PPP Schools which operate using a CAFM system to plan and evidence maintenance works and monitor planned preventative maintenance tasks. One Conventional School significantly outperformed the others, and it is noted that the Principal was previously a Principal in a Pilot PPP School and had an improved understanding of statutory requirements.

2.45 There was very limited evidence of FRAs, Water Risk Assessments (WRA), electrical testing, Portable Appliance Testing (PAT), and inspection of lightning protection and ventilation systems at the Conventional Schools.

2.46 A significant number of failings in the compliance of the Conventional Schools with Statutory Requirements, PPM undertakings and good FM practice were identified in the reporting. None of the same issues were identified with the Pilot PPP Schools which were maintained to an excellent standard and demonstrated full Statutory Compliance and a high level of contract compliance.

Financial Analysis - FM Costs

2.47 FM costs for the Pilot PPP Schools Bundle are as per the costs within the Financial Model on a year-by-year basis. This is the annual sum paid from the Project Company to the FM Contractor for delivery of FM services.

2.48 FM costs for the Conventional Schools are defined as the wages and material costs for cleaners and caretakers, and the costs of any other maintenance contracts (for example boiler servicing). Cost data is as per the school accounts; in years where the accounts data is not available, the average costs have been utilised.

2.49 The cost of FM Service Delivery to the Pilot PPP Schools Bundle is some 137% higher than the cost of FM delivery to the Conventional Schools (Figure 2.15). The PPP costs are significantly higher however the services provided across both comparator groups vary greatly, with FM services at the Pilot PPP Schools being consistent with the detailed Service Specification, which in turn has resulted in complete contractual and statutory compliance.

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Figure 2.15 – FM NPV (€/m² NPV)

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Energy Management & Performance

Design

2.50 Pilot PPP Schools were designed to a slightly higher specification, consequently BER ratings for the Pilot PPP Schools Bundle are higher (ranging from B3 to C1) than the Conventional Schools (C1 to C2). All schools fall into the range of ratings expected given that they were designed to the same building regulations.5

Management

2.51 At the Pilot PPP Schools, energy is managed by the FM Contractor who monitors consumption, communicates with, trains and briefs staff on energy issues, and report on energy performance. There has been investment in energy saving technology throughout the Lifecycle fund; whilst energy management is supported by the FM Services Specification, it is also dependent on the school management team.

2.52 In comparison, Conventional Schools have few energy procurement policies in place, and little to no communication, training, performance measurement and energy investment.

Consumption, Cost & Benchmark Performance6

2.53 The average electricity consumption for the Pilot PPP Schools Bundle is a 10.7% less than that at the Conventional Schools, 25 kWh/m² versus 28 kWh/m² to date.

2.54 The average heating consumption for the Pilot PPP Schools Bundle is a significant 26.9% less than that at the Conventional Schools, 49 kWh/² versus 67 kWh/m² to date.

Figure 2.16 – Heating and Electricity Consumption (kWh/m²)

5 Future reviews will be cognisant of heightened efficiency requirements in more recent design and regulations. For example, the new-build block at one of the Conventional Schools has an energy rating of A3. 6 Based on 2018 data (the most recent full years’ data available).

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2.55 The overall costs of energy (electricity and heating, €/m²) are also lower at the Pilot PPP Schools when compared to the Conventional Schools. Whilst the Pilot PPP Schools show a slightly lower unit rate for electricity (€4.6/m² versus 4.7), it is significantly less for heating (€2.98/m² versus €4.67/m²) (Figure 2.17). This is largely because the Pilot PPP Schools use natural gas and LPG for heating, whereas the Conventional Schools utilise a mix of natural gas and oil. Centralised procurement of the energy may also result in a reduced energy cost and consumption is likely to be reduced due to provision of energy saving elements, such as a central BMS system and additional controls on services equipment.

Figure 2.17 – Heating and Electricity Costs (€/m²)7

2.56 When compared with industry benchmarks8 for energy data and against electricity benchmarks, the Pilot PPP Schools outperform the Conventional Schools. All five Pilot PPP Schools perform to typical practice benchmark, with two achieving good practice. In comparison, four Conventional Schools perform to typical practice benchmark, with none achieving good practice. Against heating (gas and oil) benchmarks, all Pilot PPP Schools and all Conventional Schools are performing to good practice fossil fuel benchmarks; note that this should be considered in the context of the heating consumption outcomes above.

7 Nominal costs for the year of analysis, NPV costs estimated for the whole concession are considered in the Financial Analysis. 8 CIBSE Guide F 2012 Table 20.1 Fossil and electric building benchmarks for secondary schools.

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Administration

2.57 The costs of management time for Pilot PPP Schools in comparison to the Conventional Schools was considered as an element of the Financial Analysis; however, as the DoE and the NDFA are managing many schools and other projects it was not possible to isolate these costs. The direct cost of managing the Pilot PPP Schools Bundle (SPV management fee) is paid by the DoE within the UC, but there is a variety of other resources required to fully oversee the contracts. Whilst the contract is self-monitoring, in that the FM Contractor and Project Company report on availability or performance deductions, a resource is required from the NDFA for ongoing contract management during the operational stage; the DoE engages with the NDFA on this contract management, makes the Unitary Charge payments and is involved in other delivery aspects such as minor works requests.

2.58 NDFA resource includes staff engaged across a wide range of financial advisory, procurement, project delivery and contract management services for PPP projects across Ireland. It was not possible to isolate the specific resource levels allocated to the Pilot PPP Schools Bundle.

2.59 The DoE reports a significantly higher level of resource per school within the Department is required to manage the Pilot PPP Schools Bundle. This is primarily since a contractual relationship remains in place with the PPP Company beyond the construction phase and up to the end of the 25-year operational phase. Due to the nature of this contract, substantial engagement is required between the various stakeholders to manage its various complexities

2.60 The responsibility for the day-to-day running and management of a Conventional School is a matter for the Board of Management of the individual school. In the case of ETB schools, the School’s Principal would be supported by their respective ETB. DoE administrative costs associated with the Conventional Schools are difficult to ascertain as they cross over several sections depending on the scheme a school is making an application under i.e., Capital Appraisal Section Forward Planning, Property Management, Devolved Grants Section (i.e., re Emergency Works, Summer Works) and Professional and Technical Section.

2.61 During the Principal interviews for both comparator groups, AAP asked each Principal what percentage of their time was spent on building/maintenance management (Figures 2.18 and 2.19). There was clear demarcation between the Pilot PPP Schools Bundle and the Conventional Schools, with the Pilot PPP Schools reporting little to no admin time (<5%) spent on maintaining the facilities, in contrast to the Conventional Schools spending a fair to moderate amount of time (>10%). For the Conventional Schools, there are also significant peaks and troughs in the administrative burden, rising from a base of 10% to 25-50%. Higher levels of administrative burden were typically related to increased levels of works at the schools, extensions, or other maintenance requirements. Two of the five Pilot PPP Schools noted that a low requirement for administrative time has not always been the case, with intervention needed in previous years to ensure accountability and contract compliance.

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Figure 2.18 – Principal Time Spent on Facilities Management

Figure 2.19 – Principal Time Spent on Facilities Management – reported by nr of schools

Risk Profile

2.62 The PPP contracts optimise the risk allocation between parties to ensure that the risk sits with the party best placed to manage the risk. The majority of risks have been transferred from the DoE to the Project Company, with the Project Company then transferring these risks again to the most appropriate party including the construction contractor and the FM Contractor through separate contracts. Risk ultimately is

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retained by the Project Company in these instances and is managed through the Project Agreement Payment Mechanism.

2.63 The risks transferred include design, construction, construction defects, availability, performance, maintenance, financing, and insurance.

2.64 Benefits from the transfer of the construction and defects risk have already been realised for the Pilot PPP Schools Bundle, with latent defects resolved within the 12-year period and a fixed cost to the DoE for the construction with performance deductions for any delays. For the conventional schools, the DoE had liability to pay for any increased costs, delays, and rectification of defects where they could not be passed to the construction contractor in the absence of the middle party: The Project Company.

2.65 Since the schools have been operational under the PPP contracts, the DoE is guaranteed that the Pilot PPP Schools remain available and in a good condition, with performance by the FM Contractor in line with the Services Specification. There is no variance in costs except with inflation which is capped, reducing risk further. Where the availability, condition, or service requirements are not met, the DoE is entitled to make deductions against the UC. By comparison, the DoE must manage availability, condition, and services to the Conventional Schools at its own risk. These costs are liable to fluctuate more based on market rates and as evidenced throughout Condition and FM reviews, there is no guarantee that a certain standard will be met.

2.66 The transfer of maintenance risk at the Pilot PPP Schools through the FM Contractor and Lifecycle fund has also been evidenced through the significantly lower Backlog Maintenance identified at the Pilot PPP Schools. At the Conventional Schools, this risk has been retained and remains a risk with higher levels of Backlog Maintenance and poorer Statutory Compliance evidenced.

2.67 At the Pilot PPP Schools, financing is procured by the Project Company, reducing the level of financial management resource required by the DoE.

2.68 At the Pilot PPP Schools, insurance risk is transferred to the Project Company in that where a claim is unsuccessful or not covered, the Project Company is liable for rectification costs, whereas at the Conventional Schools there is no middle party to take this risk other than the authority.

2.69 Overall, in this contract, there are no obscure risks retained by the DoE that would not be considered normal risk allocation for a PPP contract. There are two main risks retained by the DoE, Change in Law and Usage.

a. An increase in costs caused by a Change in Law (with an impact on the cost of performance exceeding €1,500 indexed) is a cost to the DoE. This risk is commonly retained by the authority across PPP projects and the threshold is in line with typical PPP contracts.

b. The DoE is liable to pay the full Unitary Charge for the facilities/services even if a PPP School is not in use (unless this is down to unavailability through service failures). If a Conventional School was surplus to requirement, then the DoE could close the school which would result in a reduction in costs.

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2.70 Risk allocation of latter PPP Bundles is understood to have progressed as contracts have been amended following lessons learnt, however this is outside the scope of this Review. The review comments should therefore be considered in the context of this being one of the first PPPs procured and not representative of all PPPs.

Flexibility of Contracts

2.71 Whilst there is a significant transfer of risk from the DoE to the Project Company for the Pilot PPP Schools Bundle, the contracts in place mean that there is no scope to amend elements of service scope or specification, or complete alterations to the buildings without proceeding through the contractual change/variations process. The contractual change process requires significant legal and financial resource for the following:

a. Amending contracts to reflect changes.

b. Re-calculating the Unitary Charge to account for additions or removals from the contract. This is a complex process which can involve costing services to be removed, procuring additional services, updating the lifecycle model for additional spaces/equipment.

c. Updating the Financial Model.

2.72 No significant contractual variations have been progressed on the Pilot PPP Schools Bundle so there is no opportunity for an analysis of costs to be completed against minor works completed at the Conventional Schools; this should be considered in future reviews where there may have been more contractual variations. It should be noted that flexibility in further PPP bundles, relating to variations, has increased when compared to the Pilot PPP Schools Bundle.

2.73 The DoE listed flexibility as an advantage of the Conventional Schools, namely through:

a. Minor works during operational life (e.g., extensions and remodelling to respond to curriculum changes or school needs).

b. Ability to request quotes from multiple contractors as opposed to one from the Project Company. It is noted that whilst there is not specific wording around demonstrating value for money quotes in either PA Schedule 12 (Change Procedure) or in relation to Lifecycle works, this is more common in recent PPP contracts.

c. Principals and ETBs have more autonomy and control in making changes to service delivery and the building itself.

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Third Party Usage

2.74 Terms for TPU/TPI at the Pilot PPP Schools are outlined in Clause 24 of the Project Agreement and Clause 16 of the FMA.

2.75 In accordance with the Project Agreement, any income, after deducting the proper and reasonable additional costs incurred by a PPP Operator, must be divided equally between the Authority/School and PPP Operator. The PPP Operator must provide details of any Third-Party Use to the NDFA/ School monthly, with a summary position forwarded to the Department annually.

2.76 Limited TPI is evidenced in the monthly FM reporting, with a large proportion of the TPU evidenced falling within the Additional Bank of Hours which is already paid for within the Unitary Charge and therefore does not generate TPI.

2.77 Within the Project Agreement, each Pilot PPP School has access to an Additional Bank of Hours allowance of 350 hours per annum, which provides a quota of FM services to enable use of the school outside defined school hours. When not required by the school for educational purposes (e.g., after school study or other activities), these hours can be made available for TPU. The costs, including the provision of services (e.g., caretaking, cleaning etc) under the Additional Bank of Hours are included in the Unitary Charge payment. The types of community use and frequency can vary from school to school, and largely depends on school management and the demand from the local community/area. Figure 2.20 shows a summary of the Pilot PPP Schools Bundle TPU for academic years 2017/18 and 2018/19.

Figure 2.20 - Pilot PPP Schools Bundle TPU

Category Total Hours 2017-2018

Total Hours 2018-2019

Third Party Use within the Additional Bank of Hours 563 517

Third Party Use outside the Additional Bank of Hours 312 340

Total 875 857

Conventional Schools

2.78 TPU at the Conventional Schools is typically use of the school facilities by local community/sport group. The arrangements for use of the facilities are agreed between the school and the group, including any rental costs applied. Details of the usage were requested at the Principal interviews and the income was evident from the school accounts for use in the Financial Analysis. Income is retained by the school.

2.79 Most usage/income is linked to hire of school sports facilities (including internal sports halls/gym and external pitches). Some schools highlighted that facilities are also used by local community groups at no charge where the group provides a community benefit.

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2.80 The school caretaker assists in opening/closing the school for these events at no extra cost. Some schools highlighted issues with the heating for the school, which is not zoned, and therefore the whole school must be heated for such usage at a relatively high cost to a zoned heating system which is present at the Pilot PPP Schools.

Comparison of TPU

2.81 Use of schools by local communities is actively encouraged by the DoE through communication to both Pilot PPP Schools and Conventional Schools. However, it is not possible to compare TPU in the Conventional School relative to the actual TPU in the Pilot PPP Schools. Data in terms of TPU from the Conventional Schools is incomplete as Principals noted that some community use was at no charge (i.e., indicating that TPU at the Conventional Schools is higher than that evidenced by the TPI) and no alternative records are available.

Financial Analysis – Third Party Income

Figure 2.21 – Third Party Income (€/m²/annum NPV)

2.82 TPI at the Conventional Schools is 7% above that at the Pilot PPP Schools on a €/m²/annum NPV basis. TPI at the Pilot PPP Schools is based on the forecast within the project Financial Close Model and actual use to date. In relation to the Pilot PPP Schools Bundle there is limited TPI evidenced as the majority of TPU (as shown in Figure 2.20) falls within the bank of hours.

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Value for Money Analysis

2.83 Overall value for money of the Pilot PPP Schools Bundle is considered in the context of all the individual Financial Analysis components and all the non-financial analysis as evidenced throughout this Part 2.

2.84 Figure 2.22 shows the outputs of the Financial Analysis on a €/m² NPV basis over the 25-year analysis period.

Figure 2.22 – Financial Analysis NPV Outputs (€/m²)

Cost/Income Element (NPV)

Conventional PPP Variance

(PPP – Conv.)

Variance (PPP to Conv.)

Group Element

Variance (PPP to Conv.)

€/m² €/m² €/m² % %

CAPEX 1,133.09 865.63 -267.46 -24%

CAPEX -21% Transaction Costs

138.97 144.22 5.25 4%

Lifecycle Cost 103.76 196.98 93.22 90%

OPEX 52%

FM Service Delivery

217.94 516.26 298.32 137%

Energy Costs 79.16 93.64 14.48 18%

Backlog Maintenance

135.61 10.36 125.24 -92%

Residual Asset Value

702.92 891.38 188.45 27%

VALUE 27% Third Party Income

2.32 2.15 0.17 -7%

Pilot PPP Schools Bundle has a lower NPV CAPEX Cost due to the timings of payments

2.85 The Pilot PPP Schools Bundle was not required to be fully CAPEX funded at the time of construction, unlike the Conventional Schools where CAPEX was funded fully during the construction period. When considered on an NPV basis, the CAPEX costs are therefore lower for the Pilot PPP Schools Bundle as payment for the CAPEX is amortised over the term of the Concession and not paid until Year 1 of operation, as opposed to the Conventional Schools which are paid for during construction.

2.86 Whilst this conclusion shows that PPP offers some 21% benefit due to the amortisation of the repayments, the financing (debt) costs of the CAPEX are not considered in this analysis and would be expected to erode the benefit achieved from the lower NPV CAPEX costs. Debt cost for the Pilot PPP Schools Bundle, based on information provided by the NDFA, is understood to be c.6%. Debt makes up the majority of funding for the scheme. On the other hand, the higher cost of finance must be weighed against the risk transfer that occurred under the contract and which is not costed within this analysis. In later PPPs, a value is attached to the risk transfer within the

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context of the PSB. Additional transaction costs for the Pilot PPP Schools Bundle that are not required for conventional delivery include: FM consultants, and legal, financial, and technical advisors.

2.87 When considered against other schemes that have been reported on since the inception of PPP in Ireland and in the wider European market, it is likely that the PPP CAPEX costs at the time of procurement included a significant element of “risk” pricing from the Contractors and Consultants involved due to the relatively new nature of the contract form and procurement route.

OPEX costs for Pilot PPP Schools Bundle are higher but reflect a greater level of service delivery

2.88 The OPEX costs for the Pilot PPP Schools Bundle are 52% higher on an NPV basis than they are for the Conventional Schools. These OPEX cost differentials are predominantly reflective of the lower maintenance and Lifecycle costs at the Conventional Schools, rather than any material variance in the energy costs for each comparator group.

2.89 The Lifecycle costs for the Pilot PPP Schools Bundle are almost double that of the Conventional Schools on an NPV basis (90% higher); however, the level of works undertaken to the Pilot PPP Schools to date has been found to be significantly greater than that demonstrated across the Conventional Schools. In addition to this, there is no risk for the Pilot PPP Schools Bundle of early failure of assets resulting in an immediate budget requirement for replacement or major repair of assets as this risk is fully passed down to the Project Company. This risk is still present for the Conventional Schools.

2.90 The cost of FM Service Delivery to the Pilot PPP Schools Bundle is some 137% higher (on an NPV basis) than the cost of FM delivery to the Conventional Schools, yet a significant number of failings in the compliance of the Conventional Schools with Statutory Requirements, PPM undertakings and good FM practice were identified in the reporting. None of the same issues were identified with the Pilot PPP Schools which were maintained to an excellent standard and demonstrated full Statutory Compliance and a high level of contract compliance.

2.91 These factors together indicate that the higher costs provide some attributable value. However, it is not clear, from the assessment undertaken, that there is an increase in the value of the schemes proportionate to the extra costs over the term of the Concession.

Backlog Maintenance variance between the PPP and Conventional Schools is significant

2.92 The Backlog Maintenance is calculated from the condition survey exercise undertaken to both sets of Schools and demonstrates there is a significant cost impact to the lower maintenance and Lifecycle regimes in place for the Conventional Schools. The Conventional Schools have a €135.61/m² Backlog Maintenance requirement compared to €10.36/m² at the Pilot PPP Schools. The difference is significant enough to demonstrate that the additional OPEX costs for the Pilot PPP Schools Bundle present reasonable value for money in maintaining assets that are in very good condition, when considered against the average condition of the Conventional Schools.

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2.93 The scope of the Review does not extend to consideration of the long-term forecast for the end-of-life timings for the Schools (i.e., when they fail to be economically viable to maintain and a replacement school would be required). The trend identified by the Backlog Maintenance supports a conclusion that the useful life of the Conventional Schools’ facilities would be shorter than that of the Pilot PPP Schools if the maintenance regime were continued at the same level and specification.

2.94 An early failure of a school to be economically viable to maintain due to a high Backlog Maintenance requirement, would necessitate capital replacement, diminishing the value for money achievable from delivering a lower level of maintenance and Lifecycle, as is currently in place for the Conventional Schools. This is a consideration over a longer period than the concession period and indicates the Pilot PPP Schools Bundle may have a longer-term benefit in a financial sense than is able to be fully considered in this report.

The Residual Value of the Pilot PPP Schools Bundle is higher than that of the Conventional Schools

2.95 The Residual Value calculation undertaken shows that the Pilot PPP Schools are expected to have a higher Residual Value at the end of the 25-year Concession period than the Conventional Schools will at the same point in time.

2.96 The Residual Value for these assets is calculated as:

(Current Day Rebuild Cost – Backlog Maintenance Cost) x Inflation to end of Concession = Residual Valuation of Facilities

2.97 There are two reasons why the Residual Value of the Pilot PPP Schools Bundle is higher by some 27% on a nominal and NPV basis.

a. The higher specification and better design of the Pilot PPP Schools when compared to the Conventional Schools would require an estimated 20% higher rebuild cost on a per m² basis.

b. The Backlog Maintenance costs for the Pilot PPP Schools are some 95% lower than those for the Conventional Schools due to the enhanced FM and Lifecycle Service Delivery.

2.98 The Residual Value benefit achievable from the Pilot PPP Schools Bundle goes some way to mitigating the potential impact on the overall value for money of the PPPs from the higher cost of finance; however, the variance is not likely to be significant enough to remove the impact of the financing cost on value for money completely. (Also, as noted previously, the risk transfer is also to be considered in the context of the higher cost of finance.)

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Part 3 Extent to which the Pilot PPP Schools Bundle Objectives have been met

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Part 3 – Extent to which the Pilot PPP Schools Bundle objectives have been met

This part of the report examines whether and to what extent the DoE objectives for the Pilot PPP Schools Bundle have been met, including:

Value for Money

Innovation

Administration

Third Party Usage

Value for Money

3.1 One of the aims of the Review was to test the value for money of delivering school provision on a design, build, finance, manage and maintain basis over a long period through the PPP model.

3.2 As shown in the report, when financial analysis of the costs of each comparator group is completed on a service element basis and in the context of the actual service delivered, then there is value for money that can be determined; for example, the schools are compliant and in excellent condition. However, apportioning the value against the higher cost is subjective. Ultimately, when debt costs are incorporated, the level of value for money achieved is likely to be lower.

3.3 When considered on an NPV basis, some costs, like FM Service Delivery to the Pilot PPP Schools, are significantly higher than the service offered to the Conventional Schools; however, there are several compliance failings and inconsistencies of the Conventional Schools with Statutory Requirements, PPM undertakings and good FM practice, as identified in the reporting. None of the same issues were identified with the Pilot PPP Schools which were maintained to an excellent standard and demonstrated full Statutory Compliance and a high level of Contract compliance.

3.4 The benefits referenced above demonstrate that the higher costs provide a higher standard of building and building service but that the higher standards realised may not warrant the associated higher cost. Simply, the value of higher standards achieved may not outweigh the extra cost in the specific PPP reviewed, although it should be noted that further developments in the PPP Market since the Pilot PPP Schools Bundle development, including reductions in the total cost of PPPs, would change this point.

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Innovation

3.5 The assessment looked at the processes implemented to obtain and realise new ideas and private sector innovation on school design through an output-based approach.

3.6 The Pilot PPP Schools were determined as designed to a higher specification;

however, this higher standard is not greatly significant. Subsequent School Bundle reviews are likely to evidence that the architectural and design developments since 2000s have extended the lifespan of the purpose-built educational places and provide further supporting arguments.

3.7 The Pilot PPP Schools Bundle did meet the objective of achieving some innovation in

design and the design has contributed to the schools being well maintained over time, with finishes being robust and the M&E installations being easily serviceable. DoE has advised that the experience of the wider circulation spaces in the Pilot PPP Schools prompted this feature to be subsequently incorporated into design guidance for all school buildings. The innovation could have been greater given the additional cost. Subsequent PPP Schools do have higher costs and, in some instances, innovative design; however, the design of non-PPP Schools has also developed since the Pilot PPP Schools Bundle design and the full comparison between the subsequent schemes does not form part of this Review.

Administration

3.8 As the schools have robust maintenance and facilities management regimes, the PPP model sought to offer opportunities to reduce school Principals’ responsibilities for managing school buildings, allowing them instead to concentrate on their core educational and school management functions.

3.9 Following the interviews with Principals, it was evidenced that the Pilot PPP School

Principal spends less time managing school buildings, compared to the Principal in charge of a Conventional School. Pilot PPP Schools reported little to no admin time (fewer than 5%) on facilities management, whereas Conventional Schools’ time resource was more widely utilised (between 10 and 50%, depending on school).

3.10 It is important to note that the complexities and long-term nature of the PPP contracts

mean that the NDFA and DoE must allocate a level of resources to the ongoing management of Pilot PPP Schools Bundle that does not apply to Conventional Schools. Therefore, while the time of the Principal is freed up in the Pilot PPP Schools, the DoE utilises more staff per PPP School than per Conventional School.

Third Party Usage

3.11 A final objective of the report was to establish whether better use of State-funded

school buildings outside of regular school hours has been achieved.

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3.12 Each Pilot PPP School has access to an Additional Bank of Hours allowance which provides access to FM resource outside of regular school hours. When not required by the school for educational purposes, these hours can be made available for TPU. For any TPU above this threshold, the TPI is shared between the DoE and the FM provider after costs paid to the FM Provider for making the facilities available to the Third-Party Users.

3.13 Data shows that TPU utilises a portion of the Bank of ours available; however, based

on the discussions with the DoE and Principals, the amount of TPU under the Bank of Hours appears to be impacted by both school management decisions, e.g., when the school needs to be available for educational/school purposes and demand within the local areas. As the Conventional Schools only hold records of the community space charged for, and not for all out of hours community use, it is not possible to make a direct comparison.

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Part 4 Conclusions

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Part 4 – Conclusions

Key Findings

4.1 When considered on a NPV basis, the cost variance between the Pilot PPP Schools Bundle and the Conventional Schools is variable, with CAPEX for the Pilot PPP Schools Bundle being 21% lower due to the timing of the expenditure, OPEX being 52% higher and the residual value and TPI being 27% higher. On an NPV basis, the difference in cost is not considered material; however as noted herein, financing costs were not included in this analysis and these costs can make considerable differences to the actual NPV cost of the schemes over the concession period. Risk costs, which are weighed against the cost of finance in the PPP model are also excluded, as, unlike later PPP Schools Bundles, there was no PSB prepared for the Pilot PPP Schools Bundle.

4.2 OPEX costs for Pilot PPP Schools Bundle are 52% higher than for the Conventional

Schools, but this is a result of lower spend on maintenance and lifecycle costs for the latter. This Review also found that although the lifecycle costs for Pilot PPP Schools were almost double that of the Conventional Schools (90%), the level of works undertaken to the Pilot PPP Schools was significantly greater and, as such, the maintenance issues were less likely to appear soon, saving significant amounts of further investment.

4.3 Backlog Maintenance requirements for the Conventional Schools are nearly 131%

higher than those of Pilot PPP Schools Bundle (p. 2.92), which further demonstrates that additional OPEX costs for the latter present good and justifiable VfM in maintaining assets.

4.4 Although the costs of FM Service Delivery vary greatly between the two types of

institutions (Pilot PPP Schools Bundle’s spend is 137% higher), this was balanced by the excellent standards of maintenance and ability to demonstrate full Statutory Compliance.

4.5 This Review has demonstrated that the Pilot PPP Schools outperform the Conventional

Schools on several non-financial analysis elements. The Pilot PPP Schools are in better condition, were designed to a higher standard overall, designed consistently, perform to higher energy ratings, and are fully compliant with statutory health and safety requirements.

4.6 While higher costs are incurred at the project setup, they are likely to provide some

attributable value in the longer term, including financial and time savings. The spend on Pilot PPP Schools throughout their lifecycle (DBFO) requires higher initial investment and incurs more significant maintenance costs overall, but this comes at a lower input of staff and Principals’ time, which in turn releases their time to focus on teaching- and management-related activities.

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Conclusions

4.7 In general, the outcomes of applying a PPP mechanism to the focus group of five Pilot Schools are positive overall. A higher level of investment, both as the initial input and maintenance throughout, has shown that the schools are likely to be designed to a marginally higher standard, in a better condition throughout and remain usable for longer, thus retaining a higher residual value.

4.8 Nevertheless, the initial capital required to design and build the schools, as well as

continuous funding over the lifecycle of the assets can pose a challenge for new establishments. In the case of Pilot PPP Schools Bundle, the transaction costs were materially higher than those for the Conventional Schools, but not delivering a substantial increase in value for the users.

4.9 The group of Pilot PPP Schools analysed in this Review was delivered in 2002 and is a

first project at such scale to have been executed; as such, there were no other projects available at the time to compare the progress or align the outcomes. In the last 18 years since the launch of Pilot PPP Schools Bundle the market has matured, bringing more information and depth of experience to how such projects should be managed. Any future PPP schemes should take the lessons learnt into consideration in order to further benefit from applying the partnership model of financing.

The maturity of the project also provides better understanding of the procurement mechanism impact over a longer period of operation. In this instance several lessons can be learnt in respect of managing transaction costs, the value of strengthening maintenance of Conventional Schools to ensure they meet Statutory Requirements and in challenging the Operational Costs presented at the bid stage by PPP consortia to ensure they offer value for money.

Recommendations for Further Reviews

4.10 Collection of data should be undertaken prior to confirmation of the scope of any further reviews to ensure there is sufficient information available to allow a full assessment of the financial objectives and any other elements considered.

4.11 When considering Lifecycle costs, newer PPP contract formats such as MIM and PF2

used in the United Kingdom require that the Authority has access to actual spend to date information. This will enable a value for money comparison between the lifecycle fund at financial close and the actual spend. Where there is a sharing mechanism for any underspend, this element of these contracts should also be considered for inclusion in future contracts.

4.12 Changes in the market over time should be considered as part of wider scope. The age

of the built and M&E assets included within the scope of this Review makes it less representative of the current market, industry, and practices. Any future reviews should consider more current assets built at the same time, for price and design comparison.

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Appendices

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Appendix A – Review Objectives

The Review shall address the following three key objectives. The first two objectives interlink but may be addressed on a separate basis by the Consultant within the Review, if appropriate. Objective three should be provided for separately in the Review. The Review shall provide conclusions and recommendations. It shall also propose improvements based on the Review findings and other observations which could be made to the PPP process, taking account, to the extent possible, of any improvements which have already been implemented in subsequent PPP projects.

Objective 1: To compare Pilot Schools and conventionally delivered schools

The Consultant is required to examine the key aspects of delivery of the Pilot Schools and to compare these against conventionally delivered schools. In particular, the Review shall assess the comparative costs, adjusted as necessary, to ensure an appropriate comparison of construction, and operation and maintenance of the representative group of conventionally delivered schools relative to the Pilot Schools. This comparison shall include but is not limited to:

An evaluation of the degree to which the Pilot Schools is performing, including from a value for money perspective, when compared with the conventionally delivered schools in respect of:

- Design and functionality - Building standards, including condition and residual life - Furniture and equipment, including evidence of renewal - Ongoing operations and maintenance, including all relevant services provided - Flexibility to take account of developments in educational needs/policy - The level of administration for schools and DoE/NDFA

A review and examination of the risk profile of the Pilot Schools and conventionally delivered schools. The Review shall identify any risks that have materialised, provide observations on how retained/shared/transferred risks have been managed and assess the implications for DoE.

Identify and assess the extent to which the Pilot Schools and conventionally delivered school buildings are used outside of school hours for community or other purposes.

Identify and assess any third-party income received by the schools, e.g., from catering and vending, pitches, Sports Halls, etc.

Objective 2: To assess the extent to which the DoE objectives in delivering the Pilot Schools have been achieved.

The Consultant is required to assess the extent to which the DoE objectives in pursuing the PPP model developed for the Pilot Schools have been met to date. Consideration will be given to the approach adopted by the DoE in its procurement and the award criteria used for the selection of the PPP Operator.

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1. These objectives (as identified in the C&AG report) include the following:

a. Test the value for money of delivering school provision on a design, build, finance, manage and maintain basis over a long period.

b. Obtain new ideas and private sector innovation on school design through an output-based approach.

c. Relieve school principals of the responsibility for managing school buildings, allowing them instead to concentrate on their core educational and school management functions.

d. Achieve better use of State-funded school buildings outside of regular school hours.

2. In order to address this objective, the Consultant will be required to:

a. Assess the level and extent of performance deductions made and consider these in the context of the objectives of the Review.

b. Assess the processes that monitor delivery and application of these performance deductions.

c. Review the extent to which benchmarking and market testing of the testable services have assisted in the management of the contract.

d. Identify the scope, if any, for improved delivery of objectives within the Pilot Schools contractual framework.

Objective 3: To develop a methodology/ template for use by the DoE in other project reviews of PPPs in the education sector

The Consultant is required to develop a methodology for future “look back” - project reviews to be carried out by the DoE in respect of other education PPP projects. This should set out the approach and act as a template for use by the DoE for use on other reviews.

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APPENDIX B – PILOT PPP SCHOOLS BUNDLE TIMELINE

1998 Report to the Inter-Departmental Group on introducing Public Private Partnerships.

1999 Government establishes the Central PPP Policy Unit within the Department of Finance and announces eight PPP pilot projects.

2000 Design, build, finance and operate (DBFO) PPP Pilot Schools Bundle sponsored by the Department of Education & Skills for the development and operation of five new schools.

2001 Contract award to Public Private Partnership (Ireland) Ltd (Project Company), with a contract value of €63.7 million, and projected total cost of all PPP payments of €290.4 million.

2001-2002

Schools built and fit-out by the Project Company.

2002 Government passes the State Authorities (PPP Arrangements) and National Development Finance Agency Acts to enable state PPPs. The latter also established the NDFA to fund development using long term debt and equity.

2002 Service commencement of the five Pilot PPP Schools, with a 25-year term.

2004 Office of the Comptroller & Auditor General (C&AG) commissions a value for money review into the Pilot PPP Schools Bundle and noted that the original ‘cost comparison exercise concluded that procuring and running the schools through the proposed PPP arrangement would result in a saving of around 6% compared to procuring and running the schools conventionally’.

The report also noted that the original analysis contained errors in the timing and discounting of payments and overestimated the residual value of the school buildings at contract term. New analysis, correcting for these errors, and reflecting changes to interest rates and the treatment of VAT, led the C&AG to conclude that the final PPP deal was in the range 8 to 13% more expensive than under conventional procurement.

The report concludes that it is too early for a comprehensive comparison of the economy, efficiency and effectiveness of the school PPPs and recommends that a more detailed review be conducted later.

2007 NDFA expanded to include a Centre of Expertise for Procuring PPPs to advise State Contracting Authorities.

2012 C&AG recommends that ‘evaluations of the value for money expected to be achieved through procurement of projects by means of PPP should now be stated and published’.

2012 NDFA authorised to provide contract management services for PPP projects, including:

Managing the delivery of services by PPP Project Companies and ensuring their contract compliance

Monitoring condition surveys by PPP Project Companies and reviewing their annual and five-year maintenance plans

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Monthly reporting of PPP Project Companies performance and applying deductions for service and availability failures

Ensuring required changes are managed in accordance with contracts

Managing five-year market testing and benchmarking of services in accordance with contracts

2018 DoE commissions a Review of Pilot PPP Schools Bundle, the first review of the original eight PPP pilot projects.

2019 Review of Pilot PPP Schools Bundle conducted.

2027 Pilot PPP Schools Bundle end of contract term.

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APPENDIX C – FINANCIAL ANALYSIS ASSUMPTIONS

Data Inclusions

Construction costs, transaction costs, third party income, FM Service costs, lifecycle costs, utilities costs, residual value of assets (incorporating the backlog maintenance costs identified within the lifecycle cost models produced).

Exclusions

Financing costs, tax, shareholder returns, ongoing contract management costs (Project Company), and risk pricing.

Discount Rate

Each of the above listed financial inputs is calculated with a discounted cashflow analysis of the annual costs over 25 years (PPP Concession period) using the project specific discount rate provided by the NDFA in line with the DPER guidance (5%). All figures referenced as “NPV”, the preferred form of cost assessment, are subject to the same discount rate.

Inflation

The actual HICP inflation index has been used to date, with the estimated HICP utilised from 2019 to 2024 as per the Department of Finance Budget 2020 Economic & Fiscal Outlook. From 2024, a flat estimated increase of 2% has been utilised. This inflation index has been utilised across both the Conventional and the Pilot PPP Schools Bundle to enable a direct comparison except for Energy Costs.

The energy costs use an energy specific inflation rate as agreed with the Project Team due to the volatility of energy prices. Due to the significant change in prices year on year, a ten-year average has been used to estimate energy prices in the future.

CAPEX Costs

Conventional Schools construction and transaction costs are spread across the periods in which the costs were incurred (as detailed in the expenditure breakdown provided by the DoE). Costs are spread evenly unless broken down by year in the data provided. The Conventional Schools capital costs are considered in a ‘pre-operational’ period within the model, operational costs are then considered for 25 years following the operational date to enable a direct comparison with the PPP contract term costs. This means no operation costs are included for the construction phase and it is assumed that only following practical completion did operation costs commence.

Construction and transaction costs for the Pilot PPP Schools Bundle are as per the figures stated within the Financial Model and have been spread over the 25-year Concession period in line with the actual payments.

Source of Costs (FM, Lifecycle, Utilities, Third Party Income)

Conventional School costs are sourced from the School Accounts which have been provided for the past eight to ten years in most instances. Where data is not available (both in the past and all future years) the calculated average of the figures has been used.

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Figures have been sense checked by AAP and the Project Team to remove anomalies, non-related costs, or duplication of costs, and include an assumption (calculated average from available data) where costs are missing. This is clearly auditable back to the source information within the model and the supporting input sheets.

Pilot PPP Schools Bundle costs are all sourced from the Financial Model at Financial Close, except for the energy costs which have been sourced from the Project Company energy reporting. As such, no assumptions are needed save for the future estimated energy costs (an average has been used).

VAT

The Financial Analysis excludes VAT costs. Whilst the Conventional School accounts costs included VAT, the costs have been amended to exclude VAT based on actual VAT rates per service/purchase types. The categories and rates are detailed within the input sheets for the analysis.

Residual Value Assumptions

The re-build costs for the Conventional Schools use a €/m² rate provided by the DoE based on recent builds (this cost is then uplifted to the end of the 25-year period based on the inflation assumptions within the model). Whilst original build costs for the Pilot PPP Schools Bundle were over 40% higher (nominal) than the Conventional Schools, this is considered unrepresentative of the difference in specification. As such the PPP €/m² costs are 20% higher than the Conventional Schools costs to allow for the higher specification evidenced through the design and condition reviews.