15. Local Education Partnerships (LEPs) are joint ventures between a local authority, Building Schools for the Future Investment (a joint venture between the Department and Partnerships UK), and a consortium of contractors. They are a new way of procuring a flow of projects, developed with the aim of achieving:
• procurement efficiencies and improvements in partnering;
• quicker, cheaper and more effective development of projects;
• the integration of the supply chain;
• the joining up of projects, and
• incentives for the contractors to contribute to wider social aims.27
16. By December 2008, 15 local authorities had established a LEP, compared to nine that had finished their procurement without one. The proportion using a LEP is expected to increase in future. So long as LEPs meet their contractual performance obligations, they have exclusive rights to scope and manage major education capital projects for the local authority, and to manage the supply chain for the construction, facilities management and provision of ICT of BSF schools.28
17. Achieving value for money from a LEP requires:
• the economic pricing of each project delivered through the LEP, and
• the potential savings from procurement efficiencies and partnering benefits to outweigh the costs of establishing the LEP.29
18. Although on paper LEPs look like they might provide cost benefits, it is too early to tell whether they will, and their value for money is unproven. The handful of schemes that have agreed terms for a deal through an operational LEP have found that using the LEP achieved time and cost savings, but too few local authorities have reached this stage to be able to assess whether these savings are likely to outweigh the cost of establishing the LEP.30 Partnerships for Schools has not managed to convince all local authorities of the potential benefits of a LEP, and has not put in place measures to evaluate whether those benefits are being achieved.31
19. The Department and Partnerships for Schools believe that once local authorities have gained experience of a LEP, they become more convinced by this form of procurement. But only 14% of local authority BSF managers surveyed by the National Audit Office, most of whom had not yet established their projects, believed that their LEP would produce cost savings, and only a quarter said that overall it was a good approach.32
20. Most BSF schools are likely to be delivered through LEPs under exclusivity arrangements.33 Under such arrangements, instead of using competitive tendering of each project to provider assurance on their economy, LEPs use a variety of other means. In particular:
• when selecting a private partner and establishing the LEP, at least two schools are designed and costed in competition to provide a local benchmark of costs for the future projects;
• by using standard form contracts agreed when establishing the LEP and guaranteeing reduced prices for each project, LEPs hope to share the cost savings of long term partnering;
• there is also periodic market testing of sub-contractors and performance monitoring of the LEP itself, with the threat of terminating the exclusivity arrangements if the LEP does not meet the required level of performance,34 and
• some LEPs, called integrators, will hold competitive processes for selecting subcontractors to scope each project.35
21. The main source of assurance, however, will be the benchmarking of the costs of each project as they are developed. Partnerships for Schools has developed a new benchmarking system to provide cost comparators to local authorities so they can assess the value for money of each project under LEP exclusivity arrangements. Once this is operating, it should significantly increase the ability of local authorities to judge the prices offered by bidders.36
22. Projects have been slow to provide data. Although projects are now required to give information within one month, Partnerships for Schools has so far been unable to collect sufficient data to publish cost comparators for every local authority in the programme. The system currently provides insufficient information on the whole life costs and the on-costs, including the administration, procurement, financing, maintenance, life cycle and PFI contract variation costs. This will limit the ability of local authorities to conclude on the value for money of each school or select a procurement route.37
23. So far, both the cost and time of establishing a LEP have been greater than they need be: £9 million to £10 million to procure a LEP and design the first projects, and an average of 102 weeks. The cost could be reduced by up to a third by preventing avoidable delay to the projects, using fewer consultants to undertake core local authority roles, restricting the number of schools selected at the beginning and keeping to standardised documentation.38
24. The length of time in procurement appears to be improving, with the latest wave averaging 90 weeks. However, this figure still compares badly to the 77-week average length of successful procurements that have not used a LEP. When frameworks can be used, they are likely to be cheaper and quicker than a LEP.39
25. Partnerships for Schools has not done enough to ensure that LEPs work well in practice. The first LEPs had difficulties in establishing effective working arrangements and relationships between local authorities and private sector partners, leading to delays in the development of projects.40 Partnerships for Schools, local authorities and bidders appear to have been too caught up in the negotiation process and in hitting delivery milestones to pay sufficient attention to the operational stage.41
26. The Department has allocated 41% of BSF capital funding for Private Finance Initiative (PFI) projects. The current economic recession and problems in the finance markets have made private finance expensive and difficult to find. So far, this has had a limited impact on the construction of schools due to the use of early works agreements, although the bidders for Newham's PFI contract were unable to agree terms with their banks.42
27. The Treasury has recently announced that the Government will lend to projects that cannot raise sufficient debt finance on acceptable terms. It will lend alongside commercial lenders and the European Investment Bank, or provide the full amount of senior debt required by the project. The Treasury considers that switching between PFI and conventional funding once procurement has started would cause significant delays or risk project failing, as projects would need to start procurement again.43
28. Public debt finance will increase public sector risks and, although the taxpayer will be rewarded with a financial return, will alter the overall balance of risks and rewards. The Treasury has said that it will try to replace banks' due diligence with an in-house team with professional lending skills.44
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30 Qq 12, 40, 88; C&AG's Report, para 3.28
31 Qq 85-88; C&AG's Report, rec iii, paras 3.32-3.33
34 Qq 12, 80-84; C&AG's Report, para 3.19
39 Qq 60-64; C&AG's Report, para 3.21, Figure 12, Appendix 4
42 Qq 3-5, 30-31, 75; C&AG's Report, paras 4, 6, 4.13
43 Treasury Press Statement 20/09, 3 March 2009, http://www.hm-treasury.gov.uk/press_20_09.htm
44 Treasury Press Statement 20/09, 3 March 2009, http://www.hm-treasury.gov.uk/press_20_09.htm