Lessons from the Edinburgh schools fiasco

Collapsing Edinburgh schools are a metaphor for the folly of PPP schemes that have cost the taxpayers £billions. This latest scandal should be used as an opportunity to think again.

Fears over safety has forced the closure of 17 Edinburgh schools due to concerns over the standard of construction, leaving 7,000 pupils unable to return to classrooms following the Easter break. Every Scottish council is now carrying out surveys of schools that could be affected.

The schools were all built under the same public private partnership contract by Edinburgh Schools Partnership (ESP). This is a Special Purpose Vehicle – essentially a company set up to run this scheme, owned by the partner companies that are responsible for the contract.

This is how most Public Private Partnerships (PPP) are operated. There are a number of different schemes that come under this umbrella term, including PFI, NPD and the Hub Initiative. The common feature is that private companies finance and then operate a public service building for a contracted period, typically 25 years or longer. They were started by the Tories, developed by Labour and continued by the SNP, who have one of the largest PPP programmes in Europe.

While UNISON opposed PPP schemes from the outset, it is only fair to point out that construction failure is not an inherent element in PPP schemes. They can happen with any construction project and we don’t at this stage have all the information on the precise problems with these buildings.

However, there are some reasons why such failures are a bigger risk in PPP schemes.

Firstly, the construction company in a PPP scheme is almost always an equity partner of the SPV running the scheme. In effect, this means they are both the client and the contractor. Unlike conventional procurement, there is no council or other public service provider performing the supervisory client role.

Secondly, there is a profit incentive to keep costs to the minimum. Any saving that the construction partner can make increases profits for both the construction company and the other SPV partners. There is, therefore, a stronger cost saving incentive than in conventional procurement.

Thirdly, many PPP schemes have been under pressure to cut costs late in the project because of budget overrun. We know that this has resulted in specification cuts, such as fewer beds in PPP hospitals and the loss of planned teaching areas in PPP schools. There is bound to be a concern that this may drive construction changes as well.

Fourthly, PPP schemes tend to use standard designs to keep architectural costs to a minimum. This has been criticised on aesthetic grounds because designs don’t always reflect the local setting. It also means that a design feature that fails, could have implications for not one building, but many.

I should emphasise that I don’t believe that this means that anyone has deliberately done anything that is unsafe. However, PPP schemes do not have all the checks and balances that happen with conventional procurement.

Our concerns over PPP primarily relate to the inflexibility of long term contracts and cost. In our latest report on this issue late last year, we argue that with interest rates at historic lows, now is an ideal time to review the cost of PPP schemes that were signed when interest rates were much higher. It is now widely accepted and understood that PPP projects have been extremely expensive ways of funding new hospitals and schools. Estimates of how much the public sector could save now through buying out PPP contracts range as high as £12bn in Scotland alone.

Whatever the cause of the construction failures in the Edinburgh Schools scheme, this should be yet another wake up call on the inherent weaknesses in this method of funding public services. Bringing PPP schemes into the public sector is a safer and more cost effective solution for public service delivery.

This blog was first posted on the author’s site and is reproduced with permission.

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