Contractors are struggling to comprehend the government’s apparent decision to go direct to the bond market to finance the first round of the Priority Schools Building Programme (PSBP), which was supposed to be first off the mark to utilise the new PF2 funding and procurement model.
According to reports in the Financial Times and BBC, the Department for Education said this week it is looking at using the capital markets to generate the £1bn needed to finance 219 of the 261 schools in its five-year priority refurbishment programme, which is behind schedule. It is also considering raising funds from the European Investment Bank.
Commenting on the move, Jon Hart, infrastructure partner at law firm Pinsent Masons, said: “The news may have many in the construction and project finance industries throwing their hands up in despair. Having consulted with industry on PF2 since May 2012, then set up the PF2 model in December, this announcement appears to suggest that the government is now moving in a different direction. Why go out to the construction market and suggest that the private sector should be seeking funding, then apparently do it yourself?”
The PSBP was due to be the first public sector infrastructure investment programme to use the Treasury’s revamped PFI procurement method, dubbed “PF2”. Michael Gove, education secretary, unveiled the PSBP in May last year, saying that work would start immediately.
However, almost one year on, the only finance in place is £400m from the government to pay for the directly-funded element of the programme, covering the remaining 42 schools.
Of the 158 schools in the PSBP that responded to a Local Government Association survey on the issue, just under half had heard nothing at all on the rebuild plan, and only 19 had start dates.
“Perhaps the move was triggered by the fact that institutional investors just don’t want to come to the party,” said Hart. “With PF2 the government was hoping that the private sector would be making headway talking with pension funds, insurance funds etc. and trying to get them on board, but the message from them so far has been: ‘we’re not going to lend during the construction phase.’ Maybe the government has decided to take the lead and go to the capital markets themselves.”
This new uncertainty could have big implications for future work, added Hart: “The Building Schools for the Future programme is now coming to an end and while some of the construction teams are still being held together by clients to support the run off work, there’s a real crisis coming with a lack of continuity of projects coming to market. This uncertainty on PSBP funding could set things back another couple of months.”
