The public sector comparator is very sensitive to the assumptions that are made. We found that, whilst the assumptions in the public sector comparator on the whole seemed reasonable, some of the assumptions could reasonably be questioned. The assumptions are often subjective and can vary significantly between estimating teams and contracts.
For example the PSC:
■ relied significantly on maintenance costs that had to be estimated in the absence of comparable historical costs. DET maintenance is largely reactive and schools are not fully maintained to the level assumed
■ did not include efficiencies from the bundling of 9 new schools, packaging of the facilities management services and letting of long-term facilities management contracts that would likely have lowered its cost
■ did not include the sale or lease of school land for third party use, such as childcare centres, which would have further lowered its cost. DET considered that the Education Act 1990 would have prevented it purchasing land for this purpose and, in any case, it was not in the business of sourcing third party income opportunities, but more focused on the delivery of education. There are indications that this view is changing, as long as commercial activities do not compromise educational activities.
The assumption that the efficiencies of bundling new schools could not otherwise be achieved by DET make it unlikely that the public sector comparator would ever be lower than the private sector's PFP bid. Government guidelines require that a PSC is based on the most efficient likely method of providing the defined output currently available to the public sector. However, DET considered that this was not feasible on the basis that it would have exceeded the level of funding available using traditional means.
We also noticed a significant increase in the cost of the public sector comparator from PSC1 at $141.8 million to PSC2 at $193.8 million, each of which was for 9 similar schools. Whilst the construction costs were similar in each estimate, the allowances for operating costs and transferred risk had increased by more than 80 percent. DET attributed these increases to:
■ higher market volatility when preparing capital cost estimates and pricing in the services sector
■ now projecting wage growth at 4% pa, not 2.5% pa as in PSC1
■ higher risks associated with site investigation, surveys, contamination studies, council negotiations for the sites included in PSC2
■ increased scope - eg. PSC1 included only 50% of utilities costs, PSC2 has 100%; the number of demountables is higher for PSC2; PSC1 did not allow for replacement roofs after 20 years, even though the manufacturer's warranty would have expired - so DET allowed an additional $1m per school or $9m in PSC2. Note that the contracts do not require the roofs be replaced, only that they be maintained
■ a considerable increase in insurance costs.