College deal agreed under Scots Non-Profit Distributing model

3 Jul 13
Work has started on a public project financed under Scotland's non-profit funding model after the deal to build the £47m Inverness College was struck in record time.

By Keith Aitken in Edinburgh | 3 July 2013

Work has started on a public project financed under Scotland's non-profit funding model after the deal to build the £47m Inverness College was struck in record time.

Inverness College

The Scottish Futures Trust, which developed the  Non-Profit Distributing (NPD) financial model as an alternative to the unpopular Private Finance Initiative, sees the college as proof that the NPD has come of age. In its early days, the trust was widely criticised for the time it took to replace the PFI, and there was scepticism that NPD could be a practical option.

Further NPD projects on a similar or bigger scale, worth a total of £2.5bn, are also in the pipeline, including a £200m Glasgow college. Major improvements to the Scottish road network and a number of new health care facilities are also planned.

The process for Inverness College, which is part of the University of the Highlands and Islands, took 17 months from initial tender to financial completion compared with the 18-month target the Treasury set for PFI deals and the 25-plus months these schemes typically take.

Peter Reekie, director of finance at the SFT, told Public Finance: 'This was a really, really fast procurement process for this kind of job.

'This was the first stand-alone project in the NPD programme that was announced in November of 2010, which means it's been the test bed for our thinking on a new way of doing things in respect of revenue-funded projects in Scotland.'

The NPD raises finance for major public projects against future revenue budgets. There is no dividend-bearing equity, and returns to the private sector are capped; any surplus reverts to the public purse.

Reekie believes a key element in its successful use at Inverness has been to simplify the bidding process -- and therefore the risk allocation. The traditional contest between competing designs has been replaced with a single 'reference design' commissioned by the public authority (in this case, the college) and inviting tenders to deliver it, generally with only minor agreed variations.

'The process of three bidders developing designs in the tendering stage suck up resources, not least from all the people who will use the building at the end of the day,' he said.

This system is increasingly being taken up south of the border, notably for building new schools.

Two further innovations are, first, to ensure the project team includes at least one member with personal PFI experience; and secondly, to conduct a ‚'key stage review', to be overseen by the trust, at each stage in the project to make sure everything is in order before moving to the next stage.

Reekie sees the former as a way of levelling the contractual playing field: 'It gives the public sector the same level of expertise as the private sector developers who do these things all the time. We're now making it conditional of this kind of finance that they take on procurement skills.'

On the key-stage review process, Reekie stressed that the trust's role was a supportive one.


CIPFA logo

PF Jobsite logo

Did you enjoy this article?