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Another UK PPP deal falls in a heap

An expensive lesson

Phil Revell

The brave new world of public-private partnerships suffered a major setback this month when WS Atkins pulled out from running Southwark council's education services

The withdrawal came just two years into its five-year, £100m contract with the London borough. Atkins was in the middle of negotiating school funding for the coming academic year when it announced that it would seek an early withdrawal from the contract on the grounds that the financial arrangements were becoming 'increasingly challenging'. The decision proved embarrassing for David Monger, the company's director of local education authority partnerships, who was forced to pull out of an Education Partnerships conference, where he was to have spoken on 'learning from experience'.

The Southwark contract was the direct result of a dire Ofsted and Audit Commission inspection in 1999, which highlighted severe weaknesses in the education authority. The government sent a team from management consultancy KPMG to assess the damage. From the outset it was clear that ministers' first choice of solutions was a private contractor - and that there was only one realistic bid to be considered. A letter from erstwhile education secretary Estelle Morris, congratulating Southwark on choosing WS Atkins, was read out at the meeting theoretically convened to decide on the contract.

In April 2001, Atkins took over responsibility for education in Southwark. But it had virtually no experience in running schools and none whatsoever in delivering public services on such a large scale. The company is rather better known for being part of the London Underground PPP. It made its name on big civil engineering projects, such as the Drax power station, the Selby coalfield and Cardiff's Millennium Stadium. But in the past ten years the company has thrown itself into the public sector. It now has a finger in at least 13 PPPs, with more on the way.

In Southwark, the early signs appeared to be good. Last summer, Ofsted revisited the authority and praised it for the progress made. This was a cue for much mutual backslapping, but the seeds of the current problems had begun to germinate. The previous September, Atkins had been lambasted in the local press for failing to provide enough school places. Children who turned up at Southwark schools were told that nobody knew of their existence.

The company also had union problems from day one, with complaints about equal opportunities problems well to the fore. 'We registered a number of race discrimination claims very quickly,' says Unison branch official John Mulrenan. 'We called a meeting expecting to see half a dozen people - and 31 black staff turned up.' Unison could see no transparency in Atkins' staff appointments policy. People suddenly arrived, with no evidence that positions had been advertised. Mounting concern about race relations issues led to Atkins bringing in a race relations adviser, but that appointment wasn't advertised either.

Meanwhile, in the schools, the honeymoon was well and truly over. In the run-up to the 2002/03 budget round, schools were led to believe that the rise in prices for managed services would be around 3 per cent, but the actual increase was closer to 10 per cent. Where the contract money was going and what it was being spent on were issues on which the council and schools were given little information. Even Ofsted commented that `lack of financial and staffing information makes it difficult to judge whether the contract is giving good value for money'.

But the crunch came last September. The collapse in share prices was affecting all kinds of companies and Atkins found its shares in freefall, from £10 at the end of 2000 to little over £5 by last October. Profits were also down, hit by a disastrous restructuring of its IT support services. Atkins chair Robin Southwell was an early victim, but, as the multinational drew in its horns, the effects rippled out to Southwark. `Within a few weeks, vacancies were being frozen,' says Mulrenan. Education services had already been badly hit by the IT debacle. Budget information was miscalculated, bills went unpaid.

On the education front, the statistics were no better. In October, the national results for 11-year-olds revealed Southwark primaries to have the lowest test scores in the country. Two more Southwark schools failed their Ofsted inspections and went into special measures and, in December, Atkins recorded pre-tax losses of £32.8m. People began to vote with their feet. Education director Steve Davis left in September. Terry Rollings, joint head of school improvement, followed in December, and, earlier this year, Geoff Conway, joint head of school improvement, announced that he would leave this month. It seems likely that the senior managers brought in to run the education authority, most of whom came from other LEAs, were being asked to identify savings and rein back their development plans.

Inside Southwark council, dissatisfaction with Atkins had been growing, and this year's approach to the annual contract negotiations was considerably more aggressive. `We told Atkins that we expected them to delegate more money to schools,' says council leader Nick Stanton. He argues that this was in line with what the government was telling all education authorities. But insiders say that the council was also demanding that Atkins provided much more information about how it was spending the authority's money. The company decided not to play ball and walked out of the contract. At Atkins, company spokespeople were in short supply. Those who had waxed lyrical about the benefits of PPPs suddenly had `too much else going on' to comment in person. But the famed `sources' close to the company say that the pullout was `simply a commercial decision based on the budget Southwark proposed for this year'. Atkins has had no change of heart about public-private deals, but in future it will `win and run contracts only on business where it can see a reasonable profit'.

The Southwark saga took few people by surprise. The City is dubious about PPP management deals, seeing them as low profit and high risk. Atkins' shares rose on the back of the pullout announcement.

Education watchers saw the withdrawal as yet more evidence of the redundancy of the whole public-private concept. `There's a dawning realisation that there's precious little money in public sector business,' says John Bangs, National Union of Teachers' deputy general secretary. He points to the poor record of private involvement in state education. For example, NordAnglia was replaced in Hackney after a less than impressive showing and Cambridge Education Associates has twice failed to hit exam targets in Islington.

`What the government has forgotten and private sector companies are realising to their cost, is that people work in the public sector not for the wages - which can be pretty poor - but because they believe in providing a public service. And you can't put a value on that,' says Bangs. He argues that the government is reluctantly retreating from the whole idea, confining PFI deals to specific projects and addressing management issues in local authorities through lend/lease deals with successful LEAs.

Meanwhile, Southwark has a few weeks to organise an interim strategic management solution, while facing the long-term problem of finding someone to run the schools. The unions would like the whole shebang to be given back to the council, but the Department for Education and Skills is not likely to go along with that. Instead, a not-for-profit trust is being considered. `We are interested in building a partnership that would build on the considerable skills we already have in the area,' says Stanton. `People from the post-16 sector and the Learning Skills Council - possibly assisted by the right individuals brought in from other local authorities. It's all about recruiting the right people.'

It certainly is, and one name in the frame is Sir Michael Bichard, rector of the London Institute, the biggest art and design college in Europe, which is largely located inside Southwark's boundaries. Bichard is an ex-mandarin, most recently as David Blunkett's permanent secretary at the education department. Before that he was chief executive of Brent. The question is - does he fancy a challenge?


Phil Revell is a freelance journalist. This article was first published on 18 April 2003 in Public Finance, the internet magazine of the UK's public sector, and is reproduced with the kind permission of the author, who retains all © copyright privileges in the work, which is not to be reproduced without explicit permission.


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