Part 4: Overseeing capital projects and maintenance
4.1
In this Part, we examine the Ministry’s overseeing of capital projects and maintenance.
Overseeing capital projects
4.2
The Ministry raises capital funding for property from depreciation, additional funding through Vote Education, and proceeds from the sale of surplus school property.
4.3
Based on information provided by the Ministry, the total amount that has been allocated in 2005-06 for capital works is $405.5 million.
4.4
We expected that:
- the Ministry’s framework for overseeing capital projects would provide adequate control, and give assurance that capital projects were managed in keeping with good practice in the public sector; and
- the Ministry would encourage schools to seek environmentally and economically sustainable solutions to desired capital projects.
4.5
We found that:
- The Ministry’s framework for overseeing capital projects incorporates controls that on the whole meet standards of good practice for managing capital projects in the public sector.
- Network Development Officers and Network Facilitators are responsible for checking that schools follow the Ministry’s written guidance for managing capital projects.
- Apart from financial thresholds, the Ministry does not have a risk-based approach to determining whether schools should be required to employ professional project management services.
- The Ministry has implemented a review of “good practice” capital projects. However, its capital project framework does not include reviews of completed capital projects to determine the effect on the overall condition of the property portfolio, and the broader contribution of completed projects to the achievement of the Ministry’s strategic objectives for property and vital outcomes.
- School boards and principals find the 5-year property planning process useful, and the quality of 5-year property plans has improved since the plans were first introduced.
- The Ministry needs to do more to encourage schools to address environmental and economic sustainability issues.
4.6
The Ministry requires school boards, when undertaking capital projects, to:
- comply with the Ministry’s Project Management System (this requirement is set out in the Property Occupancy Document);
- comply with more detailed guidance included in the Property Management Guidelines on the main stages of the Project Management System – planning, implementation, and completion – as well as general practical advice about managing capital works programmes;
- keep accurate records and evidence to show that they have followed the project management methodology;
- undertake effective and efficient purchasing through a transparent competitive tendering process; and
- comply with Design Standards Guidelines, which outline the legislative requirements and special requirements set by the Ministry for building design, to ensure that school buildings are safe and fit for their purpose.
4.7
As described in Figure 2, the Ministry has produced a number of guidance documents to assist school boards in managing a wide range of property projects, including capital upgrades.
Monitoring of capital projects by the Ministry
4.8
The Property Management Guidelines remind school boards that the Ministry is both the owner of school property (representing the Crown) and the project funder. The Ministry therefore has an interest in knowing that completed projects are safely constructed, that the money has been spent on the work for which it was allocated, and that the Ministry achieves value for money.
4.9
The Property Management Guidelines require school boards to contact the Ministry at specified milestones during the progress of capital projects, including when:
- setting the budget and planning the project;
- tendering and letting the contract; and
- the project has been completed.
4.10
Contact points and the information that school boards are required to supply to the Ministry are specified. Payments made to schools by the Ministry for the next part of the project depend on the Ministry being satisfied that its requirements have been met and that the school has complied with good practice.
4.11
Our interviews with Network Facilitators and review of records kept in the PMIS confirmed that the Ministry actively monitors compliance with these requirements. However, we found inconsistencies in the way that Network Facilitators undertake this task. As stated in paragraph 2.26, we consider that documented business processes should be produced for Network Facilitators. We understand that the checks undertaken by the Ministry are being reviewed as part of its current review of its framework for overseeing capital projects. We consider that the required checks should be described within these documented business processes.
4.12
The Ministry has implemented reviews of completed “good practice” capital projects to assess the reasons for projects being carried out effectively and how staff and students view their success. The Ministry now needs to extend its overseeing of completed capital projects to review both their effect on the overall condition of the school property portfolio and their broader contribution to the achievement of the Ministry’s strategic objectives for property and vital outcomes.
| Recommendation 14 |
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| We recommend that the Ministry of Education extend its overseeing of capital projects to include reviews of completed projects that determine both their effect on the overall condition of the school property portfolio and their broader contribution to the achievement of its strategic objectives for property and vital outcomes. |
Effectiveness of 5-year property planning from the schools’ perspective
4.13
Since 5-year property plans, used as the basis of 5-year capital funding agreements between school boards and the Ministry, were introduced, school boards no longer have to lobby the Ministry annually for money.
4.14
Representatives of school boards and principals that we interviewed considered that 5-year property plans were useful documents. They require schools to plan ahead and link property projects to their strategic priorities.
4.15
Network provision staff considered that transparency had improved since the Ministry began using common formulas for determining the amount of capital funding provided to individual schools, and because information about the funding allocated to each school is posted on the Ministry’s website.
4.16
School boards are also able to use 5-year property plans to measure their progress in implementing their capital programme.
4.17
Network provision staff considered that the quality of 5-year property plans submitted by school boards had improved since the policy was first introduced in 2000.
Use of property experts
4.18
School boards are not expected to be property experts. They are expected to employ property experts to assist with preparing their 5- and 10-year property plans, and the Ministry provides schools with a financial contribution towards the cost of doing so.
4.19
School boards are also required to employ professional project managers for large capital projects of more than $250,000, and are advised to employ them for medium projects costing between $50,000 and $250,000. However, this does not relieve school boards of their responsibilities to ensure that projects are managed in accordance with good practice in the public sector – such as the use of open and transparent contracting arrangements.
4.20
The Project Management Guidelines acknowledge that there may be individual school board trustees or other parents of children attending the school with the knowledge and experience to manage capital projects. The Project Management Guidelines clearly set out the legal and ethical implications of doing so, including a reference to the need to avoid conflicts of interest. For example, a conflict of interest might arise through someone acting as both a school board trustee and a project manager paid by the school board.
4.21
Some network provision staff we interviewed observed that projects are not always well managed when school boards do it themselves. They suggested that, in addition to the existing financial thresholds, the Ministry should take a risk-based approach to determining whether a school board should be required to employ a professional project manager. We support this view.
| Recommendation 15 |
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| We recommend that the Ministry of Education identify the main risks for network provision staff to consider when determining whether a school should be required to appoint a professional project manager to manage capital projects, and review its policy to enable these risks to be taken into account as well as existing financial thresholds. |
Encouraging environmental and economic sustainability
4.22
Considering the sustainable implications of a capital project involves assessing both the long-term and short-term environmental and economic effects of the project.
4.23
Incorporating sustainable features into new or modernised properties can help to improve the environmental performance of those properties and significantly reduce ongoing operational costs. The Ministry does not require schools to make an assessment of whole-of-life costs when preparing proposals for capital projects. Nor does it require them to consider long-term maintenance requirements and how these might be reduced.
4.24
The Ministry allocates a percentage of the overall capital budget for sustainable features in new schools. This is not the case for capital projects at existing schools. We understand that the Ministry is currently undertaking a project to produce a sustainability policy for existing schools, and that it plans to incorporate sustainability as part of the preparation of its Performing Classrooms initiative. We suggest that the Ministry considers offering budgetary or other incentives to schools undertaking capital projects to improve environmental and economic performance.
| Recommendation 16 |
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| We recommend that the Ministry of Education encourage all schools to improve the economic and environmental performance of their property by requiring them to calculate the whole-of-life costs of capital projects. |
Overseeing maintenance
4.25
We expected that the Ministry would:
- have adequate arrangements to provide assurance that the school property portfolio is being maintained to standards that protect the property portfolio in the long term;
- monitor how schools are using maintenance funding to ensure that they achieve value for money;
- monitor the continuing validity of formulas used to allocate maintenance funding to schools;
- have adequate arrangements for ensuring that school boards comply with health and safety requirements;
- encourage school boards to improve the environmental and economic performance of their school property through regular maintenance; and
- provide guidance to schools about entering into maintenance contracts.
4.26
We found that:
- The Ministry’s overseeing cannot provide it with assurance that school property is being adequately maintained. However, the Ministry is aware of this issue. It is taking action to improve this, initially through a pilot audit of a sample of 200 schools (see paragraphs 4.35-4.37).
- The Ministry does not systematically monitor how schools are using maintenance funding to ensure that they achieve value for money.
- The Ministry does not monitor the continuing sufficiency of the existing formulas used to allocate maintenance funding to schools.
- The Ministry has sound arrangements for ensuring that schools comply with health and safety requirements for property.
- The Ministry could provide more information to schools about how to improve the environmental and economic performance of school property through maintenance.
- The Ministry provides guidance to schools about entering into maintenance contracts, but needs to enhance this guidance by including information about the risks of entering into long-term contracts.
Adequacy of overseeing of maintenance
4.27
Our 2001 report found that the Ministry needed to significantly improve the information it had about the maintenance that school boards undertake and the overall condition of the school property portfolio. The Ministry still needs to address this.
4.28
Between 1990 and 2000, the Ministry spent more than $500 million on deferred maintenance. Although the Ministry is confident that schools are being well maintained and that this situation will not arise again, it has no firm evidence to support this confidence. The Ministry does not hold information about the maintenance that is being undertaken by school boards and the condition of school property at an individual school or aggregate portfolio level.
4.29
We consider that the Ministry should hold this information, and regularly update it, to monitor any changes in condition over time, and to identify additional resources that may be required to maintain property to an acceptable standard in the future. This is particularly important because of the Ministry’s responsibilities as guardian of the Crown’s ownership interest (it recognises the value of the school property portfolio it has funded on its balance sheet), and because of risks associated with the fact that its responsibilities for carrying out maintenance have been delegated to school boards.
4.30
School boards are required to produce a cyclical maintenance plan as part of their 10-year property plan. The Ministry has identified a number of benefits of requiring schools to do this, including making sure that they budget for maintenance over a number of years, and providing continuity despite trustees on school boards changing.
4.31
Schools are allocated a fixed amount for maintenance as part of their annual operations funding. As stated in Part 1, this amount is a calculation of the entitlement of each school, based on the School Property Guide and information held in the PMIS. The cyclical maintenance plans produced by schools are not used in this calculation.
4.32
School boards have responsibilities under the Property Occupancy Document (see Figure 2 following paragraph 2.34) and Health and Safety Code to maintain their property to specified standards. “Maintenance” is defined in the Property Occupancy Document as “all work necessary to keep the site, buildings and facilities at the school in a good state of repair”. The Property Management Guidelines also provide a collection of best practice examples that have proven to be effective in maintaining property, including preventative maintenance, painting, management of maintenance projects, and standards of work.
4.33
However, the Ministry has no mechanism to hold school boards accountable for undertaking the maintenance described in their 10-year property plan. Schools can legitimately divert funding for maintenance to other operational items. The Ministry does not monitor how much of the maintenance funding it provides to schools is in fact spent on maintenance. In our view, the Ministry should systematically monitor how schools are using maintenance funding to identify schools that under-spend significantly, and to ensure that the Ministry achieves value for money.
4.34
The Ministry has some assurance about the standard of maintenance, because the Building Act 2004 requires most schools to have a Building Warrant of Fitness (BWOF) issued by an Independently Qualified Person.1 This involves regular checks of systems and features related to fire safety, emergency lighting, and access. All schools have independent checks for fire protection systems, regardless of whether they are required to have a BWOF.
4.35
The Ministry recognises that it needs to improve the information it has about how well schools are being maintained. It has appointed a consultant to undertake a pilot audit of 200 schools, including a review of their maintenance plans and a physical inspection of their property. The schools are selected randomly, with a representative cross-section of primary and secondary schools and schools of various sizes spread through all the Ministry’s districts.
4.36
The Ministry’s pilot audit began in July 2005. Its purpose is to determine whether:
- schools have a 10-year property plan and BWOF;
- the 10-year property plan has been prepared in accordance with the Ministry’s requirements;
- the 10-year property plan is a dynamic working document used to plan, guide, and monitor property management practices; and
- any areas of major non-conformance with the records and proposed actions in the 10-year property plan are identified through the physical inspection.
4.37
The Ministry plans to use the results of this pilot audit to prepare a future programme of audits.
4.38
The pilot audit focuses on schools’ compliance with 10-year property plans. We consider that it (or another mechanism) should also provide information about the condition of school property.
4.39
The Ministry needs to determine how it will address maintenance concerns with schools that are failing to adequately maintain their property. Network provision staff had a number of suggestions, including “ring-fencing” maintenance funding for schools that were not meeting their maintenance targets, so that they could not divert it to other types of expenditure.
4.40
We also consider that the Ministry should monitor the continuing validity of its existing formulas for allocating maintenance funding. The formulas are currently based on actual square metres of buildings occupied by individual schools rather than on the condition of buildings. We understand that the Ministry is planning to review the application of the formulas to older schools that may have higher maintenance costs.
| Recommendation 17 |
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| We recommend that the Ministry of Education monitor how schools are spending their maintenance funding to identify schools that are significantly under-spending, and to ensure that it achieves value for money. |
| Recommendation 18 |
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| We recommend that the Ministry of Education continue to monitor the suitability of its formulas for allocating maintenance funding to schools to ensure that all schools have sufficient funding to maintain their property in a good state of repair. |
| Recommendation 19 |
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| We recommend that the Ministry of Education ensure that the pilot audit of schools’ maintenance (or another mechanism) provides adequate information about the condition of school property. |
| Recommendation 20 |
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| We recommend that the Ministry of Education determine how the results of the audit of schools’ maintenance will be recorded, assessed, and acted upon. Ideally the results would be recorded within the Property Management Information System. |
| Recommendation 21 |
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| We recommend that the Ministry of Education, having identified schools that are failing to maintain their property to the required standards, establish the reasons and what action is required to remedy the situation. |
Ensuring that schools comply with health and safety requirements
4.41
We are satisfied with the Ministry’s arrangements for assisting schools to meet their health and safety obligations. It has produced written guidance for schools, which it regularly updates (see Figure 2 following paragraph 2.34).
4.42
The Ministry has extended BWOF requirements to include independent inspections of health and safety matters. In addition, schools will not receive funding for their 5-year property plan if they fail to undertake the owner’s2 inspections that are required for the annual issue of a BWOF, or if they have any Work Requirement Notices outstanding that have been issued after a BWOF inspection.
4.43
Schools are also required to set aside a contingency sum of 10% of their 5-year property plan funding to cover unforeseen health and safety issues. The Ministry will provide funding for emergency projects if they cost more than 50% of the 5-year property plan funding received by the school. However, remaining projects planned under existing and future 5-year property plans may need to be reduced because of the amount spent on any emergency project.
4.44
As part of our review of the Ministry’s arrangements for health and safety, we specifically looked at the issue of water quality. We found that the Ministry has published a policy statement for drinking-water quality on its website, which includes guidelines for schools on how to comply with the Ministry of Health’s Drinking-Water Standards for New Zealand 2000. However, this guidance needs to be updated to reflect the new drinking-water standards that came into effect on 31 December 2005. The Ministry tells us that the delay has been caused by the need to clarify with the Ministry of Health whether some of the changes to drinking-water standards apply to schools.
4.45
Schools are required to include water management in their 10-year property plans. The Ministry has added checks to the BWOF requirements that schools that have their own water supply have a testing regime and are adhering to it.
Improving environmental and economic performance
4.46
We have commented on the need for the Ministry to encourage schools to improve the environmental and economic performance of their property (see paragraphs 4.22-4.24). In relation to the ongoing maintenance of school property, we consider that the Ministry should provide guidance to schools on how to improve environmental and economic performance of their property, such as by reducing energy consumption.
| Recommendation 22 |
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| We recommend that the Ministry of Education provide guidance and consider other ways in which schools might be encouraged to improve the environmental and economic performance of their school property through decisions they make about maintenance. |
Guidance about contracting for maintenance
4.47
The Property Management Guidelines include guidelines for managing maintenance projects, including the appointment of contractors.3
4.48
However, at present the Ministry does not monitor tendering of maintenance contracts by schools to ensure that schools comply with the Ministry’s requirements. We consider that the Ministry should introduce monitoring arrangements for awarding maintenance contracts of a significant value, or when one or more schools award a large number of small-value contracts to one supplier.
4.49
A specific issue arose during the course of our audit in relation to long-term painting contracts. These are being entered into by an increasing number of schools.
4.50
At least 25% of schools have entered into these contracts for a period of up to 14 years. There is only limited market competition for these contracts, which may mean that schools are not being offered a fair price. These contracts also require schools to borrow and pay interest on money. Normally this would be unnecessary, because they receive funding for maintenance in advance. Schools may also experience problems if they are committed to payments due under their painting contract but their maintenance priorities change during this time.
4.51
As the auditor of state schools, we have already raised our concern that these contracts do not always offer value for money with the Ministry. A number of interviewees shared this concern.
| Recommendation 23 |
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| We recommend that the Ministry of Education introduce monitoring of the selection process used by schools to award contracts for maintenance to ensure that schools comply with its requirements. |
| Recommendation 24 |
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| We recommend that the Ministry of Education provide guidance to schools about the issues they need to consider, including an assessment of value for money, before entering into long-term maintenance contracts. |
1: The Building Act 2004 defines the systems and features of properties that require them to have BWOF. The requirement currently applies to about 1750 school sites. A BWOF must be issued every year, and schools are required to publicly display it. Different provisions apply to new schools and schools recently issued with a compliance schedule, which are described in the Property Management Guidelines. The Independently Qualified Person is chosen by the Ministry. If repairs or defects are found, the Independently Qualified Person issues the school with a Work Requirement Notice.
2: The Ministry has delegated this responsibility to school boards.
3: This is covered in the Project Management System section of the Property Management Guidelines. This section refers principally to capital projects, although the contracting process described is also relevant to maintenance.
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