1. Financial Partnership Unit (FPU) Training Seminar 14 June 2006 Brian Howarth bhowarth@audit-scotland.gov.uk

2. Presentation Outline Taking Stock – Schools PFI PPP/ PFI Definitions Audit Scotland’s work in this area Comparative data on Scottish PFI schools

3. Taking stock – schools PFI 32 Councils, 29 involved in schools PFI. 38 projects, 19 signed deals. Capital build £1.8bn, £1.5bn in pipeline about six years since first deal completed About 50% of new build schools in that time have been PFI

4. PFI is one approach to PPP In 2000, the Government defined PPP as “bringing public and private sectors together in long term partnership for mutual benefit. PFI is a specific PPP arrangement defined in terms of accounting standards (FRS5 AN F – “PFI and Similar Contracts”).

5. When is an arrangement not a PPP When it is a PFI a contract must be awarded for services and a property, which is legally owned by or leased to the operator, will usually be necessary to provide the service. The property and services should not be completely separable When it is outwith the scope Not long term No private sector involvement No contractual relationship/ evidence of formal partnership objective

6. Diagram Joint working within public sector Short term purchasing Informal general relationships Consultation with Stakeholders PFI projects – FRS5 AN F PPP projects – long term private sector partnerships

7. Types of PPP project (which are not PFI) Joint companies with the private sector Long term service contracts used in service delivery Leases Outsourcing contracts Partnership/ joint funding agreements

8. Why is Audit Scotland interested in PPP/PFI? Decisions lead to long term consequences Investment/ expenditure can be significant Alternative delivery processes need to demonstrate value for money and affordability Accounting treatment

9. Audit Scotland’s work Accounting treatment comment Quantitative value for money assessment (schools) Database of comparative data – schools Local auditor coverage of management arrangements/ contract award Quantitative value for money (PPP and other sectoral PFI) Affordability Post –operational review Established Developing

10. Scottish PFI schools projects Review of quantified value for money on 12+ schools projects Comparative data –Public sector comparator vs bids –Risk and optimism bias adjustments –Square metreage costs –Financing costs and investor returns

11. PFI bids have sometimes varied significantly from PSC estimates

12. Risk adjustments have sometimes been significant

13. Costs per square metre have varied

14. Returns to investors vary