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 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.
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.