2241 0 vie vipoint Output-Based Education David C(Oldstote 1w The Evolution of Contracts for Schools in the U.K. Project D)ilector at Partnerships U K. Ile has been involved in projects The private sector has provided investment funding and services for in the schoot sector and cnrs-entIl lead.s ajoint U.K. pFublic sector schools through output-based contracts since 1996. venture wvith the Under these contracts firms provide accommodation and related Natitonal Health *Servi services, while teachers, still employed by the public sector, provide that will deliver newzl investment in ri nimai the core education services. Firms bid their lowest price, and care facilitie.s eisd payments to the winning bidder begin only when services become AC rrvies. Partn erTh shpA U.K. iA a joint ventUre' availatble at defined standards. The contracts have evolved from helitnen the public and building new schools, to bundling maintenance and rehabilitation private sectors but zvorks exclunsivel for the pu,blic across many schools, to setting up information technology facilities AestOrto develop. procure, under contracts incorporating learning targets for students. and isnplement pubN oni P riva te partnernhsip . New schools have traditionally been procured Public-private contracting for by local governments through input-based con- Box education services struction contracts specifVing the inputs-or the entire design-in great dletail. Once a Key features of the output-based approach: school wasn built,rthe desig cai greatletail d O e a * A competitive bidding process (reputable bidder with school was built, the local authority and the lowest price and best value for money wins). school were responsible for maniaginig and * Specification of the outputs required, not the maintaining the asset and delivering such ser- method of delivery. vices as cleaning, catering, security, and utilities. * Procurement of a service, not the underlying asset. But the input-based approach has had a * Allocation of risks to the party best able to manage rather inglorious history of leading to delays in them. constrtction, significant cost overruns, and * Value for money as the overriding objective. maintenanice costs that became steadily less * Value for money assessed over the whole life of the affordable. A key attraction of the output-base(d asset. contracts, pioneered by the Private Finance Payment for service as received, not as asset Initiative in the earlv 1990s for asset-intensive delivered. t-transport an(l government accommodation I services, is its focus on outputs-wohatis required OUTPUT-BASED EDUCATION THE EVOLUTION OF CONTRACTS FOR SCHOOLS IN THE U.K. rather than how it is to be delivered (box 1). weighted less than classrooms. Deductions That transfers the risk of cost and time overruns could also be made if' rooms were available but from the school and local authority to the con- the performance standardls hadl not been met. tractor, whiclh is paid only when the otutptuts are Payments are made in roughlv equal install- delivered. In most cases the private contractor ments (minus any penalties) from the date of' must raise finance in the private sector to cover first availability over the life of the contract. the initial construction works. They are partially indexed to reflect the fiact that Ulnder this approach the contract goes sorne of'the contractor's costs (suclh as runniiing 2 beyond just the provision of the asset-the costs) will rise with inflation, while its capital school. By transferring responsibility and risk for costs will be incurr-ed early in the contract, the ongoing management, maintenance, and financed by borrowing at a fixed -ate, and tlhee- operation of the asset to the contractor, it gives fore do not require indexation. the contractor the incentive to develop design The next step was to bunldle groUps of' solutions that take into account the costs of inan- schools into one project. This approaclh offered aging the asset over its entire life. This ensures a range of benefits, incltding lower transaction that the contractor does not design an asset that costs for both the public and the private sector. is cheap to build but unaffordably expensive to Several such projects are now in operation. The manage and maintain over the rest of its life-as new facilities have generally been deliver-ed on the public sector often has in the past. tine and to cost andl have met-and in some This approach offers important advantages cases exceeded-expectations. But the projects to the government, not only more efficient risk have involved little innovation. allocation and access to private sector expertise The next stage of contracting began to but also the deliverv of' new assets without pres- address this issue. The Stoke schools project, coV- sure on government resources. The approach ering all 122 schools in Stoke on Trenit, dlefined started later in education than in other asset- its requirements in terms of' standards that intensive service sectors, largely because local should apply to categories of accommodation in authority regulations constrained it until 1996. anv school, rather than school by school as in pre- vious contracts. The specification docunienit was Single and bundled contracts brief-much briefer than those for many single- TIhe first stage of the Private Finance Initiative in school schemes, which have typically givenl a lot U.K schools was an output-based contract for a of detail abotit such issues as site constraints and single school in the Dorset area of southwest design aesthetics. Covering, as before, only such England (table 1). This first contract set a prece- areas as thermal comfcort, ventilation, lighting, dent in defining outputs that has been widely fol- and fixtures, the specifications defined for each lowed as school projects have evolved. The standard a performance level that would make contract defined output requirements in terms of the accommodlation available, a level at whiclh it the conditions that would make a room or space would be available but performanice deductionis "available" for use, such as the level of lighting, could be made, and a level at wlhiclh it was noni- heating, and ventilation. It also defined standards available and no payment would be ma(le. By for ongoing services, such as cleaning, catering, focusing purely on accommodation stanldards, and building and grotnds maintenance. the local authority gave the contractor- complete The contractor's incentive to meet the discretion over how to meet the standards. requirements was established mainly through As a result of the Stoke project's focus on the fact that payment would occur only when high-level otitputs, the contractor's solution has the output standard was met. If a space (or the shown mulch more innovation thani those in entire school) swas not available for use, no pay- many single-site schermes. For example, many ment relating to that space would be made. schools that the local couincil expected to be Deductions for nonavailability were weighted to refurbished or repaired are being demolished reflect the operational importance of different and replaced, because this solution is more cost areas-with faculty offices, for example, effective over the 25-sear life of the contract. Table Selected output-based schools contracts in the United Kingdom Local authority Value (millions and contract date Schools Requirement Pupils of U.S. dollars) Dorset 1997 I Repla(e secondary school 1,000 35.6 Stoke, 2000 122 Refurbish or replace all schools 38,000 185.0 Dudley, 1999 104 Provide managed information and 44,000 49.8 communications technology service for all schools Glasgow, 2000 29 Refurbish or replace secondary schools 30,000 540.6 3 and provide managed information and communications technology service Source: Author's compilation. The payment arrangements in the Stoke availabilitv of the required services and facilities scheme have higher-powered incentives too. If for use at the required standards, and usage pay- nonavailability continues for a long time or ments on the number of pupil log-ins during each recurs often, the payment deductions can school term. The usage payments are designed to exceed the total payment for the affected space give the contractor an incentive to make the ser- and start to eat into payments for other parts of vice utseful to pupils in doing their work: the more the contract. Thus the contractor's incentive to they use it, the more the contractor will be paid. meet the output requirements increases as its The learning gain payments increase over exposure increases. the life of the contract, after performance benchmarks are established in the early years. Extending standards to learning In the second half of the contract period, in Contracts developed from the focus on school years 5-10, 15 percent of the payment will be buildings to encompass the installation and based on the impact on education outcomes. maintenance of information and comInunica- This irnpact will be assessed by an independent tions technology systems across many school third party on the basis of such criteria as pupils' properties. These contracts have extencled out- and teachers' attitudes about using technology put requirements to education performance. in learning, attendance levels, and educational Output standards and incentive structures attainment, includinig performance on national centering on education performance began with achievement tests. the Dudlev Grid for Learning scheme. In this By including payments linked to education project the contractor is providing a managed outcomes, the Dudley contract begins to match informnation and communications technology the contractor's objectives much more closely senice-an integrated network, wvith hardwvare with those of the teachers. Equally important (computer labs with PCs and printers, a PC in from the contractor's point of view, the risk each classroom) and software (word processing, related to education outcomes is a relatively spreadsheets), access to email and the Internet small part of the total project risk and so is pro- for everyone, school administration systeims, user portionate to the level of influence that the con- support such as data backup and help desks, and tractor's performance can have on education maintenance. The project includes refreshing outcomes. the technology over the 10-vear life of the con- A snore recent project, the Glasgow tract and extending use of the facilities to the Secondary Schools Project, is unique in many wider community to support lifelong learning respects, but its key feature is its strategic focus and strengthen community links. on achieving rapid improvemenit in education Payment for the senice is based on perform- performance across the whole secondary school ance against availability, usage, and learning gain population in a big city. This project is the onlv targets. Availability payments are based on the one that has combined a whole system approach OUTPUT-BASED EDUCATION THE EVOLUTION OF (ONTRACTS FOR SCHOOLS IN THE U.K. to accomnmodationi requireInients with a require- comparator, thie contractor will do all this for 9 ment ftor fdllv maniaged iniformiationi and coin- percent less cost thani the counlcil could have if'it mullications technology service. 'T'he Glasuow had car-ied oit the project itself. schools contract was sigiie(l at the end of July 2000 by the local council and the 3ED consor- Could the scope be widened? tinin. The principal service providers tinder Better school facilities and tip-to-date techlnol- MED's contir-act are a constrLctionl company, a o