Archive for the ‘Education’ Category

PPP for School Infrastructure: Old Dogs Old Tricks

Is there an answer to the classroom shortage?

Depending on who you ask, the Department of Education’s (DepEd) backlog for school buildings ranges anywhere from 30,000 to close to 200,000. DepEd itself pegs the estimate at 60,000 school buildings and admits that it has no way to fill the shortage on the present budget.

Part of the problem is that the DepEd model for constructing school buildings has always been one of traditional government procurement (i.e., government bids sites to its accredited contractors and pays for them pursuant to terms contained in a supply agreement). This prevents the department from going beyond its allotment and confines it to DPWH designs which are not only outdated but also expensive.

Last year, we introduced a different channel to the Department when our clients submitted an unsolicited proposal for the erection of 300 school buildings in Regions III and IV-A under the Build-Operate-Transfer (BOT) Law. Instead of “acting” on the proposal as the law requires however, the Department archived the proposal and invited private sector to participate in the PPP for School Infrastructure Program (PSIP). This program essentially allows private sector to submit bids for one, two or all three contract packages comprising approximately 10,000 school buildings in pre-selected areas in Regions I, III and IV-A under a Build-Lease-Transfer arrangement spanning 10 years.

There’s be a bit of vicarious nitpicking involved on account of the fact that our consortium desisted from submitting pre-qualification documents at the last minute due to unresolved issues on certain financial aspects of the PSIP. Fortunately, this frees us to discuss some of those very same issues here.

One of the principal concerns for our consortium was the absence of a government guaranty, especially considering the long payout period. The obligation was backed only by a Multi-Year Obligation Authority (MYOA) – a written recognition issued by the Department of Budget and Management that the agency concerned is authorized to enter into a forward obligation but which stops short of a guaranty. The banks were hesitant to backstop the consortium on this kind of security because the obligation was still budget dependent and there was no assurance that Congress would appropriate the amounts needed to finance the lease for a sustained period exceeding the term of the current administration.

At the same time, we felt that government imposed requirements on the contractor which were unrealistic and even illogical. For instance, that the project is based on a BLT arrangement backed by strict performance guaranties means that the transaction is purely turn-key and that non-delivery risk is virtually zero for the government. Yet the DepEd imposed ultra high capitalization requirements and construction experience thresholds which eliminated all but the biggest construction contractors and required smaller players to “rent” the bigger names for the purpose of pre-qualifying. The irony of it is that the big, traditional construction contractors may by themselves not be equipped to handle the delivery of 10,000 schoolrooms spread over¬† 3 geographical regions in one year because the exercise is not at all akin to construction of a large structure in a single (or practically single) site. Rather, the project calls for rapid fire manufacturing of the building blocks, logistics, planning and massive deployment.

Despite all these inconsistencies however, the PSIP is essentially a good idea long in coming and one has to root for the project’s success notwithstanding private loyalties.¬† But having seen the bureaucracy up close, it’s difficult to shake the feeling that we are still a long way from 60,000.