22 May 2024

Education Ministry takes charge of school expansions as companies lose faith in PPP model

7:25 am on 22 May 2024
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Contractors found the PPP process was too difficult and complex. File photo. Photo: 123RF

The Education Ministry has taken back the job of financing, designing and building several school expansions, after companies said the public-private-partnership (PPP) approach was too difficult.

The government wants to use more PPPs to build infrastructure to spread the risks and costs out, but not all the projects work out well.

Ten schools have been built using PPPs. The builds began under the government before 2017, and it was then halted as an approach after that.

But when a growth in rolls meant seven of them had to expand, contractors were not keen, a ministry OIA response shows.

"The ministry received a limited number of [tender] responses," it told RNZ.

"One of these responses flagged to the ministry that using the standard PPP terms and conditions in the PPP managed expansions made the process more difficult and complex."

It asked around other companies - even going through a 'construction directory' of local suppliers - and others that do international PPPs.

"Market feedback... signals that construction suppliers are not interested in the PPP model," the ministry then told Minister Erica Stanford.

The reluctance was partly due to the suppliers having to take on too much risk, and to meet an "onerous performance regime in NZ, eg compared to the USA", its one-page briefing note said.

The ministry took the feedback and changed tack. It balanced out the "risk, market pressures, speed of delivery, cost and value" to come up with business cases that the Cabinet endorsed.

"This direction has resulted in a mnistry-led approach for the design and build of the remaining expansions, with the hand back to the relevant consortia upon the completed buildings for long-term facilities management," the ministry said.

This differs from the usual PPP model that seeks to transfer the risk of design, build and financing from the public sector to the private.

The ministry said the PPP model was flexible and it would adapt it case-by-case on future school builds.

"PPP risk allocation will provide best public value by reflecting parties' ability to manage risks specific to the project and market conditions at the time, not by seeking to transfer as much risk as possible," it said in a statement on Tuesday.

Stanford had a "brief discussion" in December with officials about PPPs, reflecting on the expansion project feedback, her office told RNZ.

"The ministry was asked to prepare further advice to the Minister about potential delivery options for school property."

That advice on PPPs has been held up by the inquiry Stanford ordered be done by next month into how to build schools better, after she castigated the ministry in February for over-promising and under-delivering.

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