Mike Geraghty

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• Mike Geraghty
• Project Director
• Argyll and Bute Council
• NPDO/PPP Project

mikegis_at_hotmail.co.uk
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NPDO An Alternative to PFI?
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Population Projections Argyll and Bute (base
year 2001)
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Age Band Projections Argyll and Bute(base year
2001)
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• 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.

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• 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 Councils 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.

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• 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.

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What can PFI deliver?
Performance based payments
Off balance sheet accounting
Single point delivery system
Life-cycle maintenance and facilities management
Revenue funding support available
PFI

Initial capital investment
Improved service provision
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Typical PFI Structure
Building Contractor
Maintenance Contractor
Contracts
Special Project Vehicle/Company
Comprises
The Authority

Pays for this service delivery through the AUC
Banks
Contracts With
To Deliver Services
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• 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 Councils ruling administration has said no
  more PFIs.

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• 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.

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• 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.

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Achieved unanimous Council support for PPP/NPDO
model
Drivers for Council Support
Secured community support
Secured private sector agreement to a cap on
profits, stakeholder representation on Board and
recycling operating profits
Secured private sector agreement that the model
was bankable
Secured Scottish Executive endorsement for
Pathfinder status
Differentiated PPP/NPDO from PFI
Problems of the school estate remained
Not supporting a PFI model
Council Starting Position
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What can NPDO deliver?
Stakeholder involvement included as a right
Greater value for money
At least as cost effective as a PFI
All surpluses re-cycled back into Education
Attracted cross-party support
NPDO

No profit taken beyond sub-contractor payments
Improved service provision
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New NPDO Structure
Public Sector
DBFO Concession
SPV is an NPDO
Bank Debt
Charity or CLG
Facilities Management Co
Construction Co
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Argyll and Bute Schools NPDO Project

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• 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

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• 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.

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SQUARING THE CIRCLE

• Council
• Meets Council objectives
• Secure the Revenue grant Value for money
• Achieve risk transfer and off balance sheet
  status
• Affordable and Sustainable

• 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

• Users
• Responsive to their needs
• Step change to the condition of school buildings
• Alignment of user objectives and provider
  objectives.

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• Being Delivered
•  
• Oban Pre-five including Gaelic pre-five
• St Columbas RC and Rockfield Primaries
• Drummore Learning Centre mainstream
• Lochgilphead Pre-five
• Lochgilphead Primary
• Lochgilphead High
• Whitegates Learning Centre mainstream
• Mid-Argyll Sports Centre
• Bute Pre-five
• Rothesay Primary
• Rothesay Academy
• Argyll College
• Dunoon Dunoon Grammar School

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• Features
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• 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.

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• Any Questions?
•