Lessons from Edinburgh Schools PFI

On 29 January 2016, during Storm Gertrude, an external wall at Oxgangs Primary School in Edinburgh collapsed, shedding 9 tonnes of masonry onto the pathway below. Oxgangs was immediately closed pending an investigation as to the reason for the collapse, and to allow for the school to be made safe.

Oxgangs was one of 16 other schools (together with a secure unit and a community centre) that were part of the public private partnership contract between the City of Edinburgh Council and Edinburgh Schools Partnership Limited (ESP), and these schools were also later closed pending an investigation as to whether defects at Oxgangs also present in other schools within the ESP portfolio.

In the immediate aftermath of the collapse, the finger of blame was pointed at the PPP contract structure. However, the independent inquiry launched by Edinburgh Council into the issues surrounding the collapse concluded last month that the primary cause of the collapse was poor quality construction in the building of the wall, and specifically defects in the wall ties which had not achieved the required minimum embedment of 50mm, particularly in the outer lead of the cavity wall. Similar issues had been experienced at other non PFI/PPP schools in Edinburgh in the years preceding the collapse at Oxgangs.

However, whilst the view of the Inquiry was that the financing method was not responsible for the defective construction, it concluded that there were aspects of the way in which the PPP methodology was implemented on the project that increased the risk of poor quality design and construction, but that there was nothing unusual in the Edinburgh schemes that was any different from other PFI/PPP schemes procured at the time.

The role of the Independent Certifier

Given that the report identified that highly professional and competent teams of structural engineers had been unable to identify the serious defects in the walls by detailed visual inspections, the Inquiry spent some time focusing on the role of the Independent Certifier ("IC").  In most PPP/PFI projects the IC is appointed jointly by the public sector and the private sector consortia to certify (amongst other things) that the building as constructed satisfies all the requirements of the project documentation.  As such, what the report concludes in relation to the IC's role is relevant to both the public and the private sectors, both of whom rely on the IC's certification.

The report concludes that:

• A fundamental weakness of the design and construction process was the lack of properly resourced and structured scrutiny of the building work at the appropriate level of detail. There was a misplaced assumption made by the Council and other parties regarding the level of assurance one could place on the quality of construction as a result of the role undertaken by the IC.
• The appointment of an IC in no way replicates the level of close on-going independent scrutiny or inspection of construction that is provided by a Clerk of Works services which, as circumstances would indicate, was required on these sites. The Inquiry was of the view that extending the range of services required in the appointment of ICs to include the provision and management of Clerks of Works services was an option that should be considered to overcome the types of issue experienced in this PPP.
• Insufficient attention was paid by ESP and its relevant sub-contractors to the accurate documenting, storage and maintenance of as-installed drawings and related records of the schools. This led to a more extensive remediation process than would have been required had this documentation been readily available as required by the Contract. This was so despite the fact that in most cases the availability of proper as-installed drawings and O&M manuals should be a pre-requisite tothe IC's certification of the completion of the construction phase.
• It was insufficient for public sector clients, with a responsibility to protect the safety of the communities they serve, to so largely rely on the quality assurance processes of contractors for confirmation that key aspects of the building impacting on users have been properly constructed. An appropriate level of independent scrutiny was missing. In our view the same point applies to private sector consortia who pass down the quality assurance processes to their supply chain partners.

Remedial works, deductions and damages

Despite the Inquiry's conclusions in relation to independent quality assurance during the construction process, it is clear from the details in the report that the risk transfer intended by the PPP project operated successfully.  The report highlights that the cost associated with the remedial works arising from the collapse of the wall at Oxgangs, and the discovery of defective construction in all 17 schools and the responsibility for implementation of the necessary remedial works was borne by ESP, demonstrating the application of the risk transfer to the private sector.

Nevertheless, it appears from the report that there are ongoing issues in relation to sums due to Edinburgh Council as a result of the defects identified and the requirement to close the schools. The report indicates that not only did the Council make a series of deductions from the monthly payments due to ESP under the Project Agreement throughout 2016 totalling just over £5 million, but that they also claimed their costs arising from the defectives in addition to the contractual deductions.  In doing so the Council stated that they were differentiating between deductions, being a contractual adjustment to the payment stream, and damages for breach of contract.

We anticipate that the logic is likely to be that the Authority are entitled to make deductions from the monthly payment as a result of any failures to provide the Services under the Project Agreement (being the provision of hard facilities management services during the operational phase), but that deductions from the monthly payment do not compensate the Authority for breach of contract arising from the Works (i.e. the defects in the construction).  It remains to be seen whether the Council are able to establish an entitlement to both deductions and damages, but if they are successful it could have wider implications for other PFI/PPP projects for both public and private sector.

Other defects

In common with many other PFI/PPP building, defects in the fire stopping installed at each of the schools were identified and a remedial programme of works was undertaken by ESP during the course of the Inquiry into the wall collapse.  The Inquiry made a number of findings/recommendations in relation to the fire stopping issues as follows:

• Given that, for some considerable time, there had been relatively widespread knowledge within the PFI industry that defective fire-stopping had been discovered to be a potentially problematic issue in PPP schools and hospitals, it was surprising that ESP had not taken a more proactive approach at an earlier stage to establish the condition of fire-stopping in their schools.
• The discovery of defects in the fire stopping should not have required a proactive request from the Council for reassurance on the issue and that breaches of the fire-stopping should have been identified and remedied much earlier through appropriate on-going inspection of the premises by the facilities management company.
• Remediation of the fire stopping should be the subject of an inspection by a fire safety expert jointly appointed by the Council and ESP to confirm that all necessary remedial work has been done and that it has been done to the required standards. This links back to the point made by the Inquiry in relation to over reliance on a contractor's quality assurance processes, and that a greater degree of independent scrutiny is required.
• The Council should require appropriate frequent on-going inspections of fire stopping are undertaken to ensure proper maintenance over time.

Conclusions

It is clear that one of the primary themes from the report is that there should be an appropriate level of scrutiny of the delivery of the requirements of PPP/PFI contracts by the public sector.  These types of contract are traditionally "self-monitoring" but in our view the terminology used may have led to a false level of assurance as self-monitoring certainly does not mean "no monitoring" or even "very little monitoring" by the public sector.  As is evident from the conclusions reached in the Edinburgh schools Inquiry, public bodies cannot rely entirely on their private sector contractors without a level of independent scrutiny, particularly in areas that may have an impact on public safety.

Equally, for private sector consortia, the report demonstrates the risks of relying on the quality assurance processes of their supply chain.  It's worthy of note that the limitation period under the Construction Contracts in phase 1 of this PPP had expired and so it is unlikely that ESP will have been able to pass their (probably substantial) losses through to the original construction companies.  Interface Agreements between the Project Company, Construction Company and FM Provider are common, and that may mean that deductions that ESP could not recover from the Construction Company have been passed instead to the FM Provider, but the effectiveness of such arrangements is dependent on the terms of each individual contract.  Needless to say, the occurrence of construction phase defects after the limitation period is bad news for the Project Company or the FM Provider, or both.

As Edinburgh Council noted at the time the report of the Inquiry was published, “The Council, our public and private sector partners both in Scotland and across the United Kingdom, need to take on board the issues raised and address the concerns highlighted in the report as they have far-reaching implications for the construction industry.”

If you would like further information about the topics discussed in the article above, or how they affect your organisation, please contact Louise Robling.