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vie vipoint
Output-Based Education
David C(Oldstote 1w The Evolution of Contracts for Schools in the U.K.
Project D)ilector at
Partnerships U K. Ile has
been involved in projects The private sector has provided investment funding and services for
in the schoot sector and
cnrs-entIl lead.s ajoint U.K. pFublic sector schools through output-based contracts since 1996.
venture wvith the Under these contracts firms provide accommodation and related
Natitonal Health *Servi services, while teachers, still employed by the public sector, provide
that will deliver newzl
investment in ri nimai the core education services. Firms bid their lowest price, and
care facilitie.s eisd payments to the winning bidder begin only when services become
AC rrvies. Partn erTh shpA
U.K. iA a joint ventUre' availatble at defined standards. The contracts have evolved from
helitnen the public and building new schools, to bundling maintenance and rehabilitation
private sectors but zvorks
exclunsivel for the pu,blic across many schools, to setting up information technology facilities
AestOrto develop. procure, under contracts incorporating learning targets for students.
and isnplement pubN oni
P riva te partnernhsip . New schools have traditionally been procured Public-private contracting for
by local governments through input-based con- Box education services
struction contracts specifVing the inputs-or
the entire design-in great dletail. Once a Key features of the output-based approach:
school wasn built,rthe desig cai greatletail d O e a * A competitive bidding process (reputable bidder with
school was built, the local authority and the lowest price and best value for money wins).
school were responsible for maniaginig and * Specification of the outputs required, not the
maintaining the asset and delivering such ser- method of delivery.
vices as cleaning, catering, security, and utilities. * Procurement of a service, not the underlying asset.
But the input-based approach has had a * Allocation of risks to the party best able to manage
rather inglorious history of leading to delays in them.
constrtction, significant cost overruns, and * Value for money as the overriding objective.
maintenanice costs that became steadily less * Value for money assessed over the whole life of the
affordable. A key attraction of the output-base(d asset.
contracts, pioneered by the Private Finance Payment for service as received, not as asset
Initiative in the earlv 1990s for asset-intensive delivered.
t-transport an(l government accommodation
I services, is its focus on outputs-wohatis required
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OUTPUT-BASED EDUCATION THE EVOLUTION OF CONTRACTS FOR SCHOOLS IN THE U.K.
rather than how it is to be delivered (box 1). weighted less than classrooms. Deductions
That transfers the risk of cost and time overruns could also be made if' rooms were available but
from the school and local authority to the con- the performance standardls hadl not been met.
tractor, whiclh is paid only when the otutptuts are Payments are made in roughlv equal install-
delivered. In most cases the private contractor ments (minus any penalties) from the date of'
must raise finance in the private sector to cover first availability over the life of the contract.
the initial construction works. They are partially indexed to reflect the fiact that
Ulnder this approach the contract goes sorne of'the contractor's costs (suclh as runniiing
2 beyond just the provision of the asset-the costs) will rise with inflation, while its capital
school. By transferring responsibility and risk for costs will be incurr-ed early in the contract,
the ongoing management, maintenance, and financed by borrowing at a fixed -ate, and tlhee-
operation of the asset to the contractor, it gives fore do not require indexation.
the contractor the incentive to develop design The next step was to bunldle groUps of'
solutions that take into account the costs of inan- schools into one project. This approaclh offered
aging the asset over its entire life. This ensures a range of benefits, incltding lower transaction
that the contractor does not design an asset that costs for both the public and the private sector.
is cheap to build but unaffordably expensive to Several such projects are now in operation. The
manage and maintain over the rest of its life-as new facilities have generally been deliver-ed on
the public sector often has in the past. tine and to cost andl have met-and in some
This approach offers important advantages cases exceeded-expectations. But the projects
to the government, not only more efficient risk have involved little innovation.
allocation and access to private sector expertise The next stage of contracting began to
but also the deliverv of' new assets without pres- address this issue. The Stoke schools project, coV-
sure on government resources. The approach ering all 122 schools in Stoke on Trenit, dlefined
started later in education than in other asset- its requirements in terms of' standards that
intensive service sectors, largely because local should apply to categories of accommodation in
authority regulations constrained it until 1996. anv school, rather than school by school as in pre-
vious contracts. The specification docunienit was
Single and bundled contracts brief-much briefer than those for many single-
TIhe first stage of the Private Finance Initiative in school schemes, which have typically givenl a lot
U.K schools was an output-based contract for a of detail abotit such issues as site constraints and
single school in the Dorset area of southwest design aesthetics. Covering, as before, only such
England (table 1). This first contract set a prece- areas as thermal comfcort, ventilation, lighting,
dent in defining outputs that has been widely fol- and fixtures, the specifications defined for each
lowed as school projects have evolved. The standard a performance level that would make
contract defined output requirements in terms of the accommodlation available, a level at whiclh it
the conditions that would make a room or space would be available but performanice deductionis
"available" for use, such as the level of lighting, could be made, and a level at wlhiclh it was noni-
heating, and ventilation. It also defined standards available and no payment would be ma(le. By
for ongoing services, such as cleaning, catering, focusing purely on accommodation stanldards,
and building and grotnds maintenance. the local authority gave the contractor- complete
The contractor's incentive to meet the discretion over how to meet the standards.
requirements was established mainly through As a result of the Stoke project's focus on
the fact that payment would occur only when high-level otitputs, the contractor's solution has
the output standard was met. If a space (or the shown mulch more innovation thani those in
entire school) swas not available for use, no pay- many single-site schermes. For example, many
ment relating to that space would be made. schools that the local couincil expected to be
Deductions for nonavailability were weighted to refurbished or repaired are being demolished
reflect the operational importance of different and replaced, because this solution is more cost
areas-with faculty offices, for example, effective over the 25-sear life of the contract.
Table Selected output-based schools contracts in the United Kingdom
Local authority Value (millions
and contract date Schools Requirement Pupils of U.S. dollars)
Dorset 1997 I Repla(e secondary school 1,000 35.6
Stoke, 2000 122 Refurbish or replace all schools 38,000 185.0
Dudley, 1999 104 Provide managed information and 44,000 49.8
communications technology service
for all schools
Glasgow, 2000 29 Refurbish or replace secondary schools 30,000 540.6 3
and provide managed information and
communications technology service
Source: Author's compilation.
The payment arrangements in the Stoke availabilitv of the required services and facilities
scheme have higher-powered incentives too. If for use at the required standards, and usage pay-
nonavailability continues for a long time or ments on the number of pupil log-ins during each
recurs often, the payment deductions can school term. The usage payments are designed to
exceed the total payment for the affected space give the contractor an incentive to make the ser-
and start to eat into payments for other parts of vice utseful to pupils in doing their work: the more
the contract. Thus the contractor's incentive to they use it, the more the contractor will be paid.
meet the output requirements increases as its The learning gain payments increase over
exposure increases. the life of the contract, after performance
benchmarks are established in the early years.
Extending standards to learning In the second half of the contract period, in
Contracts developed from the focus on school years 5-10, 15 percent of the payment will be
buildings to encompass the installation and based on the impact on education outcomes.
maintenance of information and comInunica- This irnpact will be assessed by an independent
tions technology systems across many school third party on the basis of such criteria as pupils'
properties. These contracts have extencled out- and teachers' attitudes about using technology
put requirements to education performance. in learning, attendance levels, and educational
Output standards and incentive structures attainment, includinig performance on national
centering on education performance began with achievement tests.
the Dudlev Grid for Learning scheme. In this By including payments linked to education
project the contractor is providing a managed outcomes, the Dudley contract begins to match
informnation and communications technology the contractor's objectives much more closely
senice-an integrated network, wvith hardwvare with those of the teachers. Equally important
(computer labs with PCs and printers, a PC in from the contractor's point of view, the risk
each classroom) and software (word processing, related to education outcomes is a relatively
spreadsheets), access to email and the Internet small part of the total project risk and so is pro-
for everyone, school administration systeims, user portionate to the level of influence that the con-
support such as data backup and help desks, and tractor's performance can have on education
maintenance. The project includes refreshing outcomes.
the technology over the 10-vear life of the con- A snore recent project, the Glasgow
tract and extending use of the facilities to the Secondary Schools Project, is unique in many
wider community to support lifelong learning respects, but its key feature is its strategic focus
and strengthen community links. on achieving rapid improvemenit in education
Payment for the senice is based on perform- performance across the whole secondary school
ance against availability, usage, and learning gain population in a big city. This project is the onlv
targets. Availability payments are based on the one that has combined a whole system approach
OUTPUT-BASED EDUCATION THE EVOLUTION OF (ONTRACTS FOR SCHOOLS IN THE U.K.
to accomnmodationi requireInients with a require- comparator, thie contractor will do all this for 9
ment ftor fdllv maniaged iniformiationi and coin- percent less cost thani the counlcil could have if'it
mullications technology service. 'T'he Glasuow had car-ied oit the project itself.
schools contract was sigiie(l at the end of July
2000 by the local council and the 3ED consor- Could the scope be widened?
tinin. The principal service providers tinder Better school facilities and tip-to-date techlnol-
MED's contir-act are a constrLctionl company, a o<gy are widely recognized as beneficial in
businiess secrvices firm, and several information education-in boosting students' and teacher-s is an open forum to
and conirmiuntications technology firms. The morale and motivationi, in making modcern edti-
technologp agreement will rln tor 12 years, and cation methods possible, and in enabling teach- public policy innovations for
the accommodation requirements for 30 years. ers to focus on teachinlg ratlher- thanl dealing private sector-led and
With the new technology installed almost imme- with failures in facilities or systems. In this way market-based solutions for
diatelv after the contract was signed. education ontpLit-based schools contracts can have an development. The views
benefits are already being achieved. impact on education outcoMCes-but onil a lim- published are those of the
As in the Stoke project, the foctis on outptuts ited onle. MLuch mor-e importlant than facilities authors and should not be
allows the conitractor to opt for new constrtic- and technology are the quality of teachinlg, the attributed to the World
tion as a way to meet the council's requiirements management of the school, and the natnire of Bank or any other affiliated
for many of the schools in the schieme. The the school's intake, organizations. Nor do any of
connlcil hiad expected 2 of the 29 schools to be Could the scope of' edncationi contracts be the conclusions represent
rebuilt, but the contractor is rebuilding I1. widened? (to so woutl(l require specifications official policy of the World
The specifications and payments relating to and perform-iance and paxment regimiies for coni- Bank or of its Executive
accomnmiodatiori reqnirements are similar to tractors that focIus on educationi outcomiies foi- Directors or the countries
those in earlier school projects. But as in the the pupils. In drawing tip stich regimes, local they represent.
Dudley project, the technology elements of the authorities would have to decide whetlher- to
agreemiienit require the contractor- to enlhance measure perfor-manice against an absolute stan- To order additional copies
ecducation peiforman-ce, andl payment is at risk dard, based on, say, national targets, or- against contact Suzanne Smith,
if it does not. The main emphasis is on avail- a target reflecting the schools' intake and his- managing editor,
ability of the technology service. A sliding scale torical performance. These would be diflficult Room 19-017,
Of penalties tied to the impact of' the problems issues to resolve both technicallv-where to The World Bank,
on the teaching process creates an incenitive to pitch the standards?-andl comnmerciallv-how 1818 H Street, NW,
enstire continuity of service. wotmld the contractor respond to, and price, the Washington, DC 20433.
The Glasgow contract also features a learniing risks involvetd?
gain element, with deductions made if' achieve- Difficult issues touching on education policy Telephone
11 I ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~00 1 202 458 728 1
ments in reading, writing, andl mathemiiatics (in would be raisedl-for example, relating to a con- Fax:
nationial tests for pupils aged 13) do not improve tractor's ability to infitmence a school's intake or
I ~~~~~~~~~~~00 1 202 5 22 3 18 1
by agreed mar-ginis each Near. This elemernt to exclude pupils, and to its employmilenit poli- Email:
accoutnts foronlv 5 percentiofthie payment linlked cies for teachiers. And contractors exposed to ssmith7@ worldhank.org
to thie infor-miiation and communiications technol- risk linked to edlucationi performanice would
oggy, but it is significanit in aligning the interests of want fnll control over the inputs that affect out-
the contractorwith those of the teachers. Asin the comes and so might challenge existing public Printed on recycled paper
Dudlev scheme, the contractor-'s risk relating to sector approaclhes to delivering education
clutication outcomes is supposed to be propor- services-a political hot potato.
tionate to the influience it can brisig to bear.
'I'he contractor's curirent rate of progress sug-
gests that all 29 Glasgow secotndarv schools will
have been replaced, expanded, or refurbished- D1)vid Grodst.oneIm Culdsmn@Przrtners/dIru.ori uk;.
withi lidly managed iniormationi an(d commumni-
cations technology services installed and
operationmal-withiin two xears of the contract
signing. Moreover, according to the published
This Note is available online:
www.worldbank.org/htmil/fpd/notes/