FACILITY MANAGEMENT SCHEMES FOR SCHOOLS IN THE UK:A STUDY OF VARIATIONS IN SUPPORT SERVICES COSTS AND CAPITAL EFFICIENCY RATIOS

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FACILITY MANAGEMENT SCHEMES FOR SCHOOLS IN

THE UK:A STUDY OF VARIATIONS IN SUPPORT

SERVICES COSTS AND CAPITAL EFFICIENCY RATIOS

By

Rui PedroPereira Magalhaes

1 September 2013

A Dissertation submitted in part fulfilment of the Degree of Master of Science Built Environment:

Facility and Environment Management Bartlett school of Graduate Studies

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8.11 OPERATIONAL AND CAPITAL COSTS PER STUDENT CAPACITY FOR PFIHIGH SCHOOLS,CAPITAL EFFICIENCY RATIOS 72 8.12 OPERATIONAL AND CAPITAL COSTS PER STUDENT CAPACITY FOR PFIPRIMARY SCHOOLS,CAPITAL EFFICIENCY RATIOS 73 FIGURES FIGURE 1:“SPV” AS THE ORGANISATIONAL CORE FOR IMPLEMENTING A PFI SCHEME ... 13

FIGURE 2:RELATIONSHIP BETWEEN ASSET RELIABILITY AND CAPITAL (ACQUISITION) AND OPERATIONAL (MAINTENANCE) COSTS,(WU ET AL,2006)... 14

FIGURE 3:THE BATHTUB CURVE (USMILITARY GOV,2005) ... 15

FIGURE 4:WLCC VERSUS LCC(BSISO15686-5) ... 16

FIGURE 5:EFFECT OF FM IN EDUCATION, AND HOW IS PROCESSED (HERMAN ET AL,2011)... 19

FIGURE 6:FM COSTS (£/STUDENT CAPACITY) FROM 2002 TO 2009PFISCHOOLS (WITH NPV TO 2002) ... 25

FIGURE 7:COST PER STUDENT CAPACITY EVOLUTION PFISCHOOLS WITH AND WITHOUT NPV CALCULATION BASE YEAR 2002.(£/STUDENT CAPACITY) ... 26

FIGURE 8:COMPARING AVERAGES OF RUNNING COSTS (£/STUDENT CAPACITY) IN THE 10PFI SCHOOLS WITH THE 10 CONVENTIONALLY FUNDED SCHOOLS (NET PRESENT VALUE FOR THE BASE YEAR OF 2002) ... 28

FIGURE 9:FM COSTS IN AVERAGE PFI AND AVERAGE OF CONVENTIONALLY FUNDED SCHOOLS FROM 2002 TO 2010(NPV AND WITHOUT NPV COMPARISON),£/STUDENT ... 29

FIGURE 10:DISTRIBUTION OF OPERATIONAL COSTS PER TYPE AND PER YEAR FOR THE PFI GROUP OF SCHOOLS (AVERAGE OF 10PFI SCHOOLS,£/STUDENT) ... 30

FIGURE 11:DISTRIBUTION OF OPERATIONAL COSTS PER TYPE AND PER YEAR FOR THE CONVENTIONALLY FUNDED GROUP OF SCHOOLS (AVERAGE OF 10 NON PFI SCHOOLS,£/STUDENT) ... 30

FIGURE 12:PROPORTION OF RUNNING COSTS IN THE FM SECTOR FOR PFI SCHOOLS FOR THE TOTAL PERIOD OF 8 YEARS (AVERAGE OF 10 SCHOOLS) ... 31

FIGURE 13:PROPORTION OF RUNNING COSTS IN THE FM SECTOR FOR NON PFI SCHOOLS FOR THE TOTAL PERIOD OF 8 YEARS (AVERAGE OF 10 SCHOOLS) ... 31

FIGURE 14:AVERAGE OF FMCOSTS FOR 6 PFI AND 6NON PFIHIGH SCHOOLS AND 4 PFI AND 4NON PFIPRIMARY SCHOOLS,£/STUDENT ... 32

FIGURE 15:HIGH SCHOOL PFICAPITAL COSTS PER STUDENT IN 6 DIFFERENT SCHOOLS AND REGIONS OF THE UK(SOURCE: UKTREASURY) ... 33

FIGURE 16:HIGH SCHOOL PFIOPERATIONAL COSTS PER STUDENT IN 6 DIFFERENT SCHOOLS AND REGIONS OF THE UK .. 33

FIGURE 17:COST EFFICIENCY RATIO OPERATIONAL EXPENDITURE IN PERCENTAGE OF CAPITAL EXPENDITURE (HIGH SCHOOL PFI2002 TO 2009) ... 34

FIGURE 18:CAPITAL EFFICIENCY RATIOS UKHIGH SCHOOL DISTRIBUTION ... 35

FIGURE 19:PRIMARY SCHOOL PFICAPITAL COSTS PER STUDENT IN 4 DIFFERENT SCHOOLS AND REGIONS OF THE UK (SOURCE:UKTREASURY) ... 36

FIGURE 20:PRIMARY SCHOOL PFICAPITAL COSTS PER STUDENT IN 4 DIFFERENT SCHOOLS AND REGIONS OF THE UK ... 36

FIGURE 21:COST EFFICIENCY RATIO OPERATIONAL EXPENDITURE IN PERCENTAGE OF CAPITAL EXPENDITURE (PRIMARY SCHOOL PFI2002-2009) ... 37

FIGURE 22:TREND LINES FOR THE AVERAGES OF RUNNING COSTS (POUNDS PER STUDENT) IN THE 10PFI SCHOOLS WITH THE 10 CONVENTIONALLY FUNDED SCHOOLS ... 40

FIGURE 23:BATHTUB CURVE ANALOGY FOR PFI AND NON PFISCHOOL BUILDINGS ... 41

FIGURE 24:OPERATIONAL COSTS FOR PFIHIGH SCHOOLS 2002 TO 2009(£/STUDENT CAPACITY) ... 42

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TABLES

TABLE 1:EXTRACT OF THE DATASET FOR THE YEAR 2002 FOR 10PFISCHOOLS ... 23 TABLE 2:EXTRACT OF THE DATASET FOR THE YEAR 2002 FOR 10 CONVENTIONALLY FUNDED SCHOOLS ... 24 TABLE 3:CASE STUDIES SELECTED AND STUDENT NUMBERS AND STUDENT CAPACITY ... 24 TABLE 4:OPERATIONAL/CAPITAL EXPENDITURE RATIO FOR 8 YEARS IN HIGH SCHOOLS PFI IN DIFFERENT REGIONS OF THE

UK(LONDON,WEST MIDLANDS,YORKSHIRE,NORTHWEST UK) ... 27 TABLE 5:AVERAGE FOR OPERATIONAL/CAPITAL COSTS IN PFIHIGH AND PRIMARY SCHOOLS FROM 2002 TO 2009,UK

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Operational costs in Buildings are associated with the initial capital investment, in a way that, if the operational life cycle is considered when evaluating the design and finance it will lead to better performance and fewer operational costs. Facility Managers do contribute strategically to these projects in a DBFO system such as PFI. Some recent UK schools have been made by the PFI and the object of this research is to demonstrate it is a fact that operational costs for these early planned schemes are lower than the conventionally funded school facilities.

Design/Methodology/Approach – 10 PFI and 10 non PFI UK Schools were studied in terms of operational costs per student comparison (years 2002 to 2010). Capital costs from the respective 10 PFI projects were also obtained in order to assess the hypothesis that higher capital investment leads to lower operational costs.

Findings – The results show that PFI Schools are not necessarily less expensive to run, but however demonstrate a decreasing trend. The

conventionally funded schools although showing lower operational expensive in averages they suggest a contrary increasing trend in operational costs. The Bathtub phenomenon may explain why PFI schools are having unexpected early adjustment costs and why conventionally funded schools are showing rising operational costs

Practical Implications – To achieve a better comprehension of lifecycle operational cost assessments and to understand what drives the costs to change from one building to another with the same function and

characteristics. It would give advice on investment and contract arrangement decisions in what relates with FM (Facility Management) in public buildings, schools in this case.

Keywords – Building Operational Cost, Support Services, Building Capital Cost, Facility Management, UK Schools, PFI, Lifecycle cost, Capital/ Operational efficiency ratios

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ACKNOWLEDGEMENTS

To Peter MacClennan for the natural enthusiasm and extreme empathy, the knowledge and the contagious interest. To Fuzhan for helping in seeing more than what is simply in front of me. To Alex Murray for the support and

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1. INTRODUCTION

1.1 Ideas in Facility Management Cost, Stimuli

The initial purpose for the study is to assess capital and operational cost in buildings and to find out if there is a relation between these two kinds of expenditures. The idea that initially investing more in a building through its facilities and their best design solutions, which is normally seen as a more expensive initial cost, can also lead to a lower life cycle cost particularly on operational expenditures. The hypothesis foreseen in this case therefore would be, to invest more in the facility infrastructure so it can be run with less expense. This initial capital investment focus could be either on the design side, with better design detail, quality of equipment and materials, cross functional participation between different teams such as architects, engineers and facility managers in order to bring all the issues to the same project, or on the construction side, by close supervision, more demanding contract

requirements and quality of the overall work.

This “leverage” over capital expenditure could result in lower operational support service costs (FM costs), such as building maintenance, cleaning and utilities. The way the building is financed will also affect the output of these operational costs, if considering that there is a private initiative interest which will adopt these costs the as part of the sum of all costs (capital included) for a defined period of time. This will encourage high investment in the project’s beginning because it should allow the same investor to harvest the benefits later on by saving more in periodical and forthcoming fixed costs.

1.2 Problem statement and Research Question

Does the way a building is funded or the amount of investment in capital will affect Facility Maintenance cost in a normal building lifecycle?

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The recent UK PFI schemes, (Private Finance Initiative), seek to demonstrate the above affirmation, and also, to claim on delivering better FM performance when considering that the real FM expertise comes from the private sector. Will these new solutions really be cost effective within an FM perspective?

Operational costs may rise when project managers want to minimise costs in the briefing, design and construction process, and consequently, future functional problems may translate into necessary extra costs. By saving in robust materials or basic layouts the facilities may become more expensive to run in the long term. And, occasionally, not including Facility Managers in the design process will also be a factor that will lead to more unexpected running costs or even less FM performance from the lack of expertise in previewing the building when in an operational stage.

We may be able to compare FM costs and test this hypothesis by selecting a similar range of building type, (schools in this case study) where we can perceive and associate operational cost behaviour to the respective funding scheme (conventional or PFI) or to the type of school (primary or high school).Seemingly, these costs will reveal different patterns of behaviour in what it concerns to support services cost, such as utilities, maintenance, cleaning, and others.

1.3 Schools as a Target for Research

Schools are the object of study for this project. These buildings have a public interest, not only because they are funded by the government but also

because they provide a service to every citizen. Everyone will want to know how well their money is being spent.

The similarity between physical layouts of school buildings allows a more accurate comparison between total costs while the associated

funding/management scheme applied to their operations is an interesting point of study to search for evidence trends in FM costs.

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1.4 Significance of the study

The study should give information about which kind of management process would be best for FM performance and cost. The different way of organising the support services which in this project is seen differently on the school buildings chosen between PFI and conventional state funding method, can give information on which is the best form of investment according to the Facility Management perspective.

By comparing different efficiency ratios of capital, in this precise case, by comparing capital cost with support service costs in a period from 2002 to 2010 in PFI schools, we may be able to find meaningful trends, whether in type of school or region, or simply, an average ratio which will give us information between the relation of capital and ongoing FM costs.The efficiency ratios (capital versus operational costs)could be useful

forpreviewing in asset investment decisions, on how much is reasonable to invest in order to obtain best value for money, particularly, on FM

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2. LITERATURE REVIEW

2.1 Capital Efficiency

“Due to the economic climate, there are funding/budgetary constraints and the capex budgets are much reduced compared to previous years. Therefore, it is inevitable that in most cases procurement strategies will result in contracts awarded based on cost, just to meet the need”( Adeyeye et al, 2013)

Higher capital expenditures could deliver lower operational costs, which areconsidered in this case as “capital efficiency”. If understanding that higher capital will be associated with better quality and durability of the layouts. As Eric Too affirms (Too, 2012), “infrastructure organisations need to maximize the investments they have made in their existing infrastructure assets in order to reduce their capital and operating expenditures”. It is indeed a concern which must apply to the DfE, (Department for Education), when considering more than 25.000 buildings in the UK. The interest for saving in upfront costs can be a normal practice in these public sectors, by accepting the cheapest initial costs and then handing over an asset to others to maintain, (Bull, 1993). But, “one of the problems is that the full details of many failure examples and lessons learned are not made public, (Parfitt, 2012).

Considering the initial costs of building versus the maintenance costs, is seen by McGeorge, as, a “Lack of motivation in cost optimisation because the design and cost estimating fees are usually a percentage of the total project cost” (McGeorge, 1993). Therefore, this may not encourage governments becauseit implies spending more on infrastructure by their cost added services for implementation.

However, these preliminary investments still must be considered if considering the existent ratios between capital and operational costs, as Graham Ive establishes, 1/1.5/15, the ratio of occupying and owning buildings, where 1 is Land Acquisition and Construction, 1.5 is for management cost and 15 for Exploitation costs, (Graham, 2007). These ratios were generally seen before

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witheven higher proportions, such as, 1/5/200, but, these are without considering Net Present Values for the initial year, in order to allow “same year” comparisons. The importance of focusing first in long term operations is therefore vital for successful projects.

After investing in a thoughtful infrastructure, the building’s operating costs can also be minimised by adjusting utilities consumption, replacing lighting and heating systems, adjust air flow, Planned predicted maintenance, incentives and policy decisions, (Buildings, 2012). Even in the management side (Lai and Yik, 2008) suggests, “Rather than reducing labour resources through outsourcing or negotiation for lower contract prices, the focus for cost minimization should be to improve building energy performance”.

In addition, bundling outsourced building O&M contracts by virtue of economic scale, should be a viable means for reducing expenditure provided that the associated transaction costs can be minimised, (Lai and Yik, 2008). This approach could be added at a larger scale, if considering the program of bundling design, construction, finance and operation. This is known as DBFO, (Design, Build, Finance and Operate), and is nowadays a common strategy for delivering governmental buildings with its intrinsic services as one product. Construction contractors maybe assumed to possess better information than anybody else on the hidden characteristic of the facilities they produce

(Mobley et al, 2006), if they are integrated in the same organisation/project as the Building Operator, the Facility Managers will be able to collect more information and therefore, perform in a more knowledgeable position.

To conclude, the FM needs to be part of the design team to ensure that the building will be economical to maintain as well as pleasing to the eye

(Fennimore, 2013). To summarise, there are two difficulties associated with the construction industry:

1 - The capital cost of construction is almost always separated from the

running cost. (It is normal practice to accept the cheapest initial cost and

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clear definition of the buyer, seller, and their responsibilities towards the operating and maintenance costs (Bull, 1993))

2 - Lack of motivation in cost optimisation because the design and cost estimating fees are usually a percentage of the total project cost

(Therefore, a separate service from the future operation and management that investors see as an extra cost with no key importance for the overall result (McGeorge, 1993),)

However, the recent expansion of new project delivery systems as BOT (Build Operate Transfer) or PFI (Private Financial Initiative) seem to demonstrate that there is a more efficient way for the integration of these different services into one common business target and therefore, delivering more competitive and cost effective solutions.

2.2 PFI as a way of improving FM performancein Public Buildings

PFI offers public sector bodies the opportunity to procure the design, construction, finance and operation DBFO. (Atkin et al, 2000)

The Facility Manager will have two distinct roles in this Private scheme fordeveloping infrastructure.

1. Developing the Bid and Design

2. Utilisation of the facility and provide the agreed service

This is mainly because of growing awareness of the need to operate and manage facilities for long periods, (in case of PFI it is normally 25 to 30 years), which requires the involvement of facility managers in the design process (Haram and Agapiou, 2002). Therefore, to deliver a robust product which provides this fitness for purpose and maximises operational

performance with minimal disturbance to the end user client, there is a requirement for a proactive interface between the designer, builder and FM operator. Similarly, in consultation with end users during the design phase,

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FM consultation must become informed and engage with the client to ensure all stakeholder expectations can be delivered. (Baldwin 2003)

Figure 1:“SPV” as the Organisational core for implementing a PFI scheme

Principles of good design in schools give substantial weighting to design quality as we can see in the PFI Public Client Guide, (CABE, 2002)

Financial, legal commercial - 35%

Facility Management - 35%

Construction and Design - 35%

The fact that FM is one third of the overall importance when conceptualising a state building in the UK brings a whole new responsibility and a strategic side to the art of FM where it is no longer only a simple operator. The main factors CABE includes for the design is efficiency, quality context and only after, the aesthetic quality.

In the case of public schools, “Educational performance improves at a rate of 92 percent faster in fully rebuilt PFI schools than in fully rebuilt conventionally financed schools” (KPMG, 2009), the author explains: “The arrangements in PFI contracts bring dedicated facilities management staff into school

premises. This allows teachers to focus on teaching. As they no longer have to worry about blocked drains, etc. “the presence of a third party, the FM

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contractor on site redefines the relationship between teacher and pupils by introducing a new type of accountability”. (Briggs, 2009)

2.3 Life Cycle Costin FM

In PFI contracts the involvement of the main construction contractor is short relatively to the duration of the PFI project. Therefore, there might be a tendency for the construction contractor to focus on initial construction costs rather than total LCC (Life Cycle Costing), which would include future

operation and maintenance costs, (Macdonal and Swafield 2008). The consideration of the operation of new facilities can be built in at the design stage, the input of reliable life cycle cost data into the design is at the heart of successful arrangements, (Atkin et al, 2000)

The Design oriented for reliability and maintainability will lead to better performances in WLCC(Whole Life Cycle Cost). This supports that higher Capex in the construction and design will lead to lower Life Cycle operational costs, as the following model demonstrates, through the reliability of asset structures, (Wu et al, 2006)

Figure 2: Relationship between Asset reliability and Capital (Acquisition) and Operational (Maintenance) costs, (Wu et al, 2006)

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Therefore, the key impetus of LCC is to reduce cost during the operation and maintenance phase as these are a greater proportion of the whole life cost of the asset, even if this means increased capital expenditures at the outset, (Olubodun, 2010). This theory is underpinned by the classical “bathtub curve” introduced by the US military asset management department. This

curve describes a particular form of the hazard function that comprises three parts:

 The first part is a decreasing failure rate, known as early failures

or infant mortality.

 The second part is a constant failure rate, known as random failures.

 The third part is an increasing failure rate, known as wear out failures.

Figure 3: The Bathtub curve (US Military Gov, 2005)

The bathtub curve is often employed to represent the failure rate of

a product during its lifecycle, namely, the product experiences early "infant mortality" failures when first introduced, then exhibits random failures with constant failure rate during its "useful life", and finally experiences "wear out" failures as the product exceeds its design lifetime. This curve can be

implemented in buildingsystems and the failures can be directly translated into costs. Early infant mortality failures in buildings may be associated

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withadaptation and correcting procedures coming from the recent

construction, which will need higher intervention and consequently higher operational cost. And later ahead, to keep performing Building services at the same standard will be increasingly expensive if the Building experiences more wear out failures when moving along its life cycle.

Definition: Whole Life Cycle is a methodology for the systematic economic consideration of all the whole life costs and benefits over the period of

analysis, as defined in the agreed scope (Non Constructioncosts will relate to occupancy costs)

Definition: Life cycle is a methodology for the systematic economic evaluation of the life cycle costs over the period of analysis, as defined in the agreed scope.

Figure 4: WLCC versus LCC (BS ISO 15686-5)

The scope of our study will only focus on LCC and 3 of its 5 components, Construction, Maintenance and Operation. The Occupancy and End of Life will be left aside as Occupancy can also be seen as non-Construction cost and End of Life isdisregarded here due to its comparatively smaller proportion in costs.

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All these methods, however, have lack of experience and always carry

significant constraints, uncertainties in forecasting and difficulties in obtaining data (Sterner, 2000). It is proven that if an LCC is achieved by technical, static and just by cost, it may influence different decisions than an LCC done with economic life span, dynamic and cost plus income (Peltzer, 2007). Thus, considering WLCC may be necessary also when assessing an investment decision because different solutions will generate different incomes and will be bringing different outcomes to the overall result.

In the schools case, the interesting point of view is cost. These are buildings that are not expected to generate income, only to provide service to the general public. In these cases, LCC may be sufficient to study and influence decisions. According to (Arja et al, 2009), LCC can be obtained by the following equation

LCC= Cint+Cexp+-Vr+SUMCfac

Cint – Construction

Cext- Operations

Vr – Residual Value

SUM Cfac – Uncertainties (Technical, functional, law, others)

LCC benefits:

1- Evaluation of competing options in purchasing 2- Improved awareness of total costs

3- More accurate forecasting of cost profiles

4- Performance trade off against cost (HM treasury, 2003)

The expected costs used to forecast future must also consider interest rates and inflation. To be able to compare costs from different points in time, one has to consider the Net Present Value. As Graham Yve comments that the “lack of discounting” can also affect results and the way the costs are seen,

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(for example, when comparing future operational costs with current

construction cost). The NPV in costs can be obtained by the following formula:

PV=SUM (1/(1+r)^n)

r – Discount rate, the amount of interest the future costs will have discounted when considered in the present time

n – Number of years the cost will be brought back to present

According to the “Green Book”, (HM treasury, 2003), the discount rate is used to convert all costs and benefits to ‘present values’, so that they can be

compared. Calculating the present value of the differences between the streams of costs and benefits provides the net present value (NPV) of an option. The NPV is the primary criterion for deciding whether government action can be justified. The recommended discount rate is 3.5%, and that is the rate used in this study.

2.4 FM in“Conventional” or PFI Schools

Since schools are primarily financed by the public, it is important to

adequately invest these public funds. Furthermore, failing to maintain school facilities might also discourage future public investment in the education system (Lavy, 2009). On the other hand, lower costs of cosmetic factors (compared to structural conditions) give field level decision and policy makers more leverage in increasing the quality of these conditions (Duyar, 2010). This is understandable as cosmetic aspects of facilities are more obvious to

teachers and students, therefore, they may cause influence on the delivery of instruction in public schools.

In any case, schools facilities are periodically reviewed and their operations are subject to rigorous statutory requirements by governing authorities. The effective delivery, maintenance and operation of these assets throughout their lifecycle are therefore important (Adeyeye, 2013).

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Figure 5: Effect of FM in Education, and how is processed (Herman et al, 2011)

The contribution of FM can be found in the effects that the use (or non-use) of facility services have on the outcome of these processes, (Herman et al, 2011). This may be the main justification for using other forms of contracts in the Educational Real Estate particularly to FM importance in the Education sector.

While FM might appear to deliver an ideal solution (especially in the PFI schemes), with Total FM, “because it provides a single purchasing point for the organisation, the reality can be that the contractor actually subcontracts all or most of the work” (Atkin et al,2000) .

Conventionally funded schools may adopt“One contractor providing all

services”, while PFI might use a Managing Contractor (Fee per contract) or a Managing Agent (a single contract which will lead to multiple subcontracts) or just a combination of both,a Managed Budget. (Atkin et al,2000) But these are also hypotheses that have to be corroborated after analysing some specific PFI school cases.

There is the chance that terms and conditions between contractor and

subcontractor do not mirror those of the main contract, and can be translated into worse performance, or even additional costs. Therefore, MacCabe and Keenan point out in their case study, “A great deal of time and resources were required to manage the contract, with the result that staff were diverting from focusing on their core competencies” and also “Added to this was the ongoing cost of variations to the contract”. (MacCabe and Keenan, 2010)

This has led to the point where MacCabe affirms in his study, “The

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of debate as to whether value for money has been achieved”(MacCabe, 2010). The Guardian releases information as well pointing out that “Schools and hospitals will be expected to improve energy efficiency, let out floor space and cut the costs of decorating buildings as part of an attempt by ministers to cut PFI costs by 5%”, (Elliot, 2011). Therefore, there start to be divergent opinions where although it may seem that it generates better performance and cost savings by delivering support services from expert organisations, it can also turn out that “PFI could be a more expensive solution”, (Edwards et al, 2004).

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3. METHODOLOGY

The main purpose of this work involves analysing data from the existing stock and working upon it to extract what it is needed corroborate the given thesis. Since schools in the UK are our specific building type for the study, FM costs were obtained from the DfE (Department for Education) Administration and Finance sub department. The Consistent Financial Report’s Benchmark was used asthe source of information. It is currently used by the UK’s Government to “compare school’s income and expenditure with that of similar schools”. (DfE, 2013)

This data set is used to extract FM costs in schools, which contain all specific type of costs in about 20.000 schools in the UK from the year 2002/2003 to the year2010/2011. From this data, the specific costs which are presented in an annual lump sum figure are all converted into cost per student to allow comparison between different school buildings.

Same school correspondent capital costs were obtained from the UK Private Finance Initiative Projects, where the data has been released in March 2012 (UK Gov., 2012). These capital costs however were only possible to obtain for the recent PFI projects selected and not for the “conventionally funded

schools”, even though they have been operational for several decades, their capital cost today cannot be obtained or even practically measured.

Briefly, this project has two distinct goals:

1- Compare Ongoing Facility Management Costs between PFI and

non PFI schools

2- Obtain and compare ratios of Capital and Operational costs in

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3.1 Data gathering and the Selection of case studies

15 Schools were selected from the “PFI current projects list”, (UK Gov., 2012), from London, West Midlands, Yorkshire and North West regions in the

UK,both high and primary schools. They were then displayed in a data sheet with their corresponding capital expenditure. All the projects selected have operation starting dates roughly between the year 2000 and 2003. Some were newly built while others were rebuilt as displayed in the datasheet.

The corresponding FM costs obtained from (DfE, 2013) were obtained through their respective LEA (Local Education Authority) number, with the support of the EDUBASE dataset which is “a register of all educational establishments in England and Wales, maintained by the Department for Education” and is accessible for general Public, (Edubase2, 2013).

When collecting the CFR benchmarking datasheet the FM costs were selected from the vast categories of expenditure in schools, the respective Facility Management costs (E refers to expenditure) are as follows, (CFR, 2010):

E12 –Building Maintenance and improvement (Charges by contractors for

internal and external repair, maintenance and improvement to buildings and fixed plant including costs of labour and materials, related professional and technical services, cost of materials and equipment used)

E13 – Ground Maintenance and Improvement – (Maintenance and

improvement on gardens and grounds, including car parking, play areas, playground equipment, sports fields and pitches on the school campus, related professional and technical services, including labour costs where supplied as part of the contract / service)

E14 - Cleaning and Caretaking – (Supplies used in cleaning and caretaking,

cost of equipment such as floor polishers, vacuum cleaners and other

hardware, charges by contractors for providing a cleaning service, charges by contractors for providing a caretaking service, related professional and

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E15 – Water and sewerage – (All costs related to water and sewerage, emptying of septic tanks)

E16 – Energy – (All costs related to fuel and energy, including fuel oil, solid

fuel, electricity and gas)

These 5 cost categories are then displayed per year from 2002 (which means from 2002 to 2003) until 2010 (from 2010 to 2011) in a table with each of the 15 PFI schools selected. The year 2010 due to the lack of data was excluded, and 5 schools which may have suffered prolonged intervention and showed some considerable lack of data had also been excluded from the analysis.

Table 1: Extract of the dataset for the year 2002 for 10 PFI Schools(£/student capacity)

After defining the PFI dataset, by different abbreviations (L, WM, Y or NW) corresponding to the different region, and by the following initials HS or PH (High School or Primary School). Following the PFI samples of same type schools in conventional funding mode were found (Non PFI) for the same region with approximately similar numbers of students and overall

characteristics. student capacity Current Students Build Maintenance Grounds Maintenance Cleaning and Caretaking Water Sewerage Energy LHS1 -PFI 1336 1252 56.4615195 3.1895808 0.443144 10.96215 41.56046 LHS2 -PFI 612 623 192.661634 5.7691993 134.0944 63.52819 105.9035 LHS3 -PFI 1412 1540 74.3758357 0.0807649 29.18033 4.883144 29.98652 LPS1 -PFI 183 168 63.9327322 10.138525 19.77678 9.499672 37.80279 WMHS1-PFI 1445 1496 39.3637647 17.505516 67.87984 7.29301 46.37907 WMPS1-PFI 130 157 235.437231 26.233769 57.13846 8.158846 25.42508 YSHS1-PFI 930 917 23.5464409 13.892473 67.55376 5.586022 29.44885 YSPS1-PFI 245 302 315.30898 0 0 1.635224 3.270408 NWHS1-PFI 1260 758 21.3320476 4.2136508 60.01471 16.86971 26.01867 NWPS1-PFI 420 566 0 0 0 0 9.580952 2002 PFI London West Middlands Yorkshire North west

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Table 2: Extract of the dataset for the year 2002 for 10 conventionally funded Schools (£/student capacity)

The dataset is therefore consisted of 20 schools, 10 PFI and 10 Non PFI,each consisted of 6 High schools and 4 primary schools, and their respective 5 different operational costs from the year 2002 to the year 2009.

3.2 Data work, Variables and calculations

The schools selected have the following codes and student numbers:

Table 3:Case Studies selected and student numbers and student capacity Student capacity Current Students PFI London LHS1 -PFI 1336 1252 LHS2 -PFI 612 623 LHS3 -PFI 1412 1540 LPS1 -PFI 183 168 West Midlands WMHS1-PFI 1445 1496 WMPS1-PFI 130 157 Yorkshire YSHS1-PFI 930 917 YSPS1-PFI 245 302 North west NWHS1-PFI 1260 758

NWPS1-PFI 420 566 Conventional London LHS1-CON 1163 1246 LHS2-CON 1305 1199 LHS3-CON 1476 1291 LPS1-CON 630 320 West Midlands WMHS1-CON 1458 1511 WMPS1-CON 101 109 Yorkshire YSHS1-CON 1019 886 YSPS1-CON 420 499

North west NWHS1-CON 1260 758

NWPS1-CON 420 429 student capacity Current Students Build Maintenance Grounds Maintenance Cleaning and Caretaking Water Sewerage Energy LHS1-CON 1163 1246 43.9518487 1.6457438 65.8822 9.871883 42.29579 LHS2-CON 1305 1199 124.681992 13.785441 103.9571 4.068966 55.21456 LHS3-CON 1476 1291 16.0081301 7.5237127 3.892276 9.515583 33.04743 LPS1-CON 630 320 21.5354444 0.9752063 2.679524 1.962159 9.832 WMHS1-CON 1458 1511 45.8303361 16.806694 58.54645 3.76024 35.20161 WMPS1-CON 101 109 70.1960396 15.699703 58.03455 8.502871 32.43248 YSHS1-CON 1019 886 40.491472 2.9227576 8.625191 2.977282 48.89252 YSPS1-CON 420 499 52.9968095 6.1360714 45.18938 4.579071 16.61976 NWHS1-CON 1260 758 17.0035 3.6095556 18.79598 0.937952 12.42067 NWPS1-CON 420 429 35.3785714 12.354762 8.230952 15.35238 24.67381 Conventional London West Middlands Yorkshire North west 2002

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The current student number and student capacity were obtained from the EDUBASE dataset, the numbers are obviously different, and to allow a fair comparison, the expenses were determined by number of student capacity. (Edubase2, 2013) Since the number of current students varies from year to year, the student capacity is a reasonable quantity to consider, because it is a constant number and defined in the design stage. Only now can the costs between schoolsbe compared, in order to calculate averages within groups of schools and regions, and analyse trends.

Figure 6: FM costs (£/student capacity) from 2002 to 2009 PFI Schools (with NPV to 2002)

After determining costs per student capacity, all costs from the years after 2002 were converted. For the conversion the NPV formula was used, including a discount rate introduced by the Treasury for this type of Public Investment (HM Treasury, 2003)). In fact the costs with the NPV calculation become less expensive with time, compared to the incurred costs. This is because, the investor has the anticipation of how much will be spent and that can generate interest before the date of liquidity. Since the costs (from 2002 to 2009) are not a forecast but historically verified, it is considered that inflation is included in these costs, therefore, inflation was not considered in the NPV calculation. The importance of the Net Present Value is that the costs are being returned to the same base year and this allows a rational

0.00 100.00 200.00 300.00 400.00 500.00 600.00 2002 2003 2004 2005 2006 2007 2008 2009 £ /s tu d e n t ca p ac it y LHS1 -PFI LHS2 -PFI LHS3 -PFI LPS1 -PFI WMHS1-PFI WMPS1-PFI YSHS1-PFI YSPS1-PFI NWHS1-PFI

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assessment of the different cost development in the following years starting from the base year 2002.

Figure 7: Cost per student capacity evolution PFI Schools with and without NPV calculation base year 2002. (£/student capacity)

With the values obtained it is therefore possible to demonstrate the following:

- PFI and non PFI cost per FM service - PFI and non PFI cost per FM total cost

- Primary vs. High school FM cost (also between PFI and non PFI) - UK Region (also between PFI and non PFI)

3.3 Ratios and comparisons

The corresponding capital costs from the PFI Schools were considered in order to allow comparison with their respective operational costs. For the period from 2002 to 2010 the costs were added as a total FM expenditure, this was made possible by the NPV calculation. The total 2002 to 2010 FM cost is divided by the total capital cost for the same school (high school and primary school separately). The ratio obtained is a percentage of the 8 year FM cost within the total Capital cost (PFI only).

125.00 150.00 175.00 200.00 225.00 2002 2003 2004 2005 2006 2007 2008 2009 PFI NPV PFI

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Table 4: Operational/Capital expenditure ratio for 8 years in High Schools PFI in different regions of the UK (London, West Midlands, Yorkshire, Northwest UK)

Total High School FM cost per student 2002 to 2010 High School Capital cost per current student High school Operational FM/Capital LHS1 -PFI £2,245.17 £15,643.71 14.35% LHS2 -PFI £1,972.31 £11,274.51 17.49% LHS3 -PFI £1,530.86 £14,164.31 10.81% WMHS1-PFI £843.18 £16,816.61 5.01% YSHS1-PFI £1,579.52 £9,354.84 16.88% NWHS1-PFI £1,024.73 £2,380.95 43.04%

It is necessary to separate Primary schools from High schools because they incur different costs as the buildings may be different and consequently will be showing differences in the cost whether from the FM side or from the capital side.

This dataset also enables the study to compare on how the operational/capital expenditures in PFI schools are distributed for these 8 years in the different regions in UK.

The differences can be influenced by the type of PFI contract in what

concerns FM, and a close study on how the contract is made. This was also done to find relevant characteristics which may explain the effect caused in the different patterns of cost trend in these PFI schools over the considered period. The degree of construction intervention, (If the building is newly built or if it is a reconstruction) will for sure have a major impact on the result of these ratios.

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4. RESULTS AND ANALYSIS

In this chapter the results from the dataset collected are reviewed and worked. These following results are specifically the expenditures of the case studies considered within the FM sector in the period considered for analysis. These values are used for comparing type of building funding scheme, type of school or UK Region.

4.1 FM costs in PFI and Conventionally funded schools

The values bellow represent the average of the 5 Operational costs

considered (Building Maintenance, Grounds Maintenance, Cleaning, Water and Energy) for all PFI and non PFI schools. The trend is distinct for one of each type. Although higher in operational cost, it is important to notice that PFI running costs decreased whilst non PFI running costs increased in the period given.

Figure 8: Comparing averages of running costs (£/Student capacity) in the 10 PFI schools with the 10 Conventionally Funded schools (Net Present Value for the base year of 2002)

It is important to review the discrepancies between these costs when comparing the results with and without the calculation of costs to the year 2002 with the discount rate considered. As further in time the costs incur, the

0.00 50.00 100.00 150.00 200.00 250.00 2002 2003 2004 2005 2006 2007 2008 2009 PFI Conventional

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wider is the gap between the actual cost and the cost considered with NPV from the year 2002. All the costs are therefore calculated based in the year 2002 so they can be compared assessed correctly.

Figure 9: FM costs in average PFI and average of conventionally funded schools from 2002 to 2010 (NPV and without NPV comparison),

(£/student capacity)

The NPV assessment can make a significant difference in the interpretation of results, whereas PFI without Net Present Value to the year 2002 keeps

increasing the costs, when analysed with NPV it reveals an obvious decreasing trend (light blue line).

The difference between using NPV or not with the discount rate considered in the estimationmay disclosure the potential savings of the PFI. However, it is another discussion to be made, if these savings are to be attributed for the public or for the private sector.

Distinguishing the FM costs by type may also be suitable for evaluating which of the expenses have more impact. In the two graphs bellow there is a

comparison between PFI and Non PFI funding mode to demonstrate how the FM expenses were distributed over the years considered.

125.00 150.00 175.00 200.00 225.00 2002 2003 2004 2005 2006 2007 2008 2009 PFI NPV Conventional NPV PFI Conventional

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Figure 10: Distribution of Operational costs per type and per year for the PFI group of schools (Average of 10 PFI schools, £/student)

Figure 11: Distribution of Operational costs per type and per year for the conventionally funded group of schools (Average of 10 non PFI schools, £/student)

Considering both bar charts, building maintenance in the PFI is much higher but it decreased throughout the years. This aspect has to be discussed furthermore because it may be related to premature anomalies or recent building working adjustments. The last 3 years for energy had more impact in

0 50 100 150 200 250 2002 2003 2004 2005 2006 2007 2008 2009

PFI School

Energy Water Sewerage Cleaning and Caretaking Grounds Maintenance Build Maintenance 0 50 100 150 200 250 2002 2003 2004 2005 2006 2007 2008 2009

Conventional School

Energy Water Sewerage Cleaning and Caretaking Grounds Maintenance Build Maintenance

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the overall, and more costly for the non PFI schools. Cleaning costs and water however, were r roughly similar for both groups.

By displaying the average of operational cost type for each group of schools over the considered period, It is demonstrated again, that total build

maintenance expenditure was higher for PFI schools. Energyon the other hand remained lower for PFI Schools. All the other 3 types of expenditure had roughly the same weighting on the overall expenditure as it can be seen by the figures below.

Figure 12: Proportion of running costs in the FM sector for PFI schools for the total period of 8 years (average of 10 schools)

Figure 13: Proportion of running costs in the FM sector for non PFI schools for the total period of 8 years (average of 10 schools)

42% 7% 24% 4% 23% _{Build Maintenance} Grounds Maintenance Cleaning and Caretaking Water Sewerage Energy 34% 6% 25% 5% 30% Build Maintenance Grounds Maintenance Cleaning and Caretaking Water Sewerage Energy

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The following bar chart is an evaluation of PFI and non PFI separately for primary and high schools from the dataset given. The trendsfollow contrary patterns in the PFI, the primary schools lowered the operational costs, but the high schools showedincreased costs in 2008 and 2009. The trend in non PFI is consistently upwards, meaning both increased their operating costs from 2002 to 2009 constantly.

Figure 14: Average of FM Costs for 6 PFI and 6 Non PFI High Schools and 4 PFI and 4 Non PFI Primary schools(£/student capacity)

4.2 Capital cost Vs. Operational Cost in PFI schools in the period (2002 to 2009)

The next analysis refers only to PFI funded schoolsit is an assessment of the relation between capital investment and the corresponding operational and on-going cost with the school facilities.

The results are given firstly by capital cost of each facility per student capacity in £/student and then compared with the total corresponding operating cost 2002-2009 also in £/student. The ratio will be a fraction of the second by the first, in percentage. This relation demonstrates the importance of 8 years in cost in terms of capital investment, in one case it can be as much as 50% of total capital investment only for the initial 8 years of operations, thus revealing the true importance of FM and operational weighting in these types of

projects. 0.00 50.00 100.00 150.00 200.00 250.00 300.00 2002 2003 2004 2005 2006 2007 2008 2009

High School PFI

Primary School PFI

High School CON

Primary School CON

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4.2.1 High School Operational/Capital ratio

The analysis separates high school from primary school, as they revealed different patterns of costs and evolution. Firstly, in this subchapter it will be appreciated the ratios of Opex/Capex for high school and the same for primary schools in 4.3.1

Figure 15: High School PFI Capital costs per student in 6 different Schools and Regions of the UK (Source: UK Treasury), (£/student capacity)

Figure 16: High School PFI Operational costs per student in 6 different Schools and Regions of the UK(£/student capacity)

0.00 2,000.00 4,000.00 6,000.00 8,000.00 10,000.00 12,000.00 14,000.00 16,000.00 18,000.00

LHS1 -PFI LHS2 -PFI LHS3 -PFI WMHS1-PFI YSHS1-PFI NWHS1-PFI

0.00 500.00 1,000.00 1,500.00 2,000.00 2,500.00

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Figure 17: Cost efficiency ratio Operational expenditure in percentage of Capital expenditure (High School PFI 2002 to 2009)

The values attained for these ratios are within the same greatness of value for London and Yorkshire. The North-West case should be regarded singularly. At a preliminary conclusion, the NWHS1-PFI had only a light construction intervention, or was probably just refurbished, which would justify why the proportion of operational costs had been so high for these projects

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

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Figure 18: Capital Efficiency ratios UK High school distribution

4.2.2 Primary School Operational/Capital ratio

The values per student for primary schools in what concerns capital cost are much higher than for high schools, and as a first analysis, that could have to be with the student number per facility.

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Figure 19: Primary School PFI Capital costs per student in 4 different Schools and Regions of the UK (Source:UK Treasury), (£/student capacity)

There are some operational costs which are lower than those associated with high schools, specifically the NWPS1-PFI which is significantly lower compare to all primary and also with high school operating costs. This case too, will have to be assessed independently.

Figure 20: Primary School PFI Capital costs per student in 4 different Schools and Regions of the UK (£/student capacity)

0.00 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00 40,000.00 45,000.00 50,000.00

LPS1 -PFI WMPS1-PFI YSPS1-PFI NWPS1-PFI

0.00 500.00 1,000.00 1,500.00 2,000.00 2,500.00

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Figure 21: Cost efficiency ratio Operational expenditure in percentage of Capital expenditure (Primary School PFI 2002-2009)

In the case of primary schools, since the capital cost, specifically construction and land purchase is much higher than of high schools, the operational ratio is expected to be lower, in two cases, it is lower than 5%. It may suggest that these facilities have been completely new built and in proportion, the operational costs are considerably inferior.

4.3 What was discovered

Average for high schools is 18% whereas for primary schools 6% of operational costs for total capital cost. This is just for 8 years of operating costs, and in keeping with this trend, in 30 years, which is normally the length for PFI contracts and it will represent almost 70% of the total capital costs, just for operating costs (Building Maintenance, Grounds Maintenance, Cleaning, Water and Electricity). This ratio is however not as much as the introduced by Graham Ive (2003) on which operational costs should be representing 150% of the total capital costs, but that is because there may be other service costs related which may be missing and a different type of building is considered here. Also, the length of the building life cycle should be more than 30 years,

0% 2% 4% 6% 8% 10% 12% 14%

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and that may be translated into a higher significance of operating costs versus the capital cost. Even though there may be more physical interventions in the facility such as refurbishments or equipment substitution, the utility prices for electricity or water may as well rise as suggested, thusgiving more weight to the operational expenditure over these facilities lifecycles.

The FM arrangement contract within these PFI Schools must have influence on the cost, the style of management and the way services are procured. The most important aspect to evaluate in these results is the relation between capital investment and the operational costs that descend from each particular investment. In the next chapter all the PFI will be regarded separately as per their FM arrangement within the PFI and also how the degree of each capital investment had influence in the operating cost. For example why NWHS1-PFI has such a high ratio of operational/capital or why NWPS1-PFI has a very low operational/capital ratio comparative to the other cases.

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5. DISCUSSION

In this project the main focus was to demonstrate thatPrivate Financed Schools would deliver a better efficiency in terms of maintenance and utility expenditure. The idea that it is a whole project thought since the beginning in order to generate less expenditure in the long term and therefore, bringing down the Life Cycle, it will allow more income in the whole project’s lifespan. The fact discovered is that it currently does not work in that way, and that actually some conventionally funded schools are running with some of the expenses lower thanPFI schools.

The overallgraph trends on the other hand demonstrate that these

expenditures may not keep the same distributions beyond 2009, and probably nowadays they disclosure different values. It is essential to analyse the PFI and conventional schools closer and forecast different and possible future outcomes

It will be studied each PFI will be studied closely, in order to find out if there is a possible relationship between the type of FM contract and the

corresponding operational cost. Also for the PFI, it is worth to acknowledge the degree of capital investment made in each project, and that may explain the differences in the capital efficiency ratios obtained.

5.1 PFI and Non PFI operational costs

By analysing the comparison of running cost average (pounds per student) of 10 PFI schools with the 10 conventionally funded schools a trend line can be drawn. This line supports the idea that cost developments are following

opposite paths on these 2 groups andthat may lead in the future to even more discrepant different operational expenditure development. The major fact is that according to the linear trend lines, the PFI operating costs are decreasing while in conventionally funded schools the costs are rising in a constant mode.

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Figure 22: Trend lines for the averages of running costs (£/student capacity) in the 10 PFI schools with the 10 conventionally Funded schools

The Bathtub phenomenon could be applied to each type of schools. In this database, the PFI group is made of recent developments, and some are even new built, while in the 10 conventionally funded existent schools, in some cases, they have several decades of existence. The high running costs for Facility Management in the early years may derive from the “early infant anomaly rate” mentioned in chapter 2. In the beginning of the building lifecycle, the infrastructure is more likely to be adapting and correcting construction features that didn’t deliver total functionality. The factor of building aging in the conventionally old schools may be leading to higher expenditures on correcting maintenance issues and reactive maintenance to aging parts and sudden failures. What is more is, the buildings maybe losing efficiency on the FM services because prices are rising and they are already on the limit of cutting on services such as heating, cleaning or water

consumption. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0.00 50.00 100.00 150.00 200.00 250.00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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Figure 23:Bathtub Curve analogy for PFI and Non PFI School Buildings

However, PFI is technologically more complex. It may be more expensive to run in a long term. The systems may need constant input and attention, special qualified operators to work with the BMS (Building Management System) and each PFI school may have its own system with its own characteristics and singularities.

Historical or listed schools tend to be of a heavy construction type, with heavy mass and probably good ventilation, but poor heating/cooling (Mumovic, 2009). This can explain the high levels of energy consumption in fig 13.

5.2 Capital efficiency ratios

Comparing the initial investment and the resulting operating expenditure for the PFI School’s group was a form of finding out if is necessarily true that high Capex (Capital expenditure) leads to a lower Opex (Operational expenditure) in public buildings especially for FM activities such as building maintenance, cleaning and utilities.

The results, however, don’t seem consistent with the hypothesis given. In some cases the initial capital investment was high and the resulting

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operational expenditure was also higher than similar others (LHS1-PFI). All these PFI buildings will have to be analysed separately, since the operational costs are given as an overall sum of the 8 years period and they are all decreasing as already discovered in the trend lines demonstrated.

The degree of capital investment (degree of construction intervention) has to be assessed in order to justify the significant differences in capital cost for this dataset of 10 PFI Built from 2000 to 2003.

5.2.1 Capital Efficiency ratio and FM arrangement type

inPFI High schools

Figure 24: Operational costs for PFI High Schools 2002 to 2009 (£/student capacity)

The following description summarises the role of Facility Management on each PFI and how the arrangement was made. The information is displayed, first by type of contract, the capital and operational expenditures of each and the operational cost evolution during the years between 2002 and 2010.

0.00 100.00 200.00 300.00 400.00 500.00 600.00 2002 2003 2004 2005 2006 2007 2008 2009 LHS1 -PFI LHS2 -PFI LHS3 -PFI WMHS1-PFI YSHS1-PFI NWHS1-PFI

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LHS1 – PFI Managing agent (1 contract - to multiple contracts) Capital - 15644 £/Student Ratio – 14.35%

Increased operational costs from 2003 to 2009

This school only really started in 2004 with the FM contract, and that may explain the sudden rise in operational costs. Importantly, the initiative is self-funding with an emphasis on generating income from members of the public, private clubs and commercial organisations. Profit from the activities is then re-invested to enhance the facilities and encourage use by diverse sections of the community, and to mitigate the high operational costs.

LHS2 – PFI

Managing agent Capital - 11275 £/Student

Operational Ratio – 17.49%

Sharp fall in operational costs from 2003

This school opened as a PFI in 2003. The operating costs must derive from the construction and pre-opening activities. This school has a project

agreement which allows negotiation on specific issues for the 25 year long-term partnership with the managing agent, therefore, none of the sides take advantage off each other.

LHS3 – PFI

Managed Budget (Managing Agent + Fee

per contract)

Capital - 14164 £/Student

Operational Ratio – 10.81% Increased operational _costs

The building and asset management is provided by a private company, but soft services i.e. catering, cleaning, ground maintenance and caretaking are not included in the contracts.

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WMHS1-PFI

Managed Budget (Managing Agent + Fee per contract)

Capital - 16817 £/Student Operational Ratio - 5.01%

Decreased operational Costs

The new PFI contract was initiated in 2006. Day to day FM is outsourced to one private company, extended services are outsourced to another private company. The general PFI contractor is assessed by a performance system and has been performing well.

YSHS1-PFI

In House. (Managing

contractors?) _{Operational Ratio – 16.88%}Capital - 9355 £/Student

Sharply increased operational Costs

This school was reconstructed in 2009, and that may explain the sharp rise to 2009 in costs. The biggest cost type is energy, followed by building

maintenance, but contrarily of what would be admitted, the operational costs are not directly deriving from construction activities. The FM was In-house until today.

NWHS1-PFI

Flat operational costs, sudden rise in 2006, but

returned to the same average value

The duration for this FM contract is 25 years. The school was completed in 2002. The capital value could be higher if the current student number was considered instead of student capacity, because, it is only with half of its occupational capacity. It would still be lower than the average. Which is why the operational ratio is much higher, in fact the operational costs are still under the average as can be seen in the graph.

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Managing agent provides the following hard and soft FM services to the new high school; Hard FM, Statutory Maintenance, Planned Preventative

Maintenance, Reactive Maintenance, Soft FM, Caretaking, Portering, Grounds Maintenance, Pest Control, Energy Management & Procurement, Community Use

5.2.2 Capital Efficiency ratio and FM arrangement type in

PFI Primary schools

Figure 25: Operational costs for PFI Primary Schools 2002 to 2009 (£/student capacity)

In this case the analysis is made for primary schools only. The following description summarises the role of Facility Management in each PFI and how the arrangement was made. The information is displayed, first by type of contract, the capital and operational expenditures of each and the cost evolution during the years from 2002 to 2010.

0.00 100.00 200.00 300.00 400.00 500.00 2002 2003 2004 2005 2006 2007 2008 2009 LPS1 -PFI WMPS1-PFI YSPS1-PFI NWPS1-PFI

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LPS1 – PFI

Managing agent

Capital - 898 £/Student

Operational Ratio – 1.65% Decreased operational

costs

The 25 year maintenance contract for the delivery of FM services is done with a private corporation and is worth more than the School’s total capital cost. It incorporates both hard and soft FM services including: Building Fabric, M&E, Grounds Maintenance, Energy, Catering, Cleaning, Pest control, Waste and Third Party Events. The PFI was initiated in 2002 and the building finalised its reconstruction in 2006. WMPS1 – PFI In House. (Managing contractors?) Capital - 2247 £/Student Operational Ratio – 9.74% Increased operational Costs until 2006 and after decreased until

2009.

This Primary School was funded privately and is maintained by a Local Authority.

YSPS1 – PFI

Managing agent

Capital - 1848 £/Student Operational Ratio – 11.61%

Very high operational costs in 2003,2004 and

2007

The building is owned and maintained a private company and it provides Total FM. The PFI started in 2000.

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NWPS1 – PFI

Started increasing considerably operational

costs from 2005

SPV managed by a private company. The School works with the company which provides total management and cooperation. This PFI started in 2001.

5.3 Relations between type of contract and cost

The next discussion will be fundamentallywhether or not the type of FM arrangement within the PFI had an influence in the operational costs verified and on their evolutional trend. The high schools and primary schools still have to be separated in the analysis due to their differential characteristics. Except for NWHS1-PFI which had a capital cost extremely low comparing to the others, the “Managing agent (1 contract - to multiple contracts)” does not prove having a lower operational cost. The Managed Budget type which is a combination of a managing agent and fees per other independent contracts is a type of arrangement which does not depend entirely on a Total FM provider, but contracts out to other services and delivers the best efficiency ratios for this list of PFI schools. LHS3-PFI and WMHS-PFI have the opportunity to choose some of their FM suppliers, whether they be extended services or grounds maintenance, and this option may give these schools the choice for contracting the best choices in the market for less cost and same efficiency.

The only in house team for high school PFI is in the YSHS1-PFI and it has 8 years of operational cost and the totalcapital cost below average. However, the ongoing operational costs rose exponentially in the last years of the dataset. The NWHS1-PFI case will be considered as exceptional due to its considerably low figure in capital investment regardless of the fact that it had a lower figure in the operational cost.

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For primary schools the results seem inconsistent. Both LPS1-PFI and

NWPS1-PFI demonstrate very low capital expenses and very low operational costs too (under 200 £/Student per year) which does not corroborate the hypothesis of high Capex generating low Opex. The other 2 Schools WMPS1-PFI and YSPS1-WMPS1-PFI were both more expensive to run and were more

expensive to build.

Regarding overall averages between high school and primary school, the values are just as follows

Table 5: Average for Operational/Capital costs in PFI High and Primary Schools from 2002 to 2009, UK (£/student capacity and %)

Operational cost per

student capacity

Capital cost per student capacity

Operational/Capital Average Primary VS High School

High School £1,532.63 £11,605.82 17.93%

Primary School £1,328.95 £31,330.46 6.00%

While the average for high school and primary school operational costs are roughly similar, the results for capital cost are very discrepant. The reason why the operating costs are higher for PFI High schools is probably they will need more area per student than primary schools, also, the attached

equipment and playgrounds have to be bigger and more powerful. The reasons to justify the capital cost being 3 times higher for primary schools should have on particular explanation: more land per capita. The fact that primary schools can only deliver facilities with one floor may restrictthe construction to be flatter, therefore, requiring more landacquisition, and

roofing area. However, this is a supposition. The fact that primary schools are smaller does not exclude the need for the same infrastructures and equipment than high schools. Lastly, primary schools have by norm, fewer students than high schools, about 300 in average. Comparing to just above 1000 student average for high schools in our dataset, the difference in number of students

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may justify why primary schools, buildings with similar function, are made for less than a third of occupational ratio. This in turn justifies the increase in the total capital cost per student.

Regionally, the results are inconsistent, and due to the small amplitude of the dataset it would not be wise to consider trends or compare ratios by the region where each project is situated.

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6. CONCLUSIONS

6.1 An Overview

The objectives proposed for this work were achieved specially for the

comparison between PFI and conventionally funded school operational costs. Obtaining the capital efficiency ratios was also possible but the results

appeared in some way discrepant or inconclusive. The degree of capital investment is also very difficult to measure, and the comparison may have been done with newly Built versus refurbished buildings, which may have revealed differences in the ratios without explaining what really affected the operational outcome.

The “Bathtub phenomenon” links the recently opened PFI Schools to early failures and by that, it justifies the initial elevated operational costs. The conventional non PFI School rising costs were associated with the wear out failure. This rise was associated with aging facilities that showed in particular steadily increasing energy costs. Specifically for the PFI Schools, the Building Maintenance costs were higher, reinforcing the hypothesis that these recent buildings were still adjusting their facilities.

The constant climb for the 5 categories of supporting service cost in

conventionally funded schools is demonstrates that it will probably keep this overall trend for the following years, leading to a lower cost effective Facility Management. The fact is however, that the PFI can also raise costs in the following years due to external factors such as inflation or market demand alterations. Therefore, despite the suppositions, PFI Schools didn’t show they were less expensive to run in the period given.

Particularly for PFI Schools, the contract arrangement for Facility

Management was investigated in order to find if there was a relation between the contract arrangement and the respective ongoing operational cost for the period between 2002 and 2009. The result, even though is based on a small sample of schools, showed that “Managed Budget FM contract type” delivered

FACILITY MANAGEMENT SCHEMES FOR SCHOOLS IN THE UK:A STUDY OF VARIATIONS IN SUPPORT SERVICES COSTS AND CAPITAL EFFICIENCY RATIOS