PPP Seminar : Education Barnsley Case study

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1 PPP Seminar : Education Barnsley Case study Gavin Quantock Deloitte Corporate Finance 23 July 2014

2 Case study Barnsley building schools for the future programme PPP and Education Project background Project structure Key challenges Funding Private sector bidders Council challenges Stakeholders Project timeline Lessons learnt Outcomes 2 Barnsley case study

3 Education PPP UK Government investment programme Overview British Government investment programme designed to facilitate private sector investment in schools PPPs have been the main delivery mechanism by which much UK infrastructure has been procured in the last 15 years. Over 600 PPP projects with a total capital value in excess of $84 billion. Education Over 120 new or refurbished schools projects Launched in early 2000s PPP schools, then following by a new structure Building Schools for the Future ( BSF ) Fourteen Local Education Authorities were asked to take part in the Government's first wave of the BSF programme for the fiscal year 2005/6 By 2009, over a third of Local Authorities had joined the programme; Over $12billion of capital expenditure has been spent in the UK Source : HMT 3 Barnsley case study

4 Project background Local Authority wanted to replace all 13 secondary schools The council Barnsley Metropolitan Borough Council (the Council ) is a local authority located in the North of England approximately 180 miles from London) Current population estimated at 240,000 people Strong political will for the programme The project Use of PPP to replace/modernise 13 secondary schools comprising 9 Advanced Learning Centres ( ALC ) plus 2 special schools Owing to scale and complexity of project a phased development required: Town hall Phase I: 5 schools Phase II: 3 schools Phase III: 3 schools Source : 4 Barnsley case study

5 Project background continued Private sector finance and operational expertise required Key objectives Procurement of a private sector partner for new build projects and refurbishment of existing schools The Council required full service from the private sector including Design, Build, Finance and Operate (DBFO) Full Information communications and technology ( ICT ) provision Central government funding used in the form of PFI credits Contractors Laing O Rourke: Construction John Laing Investments: Sponsor/Equity investor Civica: ICT 5 Barnsley case study Deloitte involvement Appointed in 2007 following a competitive tender process Provided financial advisory services to the Council including: Affordability assessment Deal structuring Commercial negotiations Project management support

6 Project structure New structure was used for delivery under which a long term development partner was selected to deliver multiple projects Unique structure adopted by the project Local Education Partnership ( LEP ) Local Authority also invested at both the top co and Special Purpose Vehicle ( SPV ) level Independent central government organisation also invested equity building schools for the future investments ( BSFI ) Designed to promote and facilitate a pipeline for the private sector and stimulate competitive tension Long term delivery partner over multiple phases 6 Barnsley case study

7 Project structure continued Public sector equity injected at several levels John Laing Investments Laing O Rourke BSFi 10% 50% Private sector partner 50% Council 10% 80% 4.9% 4.9% Private sector partner 39.2%** LEP 51%* Hold Co. 100% Senior debt lent at Project co level Project Co. 7 Barnsley case study

8 Discussion topic Considerations of the structure used What do you consider to be the advantages and disadvantages of public sector equity investment in infrastructure? What do you consider to be the advantages and disadvantages of having a long term delivery partner from a single contractor? 8 Barnsley case study

9 Key challenges With numerous challenges to overcome, it became clear that a successful transaction was going to depend on factors in and out of our control Funding Bidder Objective: Provision of new schools Local Authority Stakeholders 9 Barnsley case study

10 Funding Several funders involved with different pricing, credit committees and due diligence processes Significant capital expenditure required over three phases ($450m+) Consistent use of two commercial funders throughout the project European Investment Bank ( EIB ) involvement (only at senior debt level) Council lent into the project Phase I: innovative due to payment during works phase and cheaper Phase II and III : New structure due to risk transfer Senior debt Phase 1 $m Phase 2 $m Phase 3 $m EIB Nord bank Nationwide bank Total Other facilities included equity bridge, change in law and debt service reserve accounts Source : 10 Barnsley case study

11 Private sector bidder challenges Spent a significant amount of time bidding for the programme Bidder development/bid costs increased significantly due to project delays Significant communication required constant dialogue needed to maintain spirit of partnership Deal fatigue negative press articles regarding project delays Project developments led to changes in bidder commercial positions Time commitment losing bidder spent over $7.5m (non-recoverable) Source : 11 Barnsley case study

12 Council challenges First time the Council had done a project of this nature Timing of going out to the market Understanding the contracting structure and the procurement process Keeping various people (residents, press, bidders) informed Timetable: equal exposure and face time with all bidders Raising issues with bidders and resolving them quickly Deal fatigue Capital contribution decision and budgetary implications Staff moving on (lead director and also the head of finance moved to a different local authority) 12 Barnsley case study

13 Stakeholders : Transaction team The core deal team comprised over 20 organisations Laing O Rourke BSFI Appleyards Public John Laing Plc Barnsley MBC CMS Socertim consulting Operis Members Allen and Overy Gleeds PWC Nord EIB Nabarros Civica Nationwide Bevan Brittan Deloitte 13 Barnsley case study

14 Other stakeholders In addition to the core deal team there were lots of other stakeholders to consider Teachers Board members Shareholders of private sector Press Planning authorities Pupils Politicians Other contractors Parents Non executives Central Government 14 Barnsley case study

15 Discussion topic Considerations of the stakeholders What do you consider to be the critical success factors needed to manage such a wide range of stakeholders and stakeholder needs? How can you work with stakeholders to ensure stakeholder interests are aligned in both a financial and non-financial context: 15 Barnsley case study

16 Project timeline From start to finish the transaction took over six years Barnsley begin preparing for the procurement Summer Tender launched to the market 17/05/07 07 Preferred Bidder 01/12/08 News: Barnsley BSF picks Preferred bidder 08 General Announcement 30/03/09 News: Barnsley BSF two to three weeks from close 09 General Announcement 03/07/09 News: Signing imminent for Barnsley BSF 09 Financial close 09/04/10 News: Barnsley Phase II 10 First school opens April Request for Proposals from contractors 02/05/07 08 Shortlist announced (8 to 3) 07/11/08 News: Preferred bidder deadline overdue for Barnsley BSF 09 General Announcement 30/01/09 News: Barnsley BSF to close before end of first quarter 09 Bank Mandate Won 07/05/09 News: Banks on board for Barnsley BSF 09 Financial Close 06/07/09 News: Barnsley BSF financial close details 10 Financial close 01/11/10 News: Barnsley Phase III financial close Source : 16 Barnsley case study

17 Lessons learnt Many lessons learned from the project here are just a few Timetable, timetable, timetable Communication is key Timing of going to market Knowing what you want to get out of each meeting Stakeholder management Having the A team from both sides (importance of intelligent client) Know your limits financial and non-financial Understand affordability Capital contribution by the public sector Relationship with contractor strained and complex but a 25 year commitment! Recognising a long term partnership the hard work starts when you close the deal 17 Barnsley case study

18 Outcome A fantastic outcome for all concerned Successful financial close of all three phases of the programme 1.15bn investment programme Provision of nine ALC and two special schools All schools now open and operational Biggest educational building project in Europe Source : BBC 8 July Barnsley case study

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24 Discussion and Questions?

25 Contact details Gavin Quantock Deloitte LLP Tel : +(44) Mob : +(44) gquantock@deloitte.co.uk 25 Barnsley case study

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