APPENDIX 2
Memorandum from the Department for Education
and Employment (RPS 05)
INTRODUCTION
1. The Government's agenda for raising standards
is dependent upon effective partnerships involving schools, Local
Authorities, business, parents and the community. Business is
already working with schools and Local Education Authorities (LEAs),
to help raise standards in a whole raft of ways, through work
experience opportunities; work placements for teachers; providing
professional advice and expertise through encouraging staff to
become members of school governing bodies or taking part in Education
Action Zone (EAZ) fora; and through sponsorship of schools or
LEA projects in cash or in kind.
2. The Government encourages such partnerships
where they are in the best interests of pupils and in some cases,
such as through the specialist schools and EAZ initiatives and
in ICT, has set in place national arrangements to facilitate and
formalise business involvement and sponsorship. This note does
not deal in detail with the wide range of partnership activity
of this sort—although brief descriptions are set out in
annexes to this paper—but focuses on areas where the private
sector works as formal business partners having a contractual
relationship with LEAs or school governors; this covers Public
Private Partnership (PPP); for capital projects; the provision
of ICT serevices; and private sector bodies working for schools
and LEAs to help them meet their statutory duties.
3. Schools and LEAs have always used the
private sector to provide basic goods and services. Under local
management, school governing bodies control the large majority
of the resources allocated for the education of school pupils.
They have the freedom to choose where and how to purchase, and
every incentive to do so wisely as they can redeploy resources
saved through effective procurement.
4. Under Compulsory Competitive Tendering
(CCT), local authorities were required to subject certain in-house
services to outside competition and as a result a number of LEA
services such as home-to-school transport, grounds maintenance,
and catering services have for some time been provided by private
sector companies in many authorities.
5. Under the Best Value legislation in the
Local Government Act 1999, LEAs will be required to demonstrate
that all their services are competitive. Comparison with what
is available from private sector providers may therefore lead
more LEAs to contract out specific services, including those not
affected by CCT, where this represents better value for money.
School governing bodies are not directly subject to the Best Value
duty but are expected to abide by its principles.
6. The Government has invested huge amounts
of money in education and expects to see improved standards as
a return on their investment. If private sector involvement in
the delivery of school and LEA services can deliver a better return
on that investment then the Government welcomes it.
7. The legal context for contracting out
is set out in detail below but Government has made it clear that
local authorities and governing bodies must bear three general
principles in mind in considering the use of outside contractors:
the law does not allow them to abandon their responsibility for
raising standards; the choices they make about how to carry out
that responsibility must be motivated by the best interests of
pupils; and they must ensure that any expenditure represents the
best possible value for money.
8. As well as the possibility of voluntary
decision by LEAs to contract out the delivery of their services,
the Secretary of State now has powers under the School Standards
and Framework Act 1998 (SSFA), to direct LEAs to contract out
services, where he is of the opinion that the current discharge
of the LEA's functions is inadequate. The Secretary of State will
make such decisions in the light of his own judgement about whether
the involvement of the private sector is the best way to secure
urgent and lasting improvements in services which the LEA has
itself failed to deliver to an adequate standard.
THE LEGISLATIVE
BASIS FOR
PRIVATE SECTOR
INVOLVEMENT IN
SCHOOLS AND
LEAS
9. Governing bodies may contract with a
private sector provider to provide goods and services, and advice
and consultancy including support for the management of the school.
They have a general duty to spend their delegated budgets for
the benefit of the pupils at the school. Local decision-making
allows them maximum flexibility to do this in the most cost-effective
way, which may include the use of services provided by the private
sector. However, whatever services are purchased the statutory
powers and duties vested in the governing body as a legal entity
remain with the governing body and do not transfer to the contractor.
Governing bodies cannot contract out the running of a school.
The contractor can, therefore, only have an advisory rather than
decision making role. For example, if a contractor runs the recruitment
and selection procedure for a new head teacher, the governing
body must decide which candidate to appoint.
10. Except where legislation specifically
allows, local authorities (including local education authorities)
are not permitted by law to delegate their statutory functions.
This means that the employees or elected Members are responsible
for taking all decisions relating to the LEA's statutory powers
or duties. An LEA can buy in advice to assist it in decision making,
but the decision itself cannot be made by an outside organisation
or individual. For instance, an LEA could obtain advice from outside
education specialists on ways of improving standards in the LEA's
schools, but strategic decisions, including approval of the draft
education development plans and other strategic plans must be
made by local government officers or elected Members.
11. The specific statutory exceptions to
the above rule are as follows:
— Secretary of State for Education
and Employment makes a direction under s.497A of the Education
Act 1996;
— LEA decides to contract out particular
functions in line with an order made by the Secretary of State
for the Environment, Transport and Regions under s.70 of the Deregulation
and Contracting Out Act 1994, permitting the contracting out of
particular education functions;
— Secretary of State for Environment,
Transport and the Regions uses powers under Local Government Act
1999 to direct that certain functions of a particular local education
authority should be exercised by another person.
12. These exceptions are explained in more
detail below:
DIRECTION UNDER
S.497A OF
THE EDUCATION
ACT 1996
— Section 8 of the School Standards
and Framework Act 1998 inserted a new section 497A into the Education
Act 1996. Where the Secretary of State is satisfied that a local
education authority is failing to perform particular education
functions to an adequate standard he can direct that the function
should be performed by someone else. He could decide to direct
that the LEA should enter into a contract with a private sector
provider who would then carry out specified education functions.
The direction can allow for specified statutory powers and duties
relating to education to be carried out by the private sector
provider rather than by the local education authority;
— The Secretary of State's direction
making power under s497A covers education functions of the local
education authority relating to the provision of education for
children of compulsory school age and for those above/below compulsory
school age who are registered at LEA schools. The Secretary of
State's direction making power does not therefore cover all functions
commonly carried out by an LEA eg early years services and the
youth service/lifelong learning;
— Where the Secretary of State directs
that particular "failing" functions should be performed
by someone other than the LEA, then he may also direct that additional
education functions, within the scope of s497A, should be exercised
by the same person who will take over the failing functions if
this is "expedient" eg if contracting out a larger package
of functions would deliver better value for money, or if the successful
delivery of the function is dependent upon effective co-ordination
between that and other functions.
13. Other situations in which an LEA can
contract out statutory functions:
— s70 of Deregulation and Contracting
Out Act 1994 allows for the Minister to make an order allowing
for the contracting out of particular local authority functions.
No such order has yet been made in relation to education functions;
— The Local Government Act 1999 contains
similar powers in relation to wider Local Authority functions
to those in 497A of the 1996 Act described above. These powers
have not yet been used.
WHAT HAS
HAPPENED TO
DATE?
Provision of ICT Managed services
14. Annex 4 sets out a range of ways in
which ICT companies are working in partnership with the education
sector to encourage new developments. We are careful to ensure
that sponsorship activity does not distort the emerging market.
But it is clear that not all school governing bodies are able
to make sensible purchasing decisions in this fast-changing area.
We have therefore taken steps through BECTA's kitemarking of managed
ICT services to ensure governing bodies have a choice of high
quality and reliable private sector providers from which to choose.
Managed Services allow schools and other learning institutions
to benefit from the same supply methods available to larger institutions.
They simplify procurement, so that schools have only a one-stop-shop,
and can budget ahead on the basis of regular fixed payments and
they lever improvements in quality of services and value for money.
The National Grid for Learning (NGfL) managed services include;
equipping and networking schools; internet access provision; operational
software; installation, testing and certification of readiness
for use; servicing and technical support; training and commissioning;
and compatible "home learning centres", also available
for teachers and parents.
Public Private Partnerships (PPP)/Public Finance
Initiative (PFI)
15. The Government has a manifesto commitment
to use Public Private Partnerships (PPP) to improve school buildings.
PPPs cover a wide range of activities in which the public and
private sectors work together. This includes approaches under
the Private Finance Initiative (PFI), but can also extend to other
forms of partnership. To date, 10 PPP projects to provide improved
buildings or facilities covering 200 schools have signed contracts.
Eight of these projects have been the standard PFI model, the
remaining two are other types of PPP schemes.
16. Approximately 30 other PFI projects
are at various stages of procurement. DfEE Ministers have recently
announced a further 17 projects that will receive support once
their Business Case has been approved by the Treasury chaired
Project Review Group (an interdepartmental body set up in response
to one of the recommendations of the first Bates review of PFI).
This brings the total number of projects supported by DfEE to
over 50, providing a total capital investment of more than £1
billion.
17. Unlike traditional procurement and because
of the ability of the LEA to vary the fee according to performance,
PFI can provide opportunities to engage a private sector partner
in raising educational standards. For example, the Dudley IT project
provides enhanced information technology facilities to all 105
of Dudley's maintained schools. The contract directly engages
the private sector partner in raising educational standards by
linking an element of the PFI fee to measurable improvements in
Key Stage tests and other exam results. After an initial period
for baseline assessments the percentage of the fee paid on improvements
in standards rises to a maximum of 15 per cent of the PFI fee.
Contracting Out Local Education Authority Services
18. Following Royal Assent for the School
Standards and Framework Act last summer, DfEE began to prepare
for potential intervention were that to become necessary. On 8
January the Secretary of State announced his intention to advertise
for consultants, contractors and other bodies to express an interest
in working with failing LEAs or in taking over the delivery of
functions. Following a rigorous procurement process, DfEE established
framework contracts with six consultancy firms able to provide
advice on failing LEAs: KPMG; Lorien; Capita; Office for Public
Management (OPM); PricewaterhouseCoopers; and Arthur Andersens/Birmingham
LEA. Four of the six are private sector organisations, one (Arthur
Andersens/Birmingham LEA) is a private/public sector partnership
and one (OPM) is a non-profit making company limited by guarantee.
19. DfEE also agreed an approved list of
10 organisations capable of delivering the functions of a failing
LEA; Arthur Andersens/Birmingham LEA; Cambridge Education Associates;
Nord Anglia; Hampshire LEA; The Education Partnership; Capita;
CfBT; Essex LEA/Windsor and Co.; Include; and CEM Consortium.
Of the 10, six are private companies, two are private/public sector
partnerships and 1 (CfBT) is a charity.
20. To date, the Secretary of State's powers
of intervention under the School Standards and Framework Act 1998
have only been used in relation to Hackney LEA. Following the
appointment of consultants KPMG, who advised on how the intervention
should be taken forward, the Secretary of State directed the LEA
to contract out two services, the School Improvement Service and
the Ethnic Minority Achievement Service. A further three services,
finance, ICT and personnel were reserved for close monitoring
by DfEE with the proviso that if services were not improved, they
could be added to the SIS and EMAS contract. A procurement process
was undertaken to appoint a suitable contractor. NordAnglia were
awarded the contract and started work in the LEA in July. Their
contract runs until July 2002.
21. Following Islington's Ofsted inspection
report in May 1999, PwC were jointly appointed, by the LEA and
DfEE, to work up the scope of functions to be contracted out—the
majority of the LEA's services to schools—to specify those
services and to produce other tender documentation. Four providers/consortia—Andersens/Birmingham
LEA, CfBT/Windsor & Co/Essex LEA & Include, CEA/Hammersmith
& Fulham LEA and Nord Anglia—have been invited to tender.
Invitations to tender were issued on 1 September, to be returned
in late October. Following clarification and evaluation of bids,
and selection of and negotiation with a preferred bidder, the
intention is to contract by Christmas for full operation by April
1999 at the latest.
22. Following its Ofsted inspection report
in July 1999, Liverpool LEA has been working with the DfEE and
consultants KPMG to agree the nature of action to be taken. KPMG
are drawing up specifications for services which may be outsourced.
A final decision on outsourcing will be taken in December in the
light of any improvements the LEA has been able to bring about
and consultation with local schools.
23. Following its Ofsted inspection report
in August 1999, Leicester City LEA and DfEE have appointed the
consultants OPM to take forward work on the best solutions for
the problems experienced by the LEA. The consultants are due to
report in October.
Private Sector Involvement in the Running of Schools
Kings' Manor
24. Kings' Manor (an 11-18 comprehensive
school) was placed on special measures in July 1998. The LEA intends
to establish a new school to replace Kings' Manor in September
2000 and proposals were published to this effect in April 1999.
The Secretary of State approved the statutory proposals to establish
the new school on 8 October 1999. The new school will be a non-denominational
aided school supported by a charitable foundation. Surrey LEA
sought private sector help to establish the new school, a function
the LEA would ordinarily perform itself, and invited applications
from a number of companies. The contract was awarded to 3Es Enterprises,
a trading company set up by Kingshurst CTC in Solihull, which
will recycle profit back into the CTC and the new school which
replaces Kings' Manor. It has proposed the new voluntary aided
school and will provide consultancy and advice to the LEA to set
up a charitable foundation, which will appoint foundation governors;
and it provide support to the new school on behalf of the LEA.
Its contract is with the LEA, and will last for 10 years. The
governing body will remain entirely responsible for all key decisions.
Rams Episcopal
25. Rams Episcopal School was inspected
and placed in special measures in April 1995. Following the resignation
of the headteacher in July 1998, Hackney LEA invited CfBT (Centre
for British Teachers) to provide support for the school. The one-year
contract included the provision of an acting head as well as consultancy
support to implement the school's action plan. The contract came
to an end in July. A new permanent headteacher is now in post.
THE BENEFITS
OF PRIVATE
SECTOR INVOLVEMENT
26. Private sector involvement will only
happen where either the school or LEA makes a judgement, in line
with Best Value and the general principles set out in paragraph
7, that this is the best way of delivering its responsibilities;
or where the Secretary of State has made that judgement in the
case of an LEA which is failing to discharge one or more of its
functions adequately. In such cases the private sector will be
able to bring some or all of the following:
— economies of scale and specific specialist
expertise not available in the LEA or governing body;
— experience in a range of authorities
or schools facing similar issues;
— new and more rigorous approaches
to performance management based on a clear output specification;
and,
— improved personnel (although where
TUPE applies the employment rights of existing staff will be preserved).
PROCESS AND
CONSULTATION
27. If an LEA volunteers to use private
sector contractors for any purpose, locally agreed procedure and
specific requirements of local government law relating to the
award of contracts must be followed.
28. Where an LEA is deemed to be failing
to discharge its functions adequately and the Secretary of State
is minded to use his powers under s497A of the Education Act 1996,
he will give the LEA an opportunity to set out an action plan
for improvement, unless the severity or the persistence of the
failure makes it necessary to intervene urgently. Before using
his powers, the Secretary of State will consult the LEA on the
action he is proposing to take.
29. Surrey LEA invited applications from
private sector organisations to assist the LEA in setting up a
charitable foundation to draw up proposals for a new voluntary
aided school, to replace Kings' Manor. This process required the
publication of statutory proposals allowing a period of two months
for objections to be made. All proposals for voluntary schools
under current arrangements require the approval of the Secretary
of State. Before proposals are published, prospective proposers
are required to consult such persons as they consider appropriate,
taking account of guidance given by the Secretary of State. This
includes parents, staff governors, and other schools likely to
be affected by the proposals. Our general view would be that improving
a weak school is bound to have an impact on other schools, such
as influencing parental choice, but this is no argument for allowing
a school to carry on failing.
30. From 1 September 1999, once a school
organisation plan for an LEA area has been approved by the local
School Organisation Committee, and proposals published after than
date will be decided by that Committee (which represents the main
providers of education locally—the LEA, the Diocese, school
governing bodies etc) or by an independent Adjudicator if the
Committee cannot reach agreement. A School Organisation Committee
or Adjudicator must have regard to guidance issued by the Secretary
of State when considering the proposals.
ACCOUNTABILITY AND
EVALUATION MECHANISMS
31. Where a private sector company is involved
in supporting a school such as Kings' Manor school, the LEA and
the governing body remain responsible for the discharge of all
of their respective statutory powers and duties. Evaluation of
the performance of the private sector provider will be a matter
for the contract between the LEA and the contractor, which will
typically contain targets and performance measures against which
the performance of the private sector provider will be evaluated.
32. The school itself and the LEA will continue
to be inspected and reported upon by Ofsted. The inspections will
include inspecting the work of the private sector contractor where
this relates to school improvement activities.
33. Similar targets/performance measures
will apply to the contracting out of other LEA functions. The
contract between Nord Anglia and Hackney LEA contains financial
penalities for failure to meet contract requirements and performance
bonuses for achievements in excess of specified targets. These
penalties and bonuses are linked to achievement of the LEA's Education
Development Plan (EDP), targets as well as a number of other performance
measures.
Department for Education and Employment
September 1999
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