Mike Geraghty

Project Director

Argyll and Bute Council

NPDO/PPP Project

mikegis@hotmail.co.uk

NPDO – An Alternative to PFI?

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1

1.02

2001 2006 2011 2016 2021

Scotland

Argyll and Bute

Population Projections – Argyll and Bute (base year 2001)

Age Band Projections – Argyll and Bute(base year 2001)

0%

10%

20%

30%

40%

50%

60%

70%

2001 2006 2011 2016 2021

0-15

16-44

45 andover

The Context 

•Education – above average results – poor and deteriorating schools.

•Widespread dissatisfaction with condition of schools.•Technical – poor almost non-existent management

information re condition of buildings.•Financial – inadequate budget – borrowing power

restricted.•Conclusion – the Council could not undertake the

works necessary within the existing resources at the scale and pace required.

The Problem

• Commissioned property condition surveys.• Informed estimates suggested that it would take all of

the budget for the next 20 years just to overtake the backlog of repair and maintenance.

• Significant improvement to layout, design, accessibility etc was estimated to double/treble the cost/time.

• The Council’s ability to borrow money was restricted by legislation (Section 94).

• The Council could not undertake the works necessary within the existing financial resources at the scale and pace required.

PFI Model - Features

• The private sector contracts to design, build, finance and operate an asset-based service.

• The public sector client pays a fee over the life of the contract.

• The payment of the fee is dependent upon the asset/services meetings specified standards – failure to deliver results in payment deductions.

• The specification includes for a managed service, facilities management and on-going life-cycle maintenance.

Off balance sheetaccounting

Revenue fundingsupport available

Performance based payments

Initial capitalinvestment

Single pointdelivery system

Life-cyclemaintenance and

facilities management PFI

Improved service provision

What can PFI deliver?

The AuthoritySpecial Project

Vehicle/Company

Building Contractor

Maintenance Contractor

ToDeliver Services

Contracts

Building Contractor

Banks

Maintenance Contractor

Contracts With

Pays for this service delivery through the

AUC

Comprises

Typical PFI Structure

Why Not Use PFI?

• Criticisms of some early PFI from influential bodies.• Lack of democratic input into what had previously

been provided by the public services.• Accusations of excessive ‘profit taking’• Only game in town – perception of no choice and

imposition.• The Council’s ruling administration has said no

more PFIs.

Context:- Timing is Everything 

•PFI was re-badged as PPP and adopted as a major policy plank by the incoming Government.

•Uptake of PPP schemes was patchy.•Locally – budgets were under pressure and schools

were deteriorating.•Options/alternatives/solutions required to be

developed.

The Alternative to PFI in the Making

Four Imperatives

• The model had to be classed as a PPP in order to gain ongoing revenue support.

• It had to be acceptable to:-- Politicians- The market- The community.

• It had to evolve from the PFI model but be sufficiently distinct from it.

• It had to be attractive to the private sector – so changes to the familiar PFI model had to be minimised.

Achieved unanimous Council support for PPP/NPDO model

Secured community support

Secured Scottish Executive endorsement for Pathfinder status

Problems of the school estate remained

Drivers for Council Support

Council Starting Position

Differentiated PPP/NPDO from PFI

Secured private sector agreement that the model was bankable

Secured private sector agreement to a cap on profits, stakeholder

representation on Board and recycling operating profits

Not supporting a PFI model

Greater value for money

Attracted cross-party support

Stakeholder involvement included as a right

No profit taken beyond sub-

contractor payments

At least as cost effective as a PFI

All surplusesre-cycled back into

Education NPDOImproved service provision

What can NPDO deliver?

New NPDO Structure

SPV is an NPDO

Public Sector

Bank Debt

Construction Co

Characteristics• The Special Purpose Vehicle (“SPV”) is

established by the private sector consortium bidding for the design, build, finance and operate (“DBFO”) concession

• The public sector lets the DBFO contract in open competition to the private sector to deliver the required service over a period of 25 to 30 years..

• Contracts are increasingly standardised by sector and build upon best practice ie, whole life costing; competition and external due diligence.

• The NPDO is funded 90% senior and 10% junior debt. Senior debt supplied by Royal Bank of Scotland (RBS) and the European Investment Bank (EIB) the Junior debt by RBS and Quayle Munro.

• Trading surpluses will be re-cycled back into education via charity or CLG

• Stakeholder and Independent director appointed to SPV Board – ‘golden share’

• Board majority lies with private sector

DBFO

Concession

Facilities Management Co

Charity orCLG

ABC Schools (Holdings) Ltd

Junior Debt(c. 10%)

Equity(nominal)

Royal Bank of ScotlandQuayle Munro

Construction Contract

ManagementContract

FacilitiesManagement

BarrMansell

hbg

NavigantConsulting Mitie

Cash FlowSurpluses

Charity

Royal Bank of ScotlandEuropean Investment Bank

Senior Debt(c. 90%)

Argyll and Bute Schools NPDO Project

ABC Schools Ltd.

Argyll and Bute Council

Project Agreement

NPDO - Detail 

•Reference model - governance- finance

•No shareholders - junior debt 10%- senior debt 90%

•Private sector classified- Assessable for corporate income tax- Adopts contract debtor accounting and composite trader tax treatment.

Much the same as any other PPP Company

Board 

•Junior debt entitled to provide up to five directors.•Independent Director.•Stakeholder Director.•No Council representation on Board.•Articles of Association stipulate no distribution to

shareholders – surpluses must flow to charity.

Council

• Meets Council objectives

• Secure the Revenue grant Value for money

• Achieve risk transfer and off balance sheet status

• Affordable and Sustainable

Users

• Responsive to their needs

• Step change to the condition of school buildings

• Alignment of user objectives and provider objectives.

Government

• Synergy with Government policy and objectives

• Balance sheet treatment

• Value for money

• Risk transfer

• Affordability

Funders

• Commercial deal – first and foremost – therefore had to be commercially attractive

• Robust Business Case – due diligence

• Profitable

• Minimise risk exposure

NPDO/PPP

Model

SQUARING THE CIRCLE

Being Delivered 

Oban Pre-five including Gaelic pre-fiveSt Columba’s RC and Rockfield PrimariesDrummore Learning Centre – mainstream

Lochgilphead Pre-fiveLochgilphead PrimaryLochgilphead HighWhitegates Learning Centre – mainstreamMid-Argyll Sports Centre

Bute Pre-fiveRothesay PrimaryRothesay AcademyArgyll College

Dunoon Dunoon Grammar School

Helensburgh Hermitage Academy (tbc)

Features 

•Brand new schools.•Artificial sports pitches at all schools – only one not floodlit.•Facilities management, life-cycle and

maintenance included in contract.•33% of all Argyll and Bute pupils (60% of all

secondary and 16% of all primary) will occupy the new schools.

•Community use included in the contract.

Any Questions?