Dry rot: PPP schools a step too far

The genie is already out of the bottle when it comes to privatisation of public education in New Zealand. Private providers of professional development, research, teacher training, classroom supplies and…

schoolcrossing-cartoonThe genie is already out of the bottle when it comes to privatisation of public education in New Zealand. Private providers of professional development, research, teacher training, classroom supplies and more” all receive dollops of public education money.

But principals and teachers say Public Private Partnerships (PPPs) to build and maintain new schools would be a step too far. “We’re not first cab off the rank as far as this is concerned,” says Tahatai Coast School principal Ian Leckie. A similar initiative to PPPs has been used to build hundreds of schools in the UK.


Principal Ian Leckie

“At first teachers may not notice too much difference, but that changes,” says Ian, whose experience of the private sector has been coloured by years fighting to have leaky buildings fixed at his school.

“UK teachers have found that company people start to walk around the school. They start to decide what happens in the school, after school and at holidays. There are issues of cost recovery. In the UK, they got hold of the supply of the support staff workforce.”

Ian acknowledges that PPPs can be set up in different ways with a variety of safeguards, although they boil down to private firms financing, building and maintaining new schools over a long-term contract of 20-30 years.

Ian says that schools have ended up being owned by investment funds. “You might start out working with a local conglomerate. But then you find you’ve been sold overseas.”

As EA went to press, the Ministry of Education was unwilling to discuss PPPs. In April it was reported the government had been about to decide whether to use a PPP to build a new primary school in Waikanae, north of Wellington. But in June the minister quietly released information saying $3 million had been paid for a three-hectare site, and the school would be built using new funding announced in the Budget.

You pay, and pay, and pay

Building and maintaining schools on a PPP is like buying a house on your credit card, says Dexter Whitfield, an associate professor at Adelaide University and author of several books, including Global Auction of Public Assets. “There isn’t any free lunch, however you build and manage a PPP school. It might be privately financed, but the project is entirely publicly funded. “The public pays the higher cost of private sector borrowing and the public pays the 15 percent return that investors expect on their money.”

Schools can also get locked into long-term maintenance contracts that are inflexible” “and this money is ring-fenced,” says Dexter. Schools in Britain have found themselves locked into maintenance contracts that have to be paid ahead of spending on educational needs. And while some companies have offered schools˜profit-sharing’ arrangements on hiring out school buildings, schools then find local fundraising difficult when people realise that part of their money is going to private companies.

Dexter says that the UK government upgraded its public schools using PPPs because it had high debt levels, and needed the private sector to carry the debt on its books. “But this isn’t the case in New Zealand. Your government debt is very low by international standards.”
Opposition Education spokesperson Trevor Mallard is reported as saying Labour would cancel any PPP contracts, but Dexter warns compensation would be expensive.

Caution from New Zealand’s Auditor-General

PPP contracts include a front-end cost of around 5-7 percent to cover the costs of lawyers, consultants and advisors. Anne Tolley stated last year that “external expertise” was being used to prepare a business case for a school PPP. However much of the front-end costs are fixed, so on smaller projects these costs are much higher, proportionately.

In his report Achieving Public Sector Outcomes with Private Sector Partners, the New Zealand Auditor-General cites research from the UK Treasury that shows procurement times for small projects (classed in 2003 as being less than £20 million) were broadly similar to larger projects, “meaning that times were disproportionately long” and costs “disproportionately high”.

The cost to build a primary school in New Zealand is around $4-7 million, depending on factors such as roll size and location.

Big money for some

A special investigation by UK’s Independent newspaper,˜How Government Squanders Billions’, says the UK government is locked into decades-long contracts that will cost taxpayers 37 times the value of the projects, in all paying £262 billion for public sector projects valued at £55 billion.

  • Balmoral High School in Belfast closed six years after it opened when pupil numbers dropped. However, the local Department of Education still owes the contractor £370,000 a year for the next 18 years.
  • Oxford taxpayers will have to repay £832 million for the John Radcliffe Hospital, which cost £134 million to build.
  • Highlands School in Enfield plunged into a £300,000 of debt because of an “expensive and inflexible contract” with a private contractor.
  • Some UK politicians, however, have profited.
  • British Telecom won National Health Service contracts while MP Patricia Hewett was Health Secretary. She is now a director of BT and earned £59,475 for 140 hours work over six months, at £424 an hour.
  • Former home secretary John Reid is now a consultant to a company heavily involved in PPPs, with a total capital value of £330 million, which will cost taxpayers £3.6 billion.
  • A former Minister of Defence and a former Minister of Health have been working as directors for defence and health companies with government PPP contracts.