I’ve looked at PPPs. They might have their place. But it isn’t for state schools.
Our schools are already designed by the private sector. They are built by the private sector. Unlike many other countries we don’t have a Ministry of Works anymore.
The only advantage to government in having state schools owned privately is that they are off the books and our debt looks lower. Smoke and mirrors stuff.
And it costs the private sector more to borrow to finance the buildings than they state. And they have to make a profit.
So we as taxpayers pay more.
Can’t blame Infratil and the Superfund for looking to invest in this area. Very good deal for them. Money for jam. Guaranteed margin.
But lets make it clear. Labour will develop a clear policy position on this. It will involve unwinding the contracts – using legislation if necessary. As with ACC in the past and if there is another privatisation.
And my view is that policy will involve compensation for the value of the bricks and mortar but not for the overheads and tender costs.
So be warned – don’t spend up on getting these deals together.
@ Brett
Deleted. Stay on thread. Clare
A clear statement, Trevor. Great. The greedy corporates are warned in advance. Keep your profit making mits off our schools. Why else would the corporates go down this track?
As a primary teacher (state system only), I’d hate to be dictated to by landlords from the private sector, who could determine how and when my (and the children’s) classroom could be used outside of 9-3 and in the school holidays.
I think the fourth Labour Government made a serious mistake abolishing the Ministry of Works. Their role in building and maintaining schools was one of many sad losses.
The hands off nature of Tomorrow’s Schools has also meant that there is now huge disparity between school buildings across the country. I think the Ministry of Education needs to take a far more active role with regards to school property and maintenance. I know that the basic cyclic maintenance at my own school has simply not kept up with pace, largely due to cost, and all involved (students, teachers, parents, future students) are the poorer for it.
Do Labour plan to review Tomorrow’s Schools, twenty years on?
Just so people know how school PPPs work and to dispell many of the myths purported on this blog:
1) The buildings are constructed by the private partner and leased back to the ministry of education for them to use as they please. There is no capacity for the private partner to use the buildings during non school hours as the ministry of education has the lease on the buildings.
2) The PPP contract specifies that the buildings must be maintained at a contractual level during the lifetime of the PPP – i.e. Kane was commenting that the maintenance at his school was not kept up. The benefit of a PPP contract is that the private partner must maintain buildings or they do not receive contracted payments (or there are penalties)
3) At the end of the contract the buildings must be returned to the public partner in as new condition, or again, there are penalities. Therefore not only is the school well maintained during the lifetime of the contract but it also must be returned to the Government in ‘as new condition’
4) For those that believe they can ‘break’ PPP contracts by legislating over the top of them. The same pension and sovereign funds (including NZ Super, I might add) that fund these projects are also the ones that buy NZ’s sovereign debt. Defaulting on a PPP contract is no different to defaulting on a sovereign debt obligation. Good luck borrowing money in the future if the Government chooses to do this.
5) No matter what people might think about the private sector ‘profiting’ from PPPs, the fact is that empirical evidence shows that PPPs provide better value for money than the taxpayer. They SAVE for the taxpayer money because, unfortunately, international history has shown that Governments are extremely poor at delivering projects.
For instance, the Allen Consulting Group prepared a report “Performance of PPPs and traditional Procurement in Australia” that showed that PPPs on average had cost overruns of 1% (which the private sector carries the burden on) vs a 15% cost overrun for public procurement (which the taxpayer funds).
Further, a study undertaken by the UK has shown that educational performance is much higher in PPP schools than schools funded by traditional procurement (the Government), the reason being is that the principal/board of trustees don’t have to worry about maintenance, etc, (as this is done by the private partner), and can focus on delivering educational outcomes for children.
The facts show that school PPPs represent better value for money for the taxpayer and better educational outcomes for students. Any decision to break PPP contracts is based on ideology alone.
Why has the government been slow to privatise the ACC Workplace Account? Because the last time National did this, Labour said that we would reverse the policy as soon as we were in government. When we were elected that is precisely what we did. We have already publicly announced that we will do the same again. National is holding off because they are fearful that there will be no takers this time, because everyone knows that on a change of government the scheme will revert to public ownership.
With Trevor announcing our position now, no-one can be in any doubt that we will reverse these so-called PPPs. I hope that makes any prosective private sector interests wary of any deal surviving a change of government.
I have studied this subject very carefully over a long period of time, because I am not philosophically opposed to PPPs. I like the idea of partnerships because the word underscores the equality that lies at their heart. Unfortunately all of the studies I have looked at prove that most PPPs are not really partnerships at all -because the private sector actually takes no risk in terms of their investment – the rental agreement is the equivalent of a government guarantee – and most milk millions of dollars from the public purse for private profit. This has been the experience in the UK and elsewhere and there is plenty of published research to back this up.
I have always felt that our SOEs provide the best base for developing true PPPs that can be joint venture companies utilising the best of the public sector and the private sector to develop new opportunities for NZ Inc. These would represent genuine partnership and subject the relationship to genuine commercial pressures ensuring that equality of opportunity.
I am also very attracted to the concept of Public-Iwi Partnerships, because Iwi are not really private organisations in the true sense of the word and they are never going to be repatriating profits off-shore.
Now all you have to do is apply that logic to all government services.
I think it needs to be brought back. There’s a lot of basic and continual maintenance that needs to be looked after and having the private sector doing it costs us more than it needs to. Sure, bring in the private sector when you need to for temporary needs (although I’m sure that the private sector won’t have the capacity).
Actually, the evidence shows the exact opposite.
What study?
And that could all be done by the public sector if the Ministry of Works was brought back. There’s no reason for the public sector to cost more than the private sector but there is a reason why the private sector costs more than the public – the dead weight loss of profit.
Lianne – if an incoming government cancelled a legally constructed contract other than under the terms of that contact and without compensation that action would be challenged in the courts, would cost the taxpayer a fortune to defend and eventually end up with a shed load of damages being awarded to the wronged party.
And the good name of New Zealand as a government with whom anyone could confidently do business would be damaged immeasurably.
This is the sort of stuff that happens in tin pot third world dictatorships or in what were once democratic states when the comrades take over.
Lianne Dalziel says: “I am also very attracted to the concept of Public-Iwi Partnerships,”
Does that mean you’d be happy for a full PPP to build schools if the partner were an iwi?
Is your view the same for maori institutions and mainstream ones?
Does this mean you disagree with Kelvin’s views on iwis engaging in PPPs to run prisons?
@ George: as I am sure you well know, OECD governments cancel major purchasing contracts all the time. You sit down with the other party around the table and say – right, lets figure out what this will take. And you cut a deal to get out of the deal. No brainer, no third world antics.
And seriously, if a contractor never wants to deal with the NZ Govt again, the largest single spender in the NZ economy, you can be assured that its a head fake and you could do much better than buy into such obvious posturing.
Loota says: You sit down with the other party around the table and say – right, lets figure out what this will take.
Exactly. Which is nothing like the sort of thing Trevor and Lianne are suggesting.
They, if anyone, are the ones who are posturing.
“It will involve unwinding the contracts – using legislation if necessary.”
Well if you read this it appears clear that Trevor understands full well that an unwinding process will be required and that the *threat* (but not necessarily the reality) of legislation *might* be used if necessary to encourage contractors to sit down at the table. Again, no biggie, quite standard in actual fact. NZ is not going to turn into a banana republic over this.
But Loota – a contract is a contract.
It will have clauses in it which specify the conditions under which either side can cancel it, and the amounts payable if these clauses are invoked.
If one party to the contract seeks to renege on this, and cannot negotiate a suitable settlement ‘around the table’ then it leaves itself open to an action for compensation.
Trevor’s threat to ‘use legislation if necessary’ suggests that he thinks an incoming Labour government could use the law to retrospectively change the provisions of the contract if it couldn’t reach agreement with the other parties. That’t the shonkey banana republic bit.
Imagine New Zealand First getting into a position of power and forcing a government to ‘use legislation if necessary’ to remove residental rights to loads of asian migrants who have legally made NZ their home on the ground that NZF never agreed with it. Or ACT using its influence to whack the intrest onto student loans which has been waived since 2005. Even the suggestion that’d they do these things would be dodgy, as is Trev’s posturing in this piece.
This is the sort of thing which sounds great to the extemists in the party who in their dreams one day see the country being run by commisars and everyone wearing Chairman Mao jackets, but outside of that small constituancy its a nonesense. I was surprised when someone as experienced as Trev alluded to the possibility, and totally gobsmacked when Lianne jumped in to back him up.
April 1st was a couple of weeks ago.
George Sperrott and others – I’m travelling and back on line briefly. Lianne has sort of said much of what I would say.
The NZ parliament’s right to legislate are undisputed.
We have and will do it and it regularly involves property rights and contracts.
The major difference in this case is clear notice so that anyone considering being involved in a school PPP has the ability to build this into their risk profile. In my view that significantly reduces the chances of such a PPP progressing.
In my view the compensation will involve a valuation approach.
The point I do disagree with Lianne on is iwi crown PPPs. In my opinion there is room (just) within the integration act for iwi kura to be integrated but I do not accept that iwi should own state schools. There is no special case that makes it right. The same applies, again in my opinion to power stations – but I’m not commenting on that today.
@ George – you said “…sounds great to the extemists in the party who in their dreams one day see the country being run by commisars and everyone wearing Chairman Mao jackets…”
I really don’t know anyone in the Labour Party who thinks that NZ should be “run more communist China” (as it were) than even the Chinese run their own economy these days.
Realistically, if Trevor and Lianne end up managing this situation in a way which creates a huge liability for NZ, I would be very disappointed, but as you already pointed out: settlements can and will be negotiated around a table.
And there is no good reason to always presume that a contractor, and not the Govt, would have the upperhand in such a circumstance.
The clarity of this statement is commendable Trevor. Thank you. Now one just as clear around National Standards please.
Selling off schools or parts just seem like false economies to me. One question, if the buildings are owned privately and leaseed back at market rates, then I assume they get a better deal than private landlords, as they pocket the rates not paid. I’m assuming some sort of leasehold title would apply.
My preference would be to use the private sector to part fund the schools (hospitals & others). I like the idea of a hospital having a commerce department (with clear guidelines so no overstepping) that uses some of the land to provide a nurses hostel/a small hotel for parents/the cafeteria etc to provide money (rent/sales) for the hospital to use. Likewise schools often have good resources in good locations that can be used after hours, or by owning land for rent to private sector schools could collect some extra cash (some possibly enough to employ a manager for assets), and if run well could also provide students with new opportunities aka young enterprise type stuff.
Of course this is all propositioned on having separated departments (who will talk regularly) with clear boundaries.
“I know for a fact that at least one of these schools has been trying to actually get grant to sell some of the property for a very reasonable price, well above the market rate for the area but the law forbids them to”
Umm- schools can sell off parts of their land now (if govt owned – and not all schools land is govt owned) – no big dramas – the catch is tha half the money – after the costs are taken into account – has to go back to the MOE – so oftentimes, schools end up with sod all -or nothing. Depends on where they are. Nothing stopping schools putting an agreement together now to lease out buildings – but it does require significant paperwork.
It amuses me that we are now looking at PPPs – the nats signalled this was coming last year – from memory Tolley put a release out about it, and some Iwis are working hard to get PIPs in place – public iwi partnerships, esp with schools. There may be a place for a PIP – but I have serious issues with the PPPs – some of the research from across the ditch and other places are not that great – just like the prisons really.
The other thing I find ironic is how one of the big wigs of infratil just happens to live over the fence from mr english – so no surprises this wee deals been cooked up, now is it. That in its own right makes me wary of what the real agenda is.
George/Loota – PPP schemes in the UK have cost the taxpayer an obscene amount of money, much of this through badly negotiated contracts by government ministers, government lawyers and local government officials. The break clauses in the contracts are weighted towards the private company, no reason to think things will be different here.
Also bare in mind the advisers for PPP schemes are any one of (or all of) the big 4 accountancy firms who will also suck millions from the taxpayer, maximising profits for their own management consultants.
Do you honestly think things will be any different in NZ?
Hmm Simon – What a dastardly plan. So the Nats want to reassure the business that they will make more money if the contract is broken by Labor (termination fees) so they get to keep the policy in until its run its course.
@ Simon: are you talking about PPP schemes in general? Or just for schools/prisons?
All those problems you mentioned seem avoidable – if ministers and officials get on the ball, get some competence, and learn the lessons of mistakes made by others e.g. those in the UK. Ok so maybe it won’t be any different
Bottom line is that there is no overwhelming justification for PPP’s in areas which are the direct responsibility of Government. Schools and prisons included. And there are plenty of serious risks, inflexibilities and likely runaway costs, as you have detailed.
ATTN David Cunilife
Privitisations and PPPs are a great answer for New Zealand. Opps no that’s wrong isn’t it. That’s right I remember now they are almost completely irrelevant to New Zealand future prosperity. I just wonder why you bang on about them so often. You must know really that for New Zealand to prosper we have to sell things- products, services, services attached to products, License IP etc to people in other countries. So why all the fuss about Privatisations etc. Maybe because there is money in it.
. Any sane person wondering around the UK would realise that this is the ‘home’ of failed privatisations. Water , Rail , the list goes on and on. Everyone at the trough and no one doing any work. That sounds like a good answer for New Zealand.
Corrupted Big 4 accounting firms, Lawyers that have abandoned professionalism for cash. Dodgy banking practices. Oh and the trains are appalling the waster water discharges criminal etc etc etc.
Read something, read Private Eye, Read the FT , John Kay, anybody. Just stop banging on about Privatistations. They won’t makes us rich. Actually that is wrong isn’t it. They will make some of us rich, not many, a few. But that is what this is all about really. A front for a scam. It is sad really. But don’t worry it will probably work.
Not a chat room – comment deleted Trevor