SUMMARY OF REPORT CONTENTS

The UK now has the largest schools capital investment programme for over thirty years, with central government now investing around £3.5 billion annually. Impending Government proposals to commit unprecedented resources into the education system include an ambitious promise to rebuild or renovate every secondary school in the Country by 2015. The £2.2 billion initiative is known as Building Schools for the Future programme and the Department for Education & Skills (Dfes) is planning to select 150 contractor-led supply chains to carry out the 15-year programme.

With the Private Finance Initiative representing one of the largest mechanisms through which this investment will be channelled, much consideration is being given to ensure that this method of procurement delivers value for money and modern, well-designed learning environments. With the current slowdown in private construction and commercial activity, and consolidation within the manufacturing industry, ongoing investment by the public sector, and in particular education, is now seen as a potential and attractive growth area for construction companies, with levels of capital expenditure less affected by fluctuations within the economy as a whole.

Education is one of the Government's priority areas for spending and there has been a considerable increase in education spending over the last 5 years. Total UK education spending for all sectors currently stands at around £58 billion in 2003-04 and is around 5.3% of GDP.

New spending plans put forward by the Government indicate a provisional rise in education spending by an average of 6% per year and around £12.8 billion between 2002-03 and 2005-06. By 2007-08 UK education spending is forecast to rise to £63.9 billion, approximately 5.6% of GDP, compared with just 4.6% in 2001.

Capital investment in all sectors of education will rise from approximately £680m a year in 1996-97, £3.7 billion in 2002-03, to around £7 billion in 2005-06, of which £1.2 billion will be through the Private Finance Initiative (PFI).

In the 2004 Budget, the Government, in line with previous promises, has confirmed that that Dfes spending will increase by around 37% from £25bn in 2003-04 to £35bn in 2007-08 and total education spending in the UK will increase by around 10% from £58bn in 2003-04 to £63.9bn in 2007-08. The increases announced in the Budget Statement will enable a number of reforms to be realised including an increased capital spend from £3.85 billion in 2004-05 to £6.78 billion in 2007-08, and this is set to ensure a programme of refurbishment in every secondary school by 2015, delivered through the Government's 'Building Schools for the Future' programme. The Church of England has also recently announced a £100m pilot programme to upgrade its school estate.

The Building Schools for the Future introduces a radical new model for the design, procurement and building of the secondary school estate. To this end, the Government have unveiled 11 architectural designs known as 'Exemplar' designs, which are intended to help LEAs and schools develop their educational requirements through innovative use of space and improve the design quality of new school buildings.

The higher education sector in Britain has an annual turnover of just over £13 billion, which is forecast to rise to over £15 billion by 2006-07. State funding for universities rose to £7 billion in 2002, £8.3 billion in 2003 and to £9 billion in 2004, an increase of around 6% per year in real terms. By 2006 funds provided by the public sector are forecast to reach £9 billion. As a result of top-up fees, higher education funding per student is forecast to rise by over 30% between 2003 and 2009.

In the 2004 Budget Gordon Brown has confirmed that universities will continue to receive increases at least in line with inflation and the Government has estimated that higher education funding per student will rise by 31% between now and 2009, as a result of top-up fees.

The chancellor has also underlined the Government's commitment to a long-term investment in science in the budget with the announcement of a ten-year science framework for medical science, including the establishment of a clinical research network and specialist institutes for disease research. By increasing investment in science and research resources, especially within universities, the Government is aiming to make Britain more attractive to research companies and to bring academic institutions and science corporations together.

The 2004 Budget will bring increases in spending on science and engineering up from £1.75 billion in 2002-03 to £3 billion in 2005-06. Britain currently spends just 0.8% of its GDP on science initiatives.

In addition to this public funding in this sector, however, the Government has stated that it will increasingly look to universities and colleges to make greater use of private finance. Subsequently, the higher education sector now looks towards other sources of funding including straightforward bank credit, tuition fees, income from research grants, capital endowments, the Private Finance Initiative (PFI), outsourcing facilities such as conferences and awards from charitable trusts and private corporations and sponsors.

The conversion of polytechnics to university status in 1992 also had a huge impact upon student numbers and led many institutions to review their long-term estate strategy. Consequently, many universities now have building programmes stretching over a period of many years providing contractors with long-term work, particularly in the student accommodation and sports and science infrastructure sectors. Sports facilities in English higher education institutions receive investment totalling some £73m per year and are consequently a lucrative sector for contractors and providers of sports facilities and equipment. In addition, Sport England has invested around £40m towards the development of sports facilities in UK universities and more than £50m on English Institute of Sport 'hubs' on university sites.

With the Government's drive to modernise the UK schools estate and improve standards within the education sector as a whole, there has been much emphasis placed on how this expansion is to be funded and the most cost-effective way of procuring the necessary construction services.

With the Private Finance Initiative representing one of the largest mechanisms through which this investment will be channelled, it is essential that this method of procurement deliver value for money and modern, well-designed learning environments. To date, the PFI process has already resulted in the completion of over 200 new or refurbished schools with a capital value of around £2.4 billion.

The next few years are expected to see a major expansion of the PFI/PPP concept in the education sector and the Government's Building Schools for the Future programme therefore presents huge opportunities for public and private sectors. Crucial to the success of this programme will be the role played by Partnerships for Schools (Pfs) established by the Dfes as a joint venture to work alongside local education authorities in order to procure new buildings and services more quickly and efficiently. The Partnership will lead the entire investment programme and oversee both PFI and traditionally procured projects.

It is hoped that this model will closely resemble the successes achieved with Local Improvement Finance Trusts, which are being used to roll out projects for the NHS. The Government believes that the LIFT concept will translate well into the schools sector, and in particular, will help address the problems of PFI refurbishment in schools. Building Schools for the Future programme will have similarities to NHS LIFT in that it will deliver a long-term investment programme, phased over a number of years. In addition, long-term partnerships between the private and public sector, known as Local Education Partnerships (LEPs) will be set up in a similar way to LIFTCos, but with a lower level of equity investment of around 20% on the part of the public sector, as opposed to around 40% in NHS LIFT.

A further variation on the PFI model is also being introduced by the Government, in order to speed up its schools building programme. By radically reducing procurement and construction processes for major hospitals, the Government hopes that batching contracts will save time and money. Bidders chosen as framework consortia will build two to three major schools concurrently in the same geographical area, with around six to nine months in between each contract.

he trend towards public and private investment in healthcare has largely been driven by dissatisfaction with current service provision, with the Government investing in NHS healthcare facilities either by raising public funds or through private capital such as the Private Finance Initiative (PFI). With the current slowdown in private construction and commercial activity, and consolidation within the manufacturing industry, ongoing investment by the public sector, and in particular healthcare, is now seen as a viable growth area for construction companies, with levels of capital expenditure less affected by fluctuations within the economy as a whole.

At the present time, 2003-2004, Healthcare expenditure in England is estimated to be of the order of £78 billion, of which around £63bn is allocated to the National Health Service. The DOH currently disposes of a budget of approximately £65 billion, which is forecast to reach £74 billion in 2005-06.

The UK Government has committed itself to a 43% real increase in health expenditure by 2007. The increase in health expenditure announced in the Budget will mean that by 2007-08 public expenditure on health will reach 8.2% of GDP.

In the 2004 Budget, the Government confirmed these rises and also identified a need for greater spending on the prevention of illness rather than the treatment of it, with greater co-operation between the NHS and Social Services. This is an issue that will be addressed in the Public Health White Paper, due in the summer of 2004. The Budget has also promised that resources for medical research and NHS research and development will rise to £1.2 billion a year by 2008.

Under the present Government there has been a clear shift in emphasis to the provision of healthcare at primary level and it has sought to raise the profile of primary care in the UK. It suggested that by 2008 there would be 15,000 more GPs and consultants, 30,000 more therapists and scientists, and 35,000 more nurses, midwives and health visitors. Over the next three years until 2006, the Department of Health is allocating around £148bn to Primary Care Trusts in order to fund the anticipated 3,000 anticipated GP premises which will need to be replaced or refurbished and 500 one-stop primary care centres.

As of April 1st 2004, 75% of NHS funding will be allocated to the primary care sector giving it more responsibility to decide where, and on what services, to invest. The PCTs will become the main focus of development for primary care, driving the expansion of service delivery into areas such as multi-disciplinary services, intermediate care and minor injuries.

In recent years the NHS has begun to experience structural change and has forged a much closer working relationship with the private healthcare sector, including the direct purchase or leasing of health care from the private sector. The UK healthcare market has become increasingly complex over recent years, as a result of new Government initiatives such as the NHS Plan, The Wanless Report, increased financial pressures and devolution of responsibility to the Primary Care Trusts, and more innovative approaches to investment and service delivery such as NHS LIFT and Procure21.

The National Health Service has already begun to address the problem of major under-investment in its estate with a strategic and focused capital investment programme. The largest ever building programme is providing a guaranteed revenue stream for the construction industry. The NHS still has capacity for improvement and principle objectives set by the NHS Plan will be further developed this year with the 2004 Spending Review, which will set capital expenditure levels beyond 2010.

The NHS currently spends in excess of £2bn per year on capital investment and has the largest capital procurement programme of any Government department. The implications for a capital build programme are therefore considerable with a proposed cumulative capital spend exceeding £11bn and plans for 100 additional large hospital schemes by 2010. Together with plans for a new generation of Diagnostic and Treatment Centres and a projected £4.2bn worth of new PFI investments, the outlook for construction activity, in the public sector at least, is favourable.

The Government's Capital Spending Review indicated that capital investment in the health sector is set to rise from £2.2bn in 2002/03 to £4.2bn in 2005/06 and over £6bn in 2007/08.

If the Government continues to embrace the private sector and maintains its planned spending programme, the opportunities for the construction industry and private sector consortia to tender for healthcare contracts, especially acute PFI hospitals and diagnostic & treatment centres, is considerable and looks set to increase.

Although the private healthcare market is much smaller than the comprehensive public sector, in the current climate of continuing problems within the NHS, it is beginning to develop and expand into new areas of care. The sector is increasingly operating in partnership with the NHS, or running NHS services and this trend is likely to continue with the advent of Primary Care Trusts and increasing devolvement of responsibility and funding. Areas of growth in the private sector are likely to be in the private dental chain market, with dental corporates increasing their practice portfolio through new builds and the major acute hospital providers such as BUPA and BMI Healthcare, providing capital work through PFI schemes.

Much of the investment proposed for improvements to the health service will be funded from the public sector and around 75% of projects are still paid for from public sector funds. A proportion of funding is also expected to come from sales of old NHS property, which is predicted to raise some £600m.

A significant proportion of the investment for new healthcare buildings is expected to come from the private sector which is engaged to build 104 of the 114 planned NHS hospital projects. The Private Finance Initiative has traditionally been the main vehicle for delivering large-scale capital schemes and PFI contracts are expected to raise around £7bn of private capital by 2010, primarily for major schemes. However, as a result of recent focus on initiatives to improve the performance of NHS trusts as best practice clients, a new procurement method in the form of Procure21 has been introduced to provide a prime-contracting route for the delivery of medium-scale hospital projects. Procure21 aims to establish main suppliers in framework agreements with the NHS Estate and is expected to reduce programme time and improve build standards.

A further variation of the PFI model is also being introduced by the Government, in order to speed up its hospital building programme. By radically reducing procurement and construction processes for major hospitals, the Government hopes that batching contracts will save time and money. Bidders chosen as framework consortia will build two to three major hospitals concurrently in the same geographical area, with around six to nine months in between each contract.

Funding for primary care facilities has traditionally fallen behind investment in the secondary healthcare market, but this is expected to change with the devolvement of 75% of NHS funding to the primary care sector and the advent of Local Improvement Finance Trusts (LIFT) to package local surgeries and primary care facilities.