Part 4: The Ministry of Education as an asset manager

Managing the school property portfolio.

In this Part, we discuss:

Summary of our findings

Although we have seen considerable improvement in how the Ministry manages school property since our 2006 report, there are still areas for improvement. This was also the finding from the Treasury's Investor Confidence Rating (ICR) assessment.

There will always be a limited amount of funding available. The Ministry is not using its whole-of-portfolio view of property condition for decision-making to optimise its capital investment. The Ministry depends too much on individuals' knowledge of individual schools. It also does not know whether schools are spending their annual maintenance funding wisely or getting value for money.

We acknowledge that there are currently some barriers to the Ministry making the best use of the Crown's school property investments. These include current funding mechanisms and how it deals with the large amount of underutilised classrooms. However, the Ministry needs to consider how it can better use information from schools, such as monitoring the use of maintenance funding and sharing the lessons from projects of all sizes. The Ministry should also consider how it uses the levers available to it to ensure that schools are using the annual maintenance funding provided effectively and efficiently.

The effectiveness of Infrastructure Services

The 2013 Eight-Point Plan to transform school property services led to the establishment of a special group within the Ministry – Infrastructure Services. The Ministry aimed to move from being a property funder to also being an asset manager, providing better support to schools on property matters.

In the last five years, Infrastructure Services has significantly increased its capability to manage the school property portfolio in a way that reflects the portfolio's size, complexity, and scale. Infrastructure Services now has more than 330 full-time-equivalent staff responsible for property matters. There were 15 staff in the Property Management Group in 2006. The Ministry wants to build capability so it can achieve consistent service, quality design, and value for money.

Infrastructure Services' capability has increased in:

  • Planning and directing the major programmes of work.
  • Providing consistent high-quality technical guidance to contractors and those providing professional services to the school sector.
  • Improving stakeholder relationships and communicating more clearly with schools.

Examples of the effect of this increased capability include:

  • Putting in place more rigorous requirements for external school property planners, who now must be part of an approved panel.
  • Using procurement panels, including, critically, appointing project managers to manage school-led property projects.
  • Responding to the increased focus on compliance with health and safety legislation.
  • Providing more guidance material to the sector, including specific engineering and building design guidelines.
  • Improving the information on the condition of assets.
  • Embedding capital works programme personnel in regional offices to maximise the alignment of regional operations, school-led projects, and the national capital programme.
  • Giving schools examples of best practices and improved materials to understand the current environment and the Ministry's expectations about flexible learning spaces.

Infrastructure Services has been investing in capability in the last four years and has progressively improved staff skills and experience, including recruiting staff with skills in facilities management and procurement. This expertise is supported by standardised documentation and guidance material, as well as greater levels of review for project investment decisions, planning, and progress management. In our view, this investment is bringing efficiencies and schools told us that they have more confidence in the Ministry.

There is now significant property experience and capability in the Ministry. However, an increase in capital works programmes in recent years has tested the capacity of Infrastructure Services and the school sector. This has been due to the scale of redevelopments, increases in demand (particularly in Auckland), and responses to earthquake-prone buildings and weathertightness problems.

There is a lack of visibility of this improved capability at a regional or school level. Schools correctly see the role of Ministry Advisor as the main client-facing role. It is the view of stakeholders and schools that Ministry Advisors have variable skills and abilities.

Management of asset information

To effectively manage the school property portfolio, the Ministry needs a significant amount of information that is manageable and accessible to a number of parties. The Ministry is mainly responsible for managing the information on school property assets. However, external property planners, employed jointly by schools and the Ministry to prepare School Property Plans, also have a significant role.

Information sources and responsibilities

Figure 9 sets out the Ministry's several sources of asset information.

Quality of information

The financial information kept in the Property Management Information System (PMIS) has had a high degree of integrity. We did not expect that this would change when the Ministry switched to Helios. However, in the first six months of Helios' operational use, there has been a delay in uploading project information requirements, restricting the Ministry's ability to recognise all completed projects as assets in its financial statements.

Helios can receive more information at a property project level than the PMIS. However, the Ministry is still working on its approach to recording information in Helios. The Ministry intends to continue rolling out increased functionality, focusing particularly on enabling more mobility and allowing external project managers to provide project updates directly into the system, rather than requiring Ministry staff to input this data.

The financial management information system and fixed asset register (Oracle) holds the Ministry's financial information from which its financial statements are prepared. Oracle holds an accurate record of the Ministry's school property assets but depends on projects from Helios being updated in a timely manner. Oracle is not integrated with the database holding information on the condition of school property, so this information cannot be fed into the calculation of the Ministry's depreciation charge for school property. The age and expected life of assets (on which depreciation charges are based) in Oracle is updated manually when information about the property condition of specific buildings is provided or a decision is made to demolish a building.

Figure 9
The Ministry of Education's sources of asset information

Information sourceResponsibilityAccess and use of information
A database that holds information about the condition of school property for each school building, and relevant documents, including historic reports from engineers and other providers. Information was first established in 2011 from a sector-wide asset condition stocktake.

The Ministry manages the database centrally, ensuring that it is updated and managing the access rights.

School property planners are directly responsible for updating the condition information each time a school updates its School Property Plan.
Ministry Advisors have access and can make changes. However, School property planners have the lead responsibility for updating this information.

Schools have access to the information indirectly through their property planners.
Helios / Property management information system (PMIS)
Helios records all open and closed capital projects, whether Ministry or school led.

Helios replaced PMIS in April 2016 and includes all historic PMIS project information.
Ministry Advisors and other Ministry staff are responsible for updating Helios with all project related information. Every change or transaction related to a school's property is documented in Helios. Only Ministry staff have access rights to Helios but it is intended that school project managers will have access in the future.

Helios supports the school property valuation carried out for financial reporting purposes.
Oracle financial management information system and fixed asset register
All assets are recorded in Helios and then capitalised in the Oracle fixed asset register.

The Oracle asset register generates all depreciation charges and records the annual valuation of the portfolio.
The Oracle general ledger and asset register is maintained by the Ministry. The Oracle general ledger and asset register is not available to any external parties.

All payments for project costs initiated in Helios are paid through Oracle.
10-Year Property Plans (School Property Plans)
School Property Plans are the school's agreement with the Ministry about how it will use capital funding. Projects to be funded by the schools Five-Year Agreement funding are ranked against four priorities. School Property Plans are the responsibility of the school board. Schools must use a property planner approved by the Ministry to prepare their plan including updating the information on the condition of school property. School Property Plans set out and clarify the expectations and understanding of the Ministry and schools about property.

The Ministry receives a copy of all School Property Plans but does not collate the information in the individual plans.

The Ministry relies on external Ministry-approved property planners to confirm and update the information on the condition of school property. The Ministry also depends on the Ministry Advisors being sufficiently aware of the condition of the school property to be able to challenge the property planners' assessments. This is especially important when a property planner considers an asset to be in a poor physical condition. Ministry Advisors have checklists designed to help them collate the findings from school visits and to ensure that as much available information as possible is used.

The Ministry carries out some checks of the accuracy of the property information centrally. However, the team responsible for the information on the condition of school property is small and its audits of the information's integrity is irregular. The Ministry carries out 5-10 audits each year and therefore relies on the capability of the property planners. The Ministry has mitigated the risk of this reliance by requiring property planners to be pre-approved by the Ministry, and they are formally trained on using the Ministry's condition assessment system.

Although we have not sought to audit the integrity and completeness of the information on the condition of school property, we have:

  • confirmed (for a small sample of schools) that the school-led projects align with the property condition issues identified at the school; and
  • confirmed that information on the condition of school property is being progressively updated in the database and these updates relate to identified property issues, updated School Property Plans, or completed property projects.

Use of asset information

Collectively, the Ministry, schools, and property planners have enough information to make informed decisions when preparing School Property Plans. The Ministry's database records condition information at an individual building level. Although condition information can be collated to give a complete national view, we did not see any evidence that this kind of data is being used at a regional or national level for decision-making.

The Ministry relies heavily on Ministry Advisors, regional Ministry staff, and School property planners to identify high-risk schools' property issues and update property information between planning cycles. If a school does not actively engage with a property planner, or if a Ministry Advisor does not realise the significance of issues during a visit and put a business case forward, property matters may not be acted on in a timely way. Also there could be a failure to identify schools that are not using their maintenance funding for the assets most in need of it.

Discussions with regional staff show that their knowledge is strong. The regional managers we spoke to told us that Ministry Advisors understand which schools have serious property issues. However, this local knowledge is not collated at a regional or national level, and a Ministry Advisor's ability to be fully aware of the condition of up to 50 schools is limited. Also, although information about the condition of school property is always available to regional staff through the Ministry's database, changes in Ministry Advisors, which schools believe happen too often, results in a loss of knowledge and the ability to prioritise schools issues.

If Ministry staff are not using collated portfolio data for decision-making, there is a risk that schools will not be prioritised in an effective way. However, our discussions with the Ministry showed that it is normally aware of potential school property issues. The national office team considers all significant investment projects, and the Investment Board signs off all major projects. Once business cases have been raised, all major projects are considered and go through the same process for approval.

As with any building-related project, it can take time to identify, and get all parties to agree on, the most suitable solution. Requiring at least two parties to agree on matters means this process may not always be carried out in a timely way. This is unlikely to change under the current model, but the Ministry needs to ensure that it communicates well with schools to make this process as simple and transparent as possible.

Recommendation 2
We recommend that the Ministry of Education further develop and promote the use of its whole-of-portfolio view of the school property portfolio's condition, to support effective evidence-based investment decisions.

Post-development reviews

There can be up to 6000 active projects at schools at any one time. Lessons collected from the Ministry's investment decisions and the completion of its projects will help it become more successful in capital investment. Given the scale of capital spending ($634 million in the year to 30 June 2016), it is critical that the Ministry learns from successful and unsuccessful projects.

The Ministry carries out some post-project reviews. These formal in-depth reviews are done by various specialists, including architects, construction experts and educational designers, and mainly focus on the engineering and architectural success of large projects, such as major reconstructions or new schools. There were only three such reviews in 2015/16.

The findings from reviews provide useful insights for future large-scale projects and provide general lessons for the Ministry. However, most schools are only involved in smaller school-led projects. Also, the post-development reviews give limited consideration to whether the design or construction features have given schools any educational benefits.

Schools we spoke to do consider that projects make a difference. When schools carry out projects that are more than basic health and safety work, they appear to have positive experiences. Schools told us that the Ministry does not ask them for their views about whether a project has been a success. Schools will often assess the success of projects, but they usually do not share the results with the Ministry or other schools. Also, changes in principals or school board members often leads to the loss of project experience.

Recommendation 3
We recommend the Ministry of Education collect information and feedback from schools and property advisors on completed projects so that lessons can be shared, including the educational benefits achieved.

Other reviews of the Ministry of Education

The Ministry's management of assets, in particular the school property portfolio, has been the subject of several external reviews. One such review is the Investor Confidence Ratings (ICR), which is led by the Treasury. The ICR looks at the performance of individual agencies managing investments and assets. The ICR provides an indication of the level of confidence that investors, such as Cabinet and Ministers, can have in an agency's ability to realise a promised investment result if funding was committed. The ICR shows where agencies can improve their investment management capability and performance.

The ICR is conducted every two years on agencies that have large asset portfolios, significant investments planned or under way, or a role managing assets that are service-critical to the Government. The two component reports of the ICR are an Asset Management Maturity Report and a P3M3 Maturity Report.

We summarise the findings of these reports below, but it is important to note the following points:

  • Although reviewed and moderated externally, they are principally based on the Ministry's self-reviews.
  • The reports are focused on the capabilities of the Ministry, and do not incorporate schools' views.
  • The reports cover all aspects of the Ministry's role as an asset manager, so they include other projects, such as Information Technology capital investment, which are not related to school property.

The Asset Management Maturity report was completed in December 2015. It assessed the level of asset management capability and processes in the Ministry. The report found that the Ministry's school property asset management has matured significantly since 2011, and the Infrastructure Governance Board provided strong strategic direction. The main concerns reported were a lack of visibility over maintenance activities at schools and the need for improvement in the amount of information held on each asset and in lifecycle analysis.

The report's main recommendations were that the Ministry:

  • improve the way it assesses the condition of school property assets to ensure that it assesses against consistent and well-defined standards;
  • have risk management as a part of workplace culture and processes;
  • roll out the facilities management contract pilot nationally;
  • increase visibility and monitoring of maintenance spending by schools;
  • establish lifecycle analysis capability and reporting; and
  • provide more resources to support Ministry Advisors and schools, including more operational funding to support greater capacity for front line services.

Portfolio, programme, and project management (P3M3) are core capabilities for Infrastructure Services in managing investments. The Ministry's ratings (on a 5-point scale)9 against a target of Level 3 are:

  • Portfolio Management - Level 1.83
  • Programme Management - Level 1.92
  • Project Management -  Level 1.76.

The Ministry's Investor Confidence Rating is "C".10 The ICR assessment recognises gains made by the Ministry in recent years and highlights the need for some further improvement. Cabinet expects that most asset-intensive agencies should achieve at least a "B" rating.

The ICR reports show that the Ministry has strengths in asset management maturity and in completing projects to scope and on budget. It consistently meets its own asset performance targets, and its self-assessment shows strengths in organisational change management. There are gaps in aspects of its P3M3 (particularly benefits management, stakeholder management, and resource management) that may affect future performance.

The ICR reports also identified that performance information is limited or not yet available. In particular, the Ministry has limited evidence of asset performance or evidence to show the realisation of expected investment benefits (beyond project delivery to time, cost, and scope requirements).

Barriers to good asset management

Use of classrooms

The Ministry monitors how schools use classrooms. A school can have up to four classrooms more than is required to accommodate its students. If a school has more than four extra classrooms, it must include a rationalisation plan in its School Property Plan. Figure 10 sets out classroom use at the end of July 2016.

Figure 10
Schools' use of classrooms as at July 2016

Classrooms 34,520
Entitlement 30,220
Net surplus 4,300
Net utilisation 87.5%
% of schools with utilisation 75%-105% 62.1%
Surplus classrooms <4 1,811
Surplus classrooms >4 2,949
Total surplus classrooms 4,760
Total deficit classrooms 460

The Ministry's target is for all schools to have a classroom use ratio of between 75% and 105%. This is the ratio between the number of classrooms the Ministry considers the school needs to accommodate the current number of students, and the number of classrooms the school has. Currently, only 62% of schools meet this target (December 2014: just under 69%).

The critical challenge is the shortage of 460 classrooms at schools throughout the country, although this has reduced from a deficit of 660 classrooms in December 2014. At the same time, the 2949 extra classrooms represents an opportunity for reducing the number of extra classrooms and cost-cutting. The Ministry's ability to improve classroom use depends on accurate growth forecasts, and it depends on schools and the Ministry having mutually acceptable rationalisation plans.

Extra classrooms also have a cost. For the 4760 extra classrooms throughout the school property portfolio, schools would have received more than $5 million in annual maintenance grants. However, schools do not get funding to update and renew extra classrooms as part of their Five-Year Agreement funding. If schools choose to use their extra classrooms, they have to stretch their allocated renewal funding throughout all the classrooms in use. This can result in schools not being able to properly maintain all their buildings.

The Ministry's inability to direct how schools deal with surplus classrooms, to improve the use of its assets and reduce the effect of demographic movements, restricts the Ministry's ability to manage the school property portfolio efficiently.

Funding mechanisms

The Ministry's role as an asset manager is constrained by certain funding and policy decisions. The Five-Year Agreement funding and annual maintenance funding are determined by the number of students, the size of the school buildings, and the land occupied by the school, rather than the nature and condition of the assets. This means that this part of the Ministry's property funding does not target those schools with assets that are most in need of investment. This is in direct conflict with the aims of good asset management at a portfolio level.

The main problem is a lack of flexibility, which does not allow the use of the funding available over groups of schools, and may limit a school's ability to invest in good ideas or to fix multiple matters at the same time. Because funding is based on the school roll and does not take account of the age or condition of schools, it favours large, more modern schools without historical maintenance issues. However, it is usually smaller schools with low rolls that need greater support for property matters.

Schools and stakeholders we talked to also consider that the current funding model is not effective for all schools. Some schools believe that it is unfair that schools that have failed to use their funding wisely get national programme interventions to fix their property issues.

In the last five years, the Ministry has invested more into its national programmes, which it refers to as "Tactical Investment". These national programmes include remediating buildings with weathertightness problems and the Christchurch Rebuild Programme. By investing more of its capital funds in national programmes, the Ministry is focusing on the highest need in the most stressed parts of the sector.

Spending on national programmes is more than 60% of the Ministry's capital investment, with the remaining spent on school-led projects. This means more than 30% of the Ministry's capital funding is not allocated to schools based on the parts of the portfolio most in need.

We understand that the Ministry's current review of the Education Funding system is considering changes to annual property maintenance funding that is currently paid directly to schools through their operations grants.

Recommendation 4
We recommend that the Ministry of Education consider the way annual maintenance and renewal funding is allocated to schools so that it responds better to different property types, age, condition, and purpose of buildings.

No monitoring of school maintenance activities

The Ministry provides schools with maintenance funding, which is based on the size of the school property. The Ministry does not monitor how schools use this funding, or whether schools are getting value for money for the maintenance services they buy. The Ministry depends on the assessment carried out for the School Property Plan every five years, to know whether the schools are maintaining their properties. The Ministry Advisors can also identify maintenance issues in the interim, during their inspections of schools.

The Ministry reviews the nature of the projects funded by the Five-Year Agreement Funding. If a school is using all of its Five-Year Agreement funding on health and safety matters, it indicates that the school is struggling. It is preferable for schools to fund all their basic health and safety and essential maintenance work from their annual maintenance funding, and use their Five-Year Agreement funding on flexible learning spaces. However, the Ministry does not monitor the number and value of projects in each of the four priority categories at a national level.

Figure 11 sets out our analysis of the School Property Plans and other property information for the schools that we interviewed for our report. This shows how the schools' Five-Year Agreement funding has been used throughout the four priority areas.

In our sample of schools, 61.2% of total funding was used for flexible learning spaces or discretionary projects and only 1.5% for health and safety matters. However, the $4.6 million of discretionary projects includes a project for one school, which includes $4.3 million of contributions from the school board. These funds can be raised specifically for the project or come from a school's operational funding. If this project is removed from our calculations, it reduces the percentage of funds spent on flexible learning spaces or discretionary projects to 56.8%.

Figure 11
How schools use their Five-Year Agreement funding

TotalExcluding Board-funded discretionary projects
Five-Year Agreement funding
Five-Year Agreement funding 23,145,968 53.6 23,145,968 59.7
Top-up funding 1,962,969 4.6 1,962,969 5.1
Previous Five-Year Agreement funding remaining 6,649,319 15.4 6,649,319 17.1
Other planned Ministry contributions
Roll growth 3,122,283 7.2 3,122,283 8.0
Disposal of surplus school houses 222,853 0.5 222,853 0.6
Rationalisation 380,600 0.9 380,600 1.0
Building improvements 1,876,719 4.3 1,876,719 4.8
Other 58,732 0.2 58,732 0.2
Other planned contributions
School boards contribution 5,713,965 13.2 1,332,465 3.4
Community/Other 16,219 0.1 16,219 0.1
Total 43,149,627 100.0 38,768,127 100.0
Project spending:
Priority 1 – Health and safety 632,250 1.5 632,250 1.7
Priority 2 – Essential infrastructure/high operational risk 13,730,953 31.8 13,730,953 35.4
Priority 3 – Flexible learning spaces 21,818,265 50.6 21,818,265 56.3
Priority 4 – Discretionary projects 4,588,774 10.6 207,274 0.5
Contingency 2,379,385 5.5 2,379,385 6.1
Total 43,149,627 100.0 38,768,127 100.0

The Ministry considers that a high proportion of schools are proud of their property and will use the maintenance funding provided for basic maintenance work. This was supported by our conversations with schools, but many schools believe the maintenance funding is not sufficient. Because this funding is calculated mainly on the volume of buildings the school uses, it does not reflect actual property needs.

Schools told us that they have to use funding from other external sources to fund annual maintenance needs, so they can use the Five-Year Agreement funding for major renewals and creating flexible learning spaces. We have been told that schools can depend heavily on the community to support school maintenance issues. We encourage the Ministry to more fully understand how schools are using their allocated capital funding.

There are a number of reasons why a school may not be properly maintaining its buildings. The reasons include:

  • the school has governance issues;
  • the principal and school board are not interested, or lack experience, in property matters;
  • the school has different spending priorities;
  • the school buildings have inherent and historical construction issues; or
  • the school buildings are all tiring and have not received material re-investment.

Before the recent update to the Education Act 1989, the Ministry had relatively limited powers to intervene when a school was not properly maintaining its buildings. The Ministry would ensure that the school used its allocated capital funding for priority projects and it would provide extra funding if needed. The Ministry had mainly used its statutory interventions for more significant governance or educational matters. However, the Ministry now has greater flexibility to intervene if it has reasonable cause for concern about the operation of the school.

Recommendation 5
We recommend that the Ministry of Education identify schools not maintaining their property to the required standards, find out why, and establish interventions to remedy the situation.

9: Where 1 is "Aware – there are some capabilities, but they are largely people-based" and 2 is "Repeatable" – P3M3 approaches are localised and are repeatable in different areas of the business (success is not dependent upon talents of individuals).

10: ICR uses a rating from A to E with: a "C" rating meaning that the status quo investment management system arrangements remain in place; and an "A" rating signalling a high level of investment capability and performance, and trust in the agency delivering investments successfully.