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)

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 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.

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.)