12 BSF is making it easier for Local Authorities to use capital funding strategically. More than 75 per cent of Local Authorities in our survey said it was leading to more strategic procurement. All of the seven Local Authorities in our case studies have put in place plans to re-organise their school estate in a coordinated way, and devoted significant time and resources to planning the investment. Initially, planning processes and guidance did not focus on the practical matters that would help schools meet expectations. The Department and PfS have improved the processes and guidance significantly for more recent projects.
13 The costs of establishing the first LEPs have been high. We estimate that for the first fifteen LEPs, the combined total cost of designing the first few schools, procuring a private sector partner, and setting up the LEP averaged between £9 million and £10 million. A large proportion of this cost was for the design of the first schools. These total costs were higher than they needed to be because of avoidable delay, extensive reliance on consultants by Local Authorities, large numbers of sample schemes and alterations made to standardised documents. PfS has started to streamline the process of establishing a LEP to reduce costs in future.
14 It is too early for Local Authorities to be able to tell if the expected benefits of the LEP model will be realised. A quarter of Local Authorities in our survey anticipate that there will be benefits from a LEP approach. But most have not yet reached the stage of developing new projects following the establishment of the LEP and consider it too early to tell. The private sector partners surveyed by the National Audit Office are more optimistic: nearly 70 per cent believe that the LEP model can offer value for money.
15 Early evidence shows that having a LEP can lead to time and cost savings on repeat procurements, although most Local Authorities have not reached this stage. The first few projects developed after LEPs were established have been procured more quickly and efficiently than comparable projects undertaken without using a LEP. In the case of Lancashire, for example, two PFI schools were procured in 12 months and 7 months, compared to the 20 months it took to procure the LEP, and half the time that was previously typical for school PFI procurement before BSF. The first non-school project delivered through a LEP was in Leeds, and was procured six months more quickly than Leeds had previously managed without its LEP. The main factors were quicker scoping and agreement of projects, which also resulted in approximately a 20 per cent saving (£200,000) on the Local Authority's internal procurement costs compared to similar procurement without a LEP.
16 The first LEPs found it difficult to establish effective working arrangements and relationships between Local Authorities and private sector partners. Governance and contractual arrangements are complex, requiring early attention to how to manage the operational phase. PfS, Local Authorities and bidders initially paid insufficient attention during the procurement process to how LEPs would work in practice. Tensions from the negotiation process sometimes adversely affected relationships when the project moved from procurement to operation. Confusion around the scoping process and shortcomings in partnering have led to some avoidable delays and reduced efficiency in the LEPs' development and scoping of their first projects. In 2008, PfS started to focus on helping LEPs overcome these issues. Local Authorities and private sector partners are working to overcome early problems and some are starting to see the benefits of effective partnering, such as more effective town planning applications through the pooling of expertise.
17 LEPs develop projects without competitive tendering during a ten-year exclusivity period. The exclusivity arrangements could make it harder to price projects economically, as the private sector partner will not typically need to demonstrate efficiencies by competing against rivals. To mitigate this risk, Local Authorities will therefore seek alternative sources of assurance over the value for money of individual project budgets proposed. The forms of assurance can include comparison to national benchmarks and to the original cost schedules put forward by contractors for the projects developed when they initially competed to join the LEP. There is also provision for market testing after five years. In addition the contracts include continuous improvement targets, which require reduced prices for future projects, and loss of exclusivity rights for failure to deliver value for money. Public sector membership of the LEP Board also improves the transparency of costing.