Latest school PPP contract will include a repeat clause

Thursday 9th March 2017

The government's latest public-private partnership contract to build six schools will include a clause putting the winning consortium at the front of a queue to repeat the package when the next bundle of buildings comes to market.

Education Minister Hekia Parata last week said the ShapEd consortium made up of the Morrison & Co managed PIP Fund II, Cimic Group's CPB Contractors and Pacific Partnerships, Southbase Construction, Spotless Facilities Services, ASC Architects and Oculus was the preferred bidder for a six-school build worth $220 million, and sorting out the final contractual details with the ministry.

ASX-listed Cimic later went on to say the agreement was expected to include an expansion mechanism letting the Ministry of Education add additional schools to the project, with a capital value of $200 million.

The schools PPP is the ministry's third and provided the deal goes ahead, would mark Morrison & Co's involvement in all of them. PIP Fund executive director Steven Proctor told BusinessDesk the ministry decided that the winner of the latest contract would be given the opportunity to deliver a second bundle provided the cost and quality of the first bundle was maintained. That means the schools had to be shown that they would be built in a way that could be replicated on another site, and Proctor says ASC's designs were key in winning the contract

"Then they could use costings they got in competition to hold them to account," Proctor said. "It keeps the acid on the private sector to keep the value and the quality."

Morrison & Co's first PIP Fund, which counts the New Zealand Superannuation Fund as a cornerstone investor, raised $176.6 million in 2010. It led the Learning Infrastructure Partners consortium that won the Hobsonville primary and secondary schools PPP in 2013 investing $10 million of equity. The schools were designed as open learning environments and have been operating to expectations. It also won the New Zealand Schools 2 project to build two schools in Christchurch, one in Auckland and one in Queenstown, requiring a $22 million investment.

The latest PPP is for three primary schools in Auckland, and the rebuilt and co-location of Shirley Boys High and Avonside Girls' High schools in Christchurch.

The second PIP fund will only focus on New Zealand investments, and while it doesn't have the Super Fund as an investor, Proctor said there was a large government agency invested with the balance made up of community trusts.

He said he doesn't see any new schools in the pipeline for PPPs over the next 24 months, in part because of the extension clause, and that the next major project will probably be the 1,500-bed facility at Waikeria Prison. Auckland Council's light rail was also a possibility, and the government was still looking at whether there were private sector options for affordable social housing, Proctor said.

"The government's only bringing one or two a year, so it's not growing like a mammoth snowball running down a hill. It's moderate growth," he said. "We're invested in cash flow from the government, and to us, it feels like a good risk. If the whole world goes to hell in a hand basket, the government will probably still pay its rent."

Proctor said the health sector was a big opportunity for PPPs, however, the lack of operational flexibility for hospital management, who couldn't put off maintenance to perform more operations, was an obstacle for them to proceed.

BusinessDesk.co.nz

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