Transfer of Surplus Land in the PFI Education Pathfinder Projects

A report published today by John Dowdall CB, the Comptroller and Auditor General forNorthern Ireland, highlights concerns over the transfer of surplus land to the private sectorin four of the five Education PFI Pathfinder contracts. Although £23 million was generatedfrom the transfers and a further £3.8 million secured through clawback clauses built intothe contracts, Mr Dowdall concludes that the public sector could have done more tosecure value for money.

Key Findings

The Report identifies some important lessons for public bodies. These include the need to assess the relative returns and priority between inclusion of surplus assets in any PFI deal and conventional disposal and the importance of properly assessing the contribution
these assets may make to the achievement of other strategic priorities and objectives. The report considers that the development and implementation of an effective estates strategy for Northern Ireland is crucial to maximizing the benefits to be derived from the public sector estate. On the specific Pathfinder projects the report found:

Market Value may not have been obtained for surplus lands

The report records that in the four contracts examined, surplus land may have been transferred to the private sector operators at less than market value - these transfers formed part of the deals to provide new educational facilities. NIAO estimates this shortfall to be in the region of £4 million at contract signature. According to NIAO, a contributory factor was the absence of up to date land valuations prior to contract signature. For example, NIAO’s examination of the transfer of lands on the Rosetta site (part of the Wellington site) found that the valuation was completed 10 months before the site was transferred and was based on incorrect information as to its size. The report sets out the factors which were considered by the public authorities at the time of the deal.

NIAO considers that maximising the value of the land in advance of negotiations through, for example, obtaining enhanced planning permission, may have strengthened the Departments’ and Boards’ negotiating position in these deals. It also considers that disposal through public auction might have provided a better measure of market value. The report recommends that for major projects at least two independent valuations should be obtained, including one from the Land and Property Services (formerly the VLA).

Clawback arrangements were in place, but they were not fully effective

The NIAO report also highlights the importance to public bodies of having controls in place to protect their future interests in the event of the onward sale of transferred surplus land or its development by the private sector. In the Pathfinder Projects, while clawback arrangements were put in place, NIAO considers that they were not fully effective. The report records that the Wellington/Balmoral contract is the only one where clawback has been secured to date. Although £3.8 million was secured by the Belfast Board, NIAO estimates that this, plus the £19.8 million received by the Board for the land at contract signature, is only £400k in excess of NIAO’s estimate of the value of the lands at contract signature six years earlier. NIAO considers that, on the basis of estimates at the time of
the Agreement in 2000, greater benefits from clawback could potentially have been realised.

The report stresses the need for public sector bodies to be able to demonstrate that they have secured the best deal available and obtained value for money in the negotiation process. It concludes that the Departments and Boards could have done more to secure value for money from the transfer of land in these projects.