HC Deb 27 July 2000 vol 354 cc860-1W
Mr. Matthew Taylor

To ask the Secretary of State for Education and Employment what the net present cost is of the Birmingham LEA schools rebuilding project under the Private Finance Initiative; what the value is of the public sector comparators in(a) pre-risk and (b) risk-adjusted terms; and what risks are identified as having been transferred at (i) outline and (ii) final business case stage; and if he will make a statement. [132836]

Jacqui Smith

The net present cost of the Birmingham schools' rebuild package is estimated by the local education authority to be £78 million, which includes the value of the risks transferred.

The net present value of the risk adjusted public sector comparator is approximately £87 million. The value of the risks transferred to the private sector is estimated by the local education authority to be approximately £6 million.

The risks identified for transfer at outline business case stage were: detailed planning permission; design; construction; financing; availability (of the school buildings); operating performance; operating costs; repairs and maintenance; damage and vandalism; security; new legislation; obsolescence of plant, furniture and fittings; and revenue from dual use and commercial activities.

The risks identified as having been transferred at final business case stage were: planning—detailed planning permission; design and construct—satisfaction of design brief, quality and fitness for purpose, design development, cost increases, satisfaction of commissioning tests; delays—construction delays, insured perils, contamination from military use, unexploded ordnance, failure of utilities or other public sector bodies to carry out works or provide services, failure or shortage of power, fuel or transport up to 90 days, blockade or embargo up to 90 days, industrial action affecting the facilities management industry up to 90 days, site conditions at contract close, responsibilities under the Construction (Design and Management) Regulations 1994 and other health and safety responsibilities; operate—facilities management costs (including the risks associated with the repair, maintenance and security of the assets), responsibilities under the Transfer of Undertakings (Protection of Employment) Regulations 1981(TUPE), unavailability, under-performance, furniture and fittings, IT cabling, laboratory and workshop fixed equipment, energy and water consumption (part transferred), sub-contractor default; contract generally—vandalism, health and safety, equal opportunities and discrimination legislation generally, general change in law giving rise to revenue expenditure; and financial—insurance, third party claims, interest rates after year 20, third party income, inflation (part transferred), severance costs for staff employed in facilities management services at the end of the contract, force majeure (shared), contractor default.

The key principle of risk transfer within PFI schemes is that risks are placed with the party best able to manage them. Local education authorities must always ensure that, in transferring any risk to the private sector, they are achieving value for money.

Mr. Matthew Taylor

To ask the Secretary of State for Education and Employment, pursuant to his answer of 20 July 2000,Official Report, column 291W, if he will quantify the contribution of each of the three stated causes of the increase in the estimated cost in net present value of the Birmingham LEA schools rebuild package PFI scheme between the outline business case and final business case; and what reasons underlay the reduction in the discount rate used. [132844]

Jacqui Smith

The approximate contribution to the increase in the estimated cost in net present value of the Birmingham schools' rebuild package arising from each of the three causes given in my answer of 20 July is:

  1. (a) improvements to the output specification—45.7 million;
  2. (b) technical changes to the calculation of the cost of the scheme—£3 million;
  3. (c) an underestimate in the outline business case of the cost of operation of the new and refurbished schools—£6 million.

In addition, a combination of minor cost increases over the life of the project total £2.1 million.

The rate of discount used is set by the Secretary of State for Environment, Transport and the Regions for all local authorities. It is fixed each year and reflects the cost of all local authority borrowing. The rate changed between the outline and final business cases due to changes in the overall cost of local authority borrowing.