Strategic estate planning

How to approach the development and testing of your estates strategy.

Developing an estates strategy

The condition and functional suitability of your college estate can have a significant impact on your students, staff and overall effectiveness and sustainability. At the time of passing from local authority control to their establishment as independent corporate bodies (incorporation) in 1993, colleges inherited an extensive portfolio of properties. Many were in a poor state of repair and some were simply not fit for purpose.

Since incorporation the curriculum model for further education (FE) has changed significantly, and this process is likely to continue, or accelerate, in response to changes in:

• national priorities and skills needs
• advances in digital technologies
• the challenge of net zero carbon

Preparation of an estates strategy should be an integral part of your strategic planning process. It should be informed by your overall strategic plan as well as a clearly articulated and up-to-date curriculum strategy that outlines current requirements and a forward view.

Other strategy documents should also be taken into consideration when creating a strategic plan such as strategies for:

• IT and digital infrastructure
• sustainability
• finance
• curriculum
• teaching and learning

Your estates strategy should be reviewed and refreshed at least every 3 years. An up-to-date estates strategy is often a condition for capital grant applications, but this should not be the sole driver for commissioning an estates strategy.

Effective practice point

Rushed strategies, compiled to respond to a live capital bidding round, risk paying insufficient attention to identifying and evaluating robust options. In the past, investment has too often been used to fund sub-optimal projects that have minimal long-term benefits and fail to address the most critical shortcomings in the college estate.

Key components of a college estates strategy

There is no standard specification for the contents of an estates strategy. In practice, the depth and breadth of documents can vary considerably from college to college.

Whilst a degree of local flexibility and customisation may be appropriate, your strategy should typically include the following components.

• Stage 1: vision and strategic aims for your estate
• Stage 2: strategic review of your current estate
• Stage 3: priorities for meeting the needs of your curriculum
• Stage 4: options generation
• Stage 5: options evaluation
• Stage 6: recommendations and action plan

Depending on the quality and availability of estates data, a comprehensive refresh of your estates strategy can typically take up to six months to complete. Many colleges commission external professional advice and support to complete their strategies. This external expertise is often invaluable, particularly in cases where internal estates resources are limited.

Effective practice point

Notwithstanding the potential benefits of external input to the estates strategy, you should ensure that there is sufficient engagement in and ownership of the strategy by governors, college leaders and managers.

Whilst sign-off of the final estates strategy by your board is important, there should be ample opportunity for input by your governors at formative stages of the process.

Stage 1: vision and strategic aims for your estate

The vision for your estate should be a short, high-level statement aligned with your strategic plan and the educational aims and objectives defined in your curriculum strategy – both of which should ideally be updated before detailed work commences on the estates strategy. Both of these documents will need to have taken account of national, regional and local policy drivers and reflect engagement with key external stakeholders to ensure responsiveness to skills needs.

The estates vision should provide strategic direction, guide the completion of your estates strategy, and inform decisions about future investment and options for rationalisation or reconfiguration.

Supporting strategic aims might typically cover:

• aspects of the teaching and learning environment
• new delivery models or ways of working
• configuration of your estate
• minimising excess floorspace and the associated costs
• maximising efficient utilisation
• environmental and financial sustainability

Alongside your vision and strategic aims, you should consider the potential benefits of setting a limited number of key performance indicators (KPIs) or critical success factors to help monitor your estates strategy and subsequent outcomes.

Effective practice point

Property advisers recommend a visioning workshop with your governors and senior leaders as a good way of determining your estates vision and ensuring there is a high level of buy-in from the corporation, before detailed work on your estates strategy progresses.

Case study: Trafford College Group

The Trafford College Group (TCG) 2018 to 2021 accommodation strategy was informed by a clear and well-articulated vision for the curriculum, underpinned by five key principles:

• alignment to requirements of the labour market and Greater Manchester Combined Authority (GMCA) priorities
• focusing on high quality, excellence and innovation
• partnership working with local employers, councils and other stakeholders
• technical specialisation at level 3 and above aligned with national and local priorities
• inclusion of learners with poor prior attainment and special educational needs (SEN)

The curriculum vision and planning that guides the accommodation strategy is an example of effective practice, particularly in the way opportunities for specialisation and rationalisation across the multiple campuses in the group have helped the college to reduce surplus space and maintain sustainable group sizes.

Read the full TCG case study to find out more about how they’ve managed their estate.

Stage 2: strategic review of the current estate

The second stage is to conduct a structured assessment of your current college estate to assess how well the current estate is performing and the extent to which it is fit for purpose.

Typical coverage includes:

• a description of each campus (where there is more than one site) and a summary of each building including floor plan, its location, tenure, main use and any known issues
• an assessment of current space utilisation, condition, functional suitability and environmental impact.

There is more information on further education sustainable estates.

Effective practice point

When calculating space utilisation, you should consider the risks involved when relying solely on planned guided learning hours from the individualised learner record (ILR).

Property advisers recommend triangulating planned data with actual timetable data and physical room utilisation surveys to confirm the reliability of planned data. Not all students attend every lesson; in many cases your actual space utilisation levels can be materially lower than suggested by planned data.

Case study: Trafford College Group

TCG commissioned external consultants to undertake a detailed utilisation exercise in 2018, to inform the design and specification of their plans for redevelopment of the Stockport campus, having questioned the findings from a previous study carried out pre-merger.

This highlighted very low overall utilisation, along with options to improve utilisation through smarter timetabling of classes and strategies for flexible working. The overall target for space utilisation on completion of the redevelopment is set at 40%.

Stage 3: priorities for meeting the needs of your curriculum

An important part of developing your estates strategy is to establish how the estate can support the requirements of your curriculum as set out in your curriculum strategy, as well as to respond to national and regional skills priorities.

In the past there has sometimes been insufficient engagement with curriculum staff to take proper account of their requirements and future plans. Too often governors have been presented with a predetermined preference for a specific capital project.

With the advent of local skills improvement plans (LSIPs) and Ofsted’s enhanced role in inspecting how well colleges meet skills needs, it has been increasingly important for you to take account of current and future skills gaps as well as:

• implications for quality, the student experience (including appropriate social and circulation spaces) and staff
• changes in curriculum delivery and use of technology
• demographic changes
• restructuring plans (where these apply – in particular, mergers)
• environmental and sustainability considerations

It is intended that LSIPs will inform your future curriculum design, but they may not address all aspects of your provision, especially if you deliver nationally or offer a specialist curriculum. You should plan for these curriculum areas in addition to LSIP priorities to create a cohesive overall curriculum design, which will drive your estates plan.

This part of your estates plan should highlight:

• any material under or over capacity in your estate - assessed through an evidence-based identification of space needed to support future demand and the planned curriculum
• what changes need to be made to your estate, and when - including any works required and how these need to be prioritised
• what investment in your estate may be needed to meet curriculum needs for specialist space but also to provide effective, well equipped and flexible teaching environments
• which areas need improving or decommissioning due to poor condition or unsuitability
• overcoming specific constraints, for example, legal or physical, to the potential achievement of your college’s aims and aspirations for your estate
• the case for flexible-use space to recognise the need to respond to changing patterns of delivery and your curriculum offer, for example, greater digitisation of the curriculum and the increasing need for independent study suites

It is important to avoid listing options which result in the premature adoption of specific property solutions at this early stage.

Effective practice point

Without an up-to-date and forward-focussed curriculum strategy, there is a risk that your estates strategy will only address current requirements and will fail to take sufficient account of future changes in delivery models, volumes and technology.

Case study: Reaseheath College

As part of its assessment of constraints relevant to the estates strategy, Reaseheath College has identified capacity limitations with the existing electricity ring-main that could prove expensive to upgrade but may otherwise limit scope for further expansion and development on the campus.

The need for a single electrical ring main is also preventing progress with a central site heating system that would be driven by heat pumps. This system could feed the whole site which is currently supplied by many individual boilers. As a key piece of infrastructure, the ring main is therefore acting as a potential limiting factor for future development, and the next phase of the estates strategy will need to identify potential solutions for this challenge, as well as other elements of service infrastructure that need updating.

Read the full Reaseheath College case study to find out more about how they’ve managed their estate.

Stage 4: options generation

Once the strategic review of your estate and the statement of priorities has been completed, the next stage is to develop a longlist of potential options to address the priorities and your identified desired outcomes.

This may include a wide range of potential solutions including:

• redesign or reconfiguration
• refurbishment
• extension or new build
• modular buildings
• acquisitions, disposals, or alternative uses of property

You should test these options alongside a base case, for example, “do minimum” or “business as usual”. Whilst considerations of practicality, affordability and funding are important, these should be considered at a later point to avoid ruling out potentially innovative or radical solutions too early in the process. At the same time, options need to be realistic and achievable so that if a preferred option subsequently fails, you can reconsider other options. Property advisers often identify a “fallback” option when the preferred option is too ambitious in terms of spend or funding required.

Practice varies as to how much detail on each option is gathered for the purposes of the estates strategy. This will depend on the value, importance and longevity of your proposal. There is more information on options evaluation and appraisal.

Your estates strategy should not duplicate the more detailed schedule of short-term maintenance requirements, as these should feature in your planned maintenance programme.

Stage 5: options evaluation

Having identified a longlist of potential options (usually up to 5), you should conduct a rational and objective investment appraisal of each option using an evidence-based process to reach conclusions on the preferred option which aligns with your estates vision and statement of priority needs. You might want to discount some of the longlisted options where it is easy to evidence issues with technical feasibility, deliverability or affordability. You should then concentrate on developing the evidence base to help you evaluate the remaining options.

Clarity of the desired outcomes and critical success factors for each option will make it easier to measure success.

One way of structuring the evaluation of options is to develop a prioritisation matrix that assigns scores to a weighted set of criteria, including cost, quality and other relevant factors (try to be consistent with the KPIs identified at stage 1). You should use the same evaluation criteria for each option and use a consistent methodology so that the options can be easily compared.

Stage 6: recommendations and action plan

The final stage of the process is to reach a clear set of conclusions, priorities and actions. This helps you complete detailed work towards firming up proposals and securing approval to proceed with implementing options.

Whilst it is important that there is a clear prioritisation of options, you should allow flexibility, particularly if there is a risk that the preferred option may not be achievable. Keep potential fallback solutions open to retain flexibility to promote options that fit with any opportunities for capital funding that may arise. As far as possible be clear about the fallback choice and timescales for evaluating the preferred option versus the fallback (to avoid holding onto the preferred option indefinitely).

You should discard options that cannot realistically be achieved and clearly identify where projects are contingent on grant support.

Your final estates strategy should be formally approved by the governing body along with an action plan identifying:

• next steps
• lead responsibilities
• timelines

Your plan should also identify areas where further feasibility testing is required. Where appropriate, this may be supported by a more detailed estate masterplan.

External input and engagement in the estates strategy

Whilst developing your estate strategy you will need to engage with a number of external stakeholders to make sure your college is delivering for your local community.

Employers

As part of the stage 3 assessment of future priorities and requirements, your college will need to consider the needs of employers and its strategies for addressing skills gaps including priorities articulated in LSIPs.

Local community and planning authorities

You should consider the extent to which you consult the local community and external planning authorities on the alternative options identified at stage 4.

In some cases, early consultation will be welcomed and constructive, but innovative options may not be developed enough to share without risk of creating an adverse reaction which might not arise once the idea is more fully worked through.

Any proposed option which could be novel, contentious or repercussive as set out by Managing public money should be discussed with the DfE at an early stage and before proceeding with any implementation.

Case Study:  Peter Symonds Sixth Form College

Since the college site is in the middle of a residential area, a communication plan for engaging with neighbours was arranged early in the process. Neighbours were invited to a presentation regarding the project at pre-planning stage and were involved in the processing of application advice. Although the masterplan was not required by the council as part of the planning consent, the local council requested this. The college already had a master plan which was updated for the purposes of future strategy and communication with stakeholders.  

The college held a separate meeting with council’s planning and policy officers to discuss the masterplan and made changes in response to their feedback. The updated masterplan was again submitted to the council following full board approval.

Funders

Advice and guidance on capital funding is generally linked to specific initiatives and funding rounds. It is not always possible to anticipate these in advance, but an up-to-date estates strategy is likely to be a requirement for major funding bids and should also help inform work on developing a pipeline of shovel-ready projects.

At the same time, it is important for you to take proper account of any published criteria and eligibility rules for funding applications and ensure your proposals align well with the criteria.

Professional advisers

Many colleges engage external advisers to support either the overall production of an estates strategy or specific components such as the condition survey. You should take care to ensure that your governors remain engaged in key parts of the process and that senior leaders and curriculum managers actively participate throughout any externally commissioned approach.

It is common practice to talk to other colleges about their experience of working with external advisors when sourcing support.

Sources of advice on developing estates strategies

The HM Treasury Green Book is a useful source of advice on how to appraise policies, programmes, and projects.

Sources of advice

Colleges sometimes need to get specialist advice to support the day-to-day operation of their estate or the delivery of capital projects.

For specialist technical services and advice, colleges may appoint consultants, particularly where there is limited capacity or specialist expertise on estates in-house.

Consultancy

Professional consultants can be appointed to provide advice or services in relation to a wide range of estate-related matters, including:

• estate strategy
• project management
• building and condition surveys
• architecture and design
• mechanical and electrical installations
• property valuations, transactions, and development
• construction, consultancy and commercial legal agreements
• town planning
• quantity surveying and cost consultancy
• health and safety, including compliance and testing

Finding a consultant

Most areas of estate-related practice are governed and regulated by professional bodies such as the Royal Institution of Chartered Surveyors, the Royal Town Planning Institute or the Architects Registration Board.

Where possible, you should always try to appoint a consultant who is a member of the professional body which governs and regulates their area of practice.

The websites of professional bodies typically include searchable directories of their members with details of their locations and specialisms, which can be helpful when seeking a consultant.

Depending on the type of the commission, prior further education (FE) experience may be important, particularly on the more strategic aspects of estates planning. You may find it useful to get references from other colleges.

Preparing a brief

Before appointing a consultant, you should make sure that you are clear about the advice, service, and specific outputs you require.

In some cases, the output may be obvious, such as when appointing a chartered building surveyor to undertake a condition survey or engaging a registered electrician to produce an electrical installation condition report (EICR). In these cases, the written report is the output.

In other situations, the type of advice or service you require may be more complex or open-ended. An example of this would be a college seeking consultancy services to help it rationalise its estate. A project such as this might require the services of a wide range of professional consultants including architects, chartered surveyors and town planners.

When dealing with large or complex projects, it can be beneficial to appoint a key consultant, such as a project manager, at an early stage. They can then work alongside you in developing the project and can advise on the appropriate time to engage the services of other professional consultants. For projects like this, it is good practice to develop a brief for consultants.

Effective practice point

Senior leaders have significant responsibilities managing many areas of a college’s operation. There is sometimes a tendency for college leaders to take on design and construction project responsibilities alongside regular duties, underestimating the scale of the task.

Without the early appointment of a construction project manager or similarly experienced consultant, college leaders can be easily over-burdened, especially at the outset of a project.

A consultant’s brief is a document used to provide an overview of a project to a prospective consultant.

The brief is prepared by the client and is typically written by the college member of staff with overall responsibility for the project. As well as being a tool to appoint a consultant, drafting a brief can also be useful in ensuring that all parts of your organisation have a clear and shared understanding of what you are trying to achieve.

A project brief should include:

• an overview of the project: This explains what you are trying to achieve, provides relevant background information about the project and the client, and may detail any work which has already been done in support of the project, as well as details of the project budget and programme
• scope of services: This describes the services or advice you want a consultant to provide, and may also outline potential future phases of work
• outputs: A list of what you expect to receive from the consultant at the end of the project. This may include a measured survey of a property, a valuation report, or a feasibility study
• timescales: This should include timescales for responding to the brief, those for the project, expected start and end dates for the consultancy work, and any relevant project milestones

Depending on the nature of the project it may be helpful to provide relevant documents such as site plans, title documents or technical drawings, alongside the consultant’s brief.

The amount of detail and information provided at the consultant’s brief stage may depend on the size of the project and the procurement approach being taken.

Appointing a consultant

Once you have selected the consultant you wish to appoint, they will usually prepare contracts which are to be completed before work commences. The form and contents of contracts will depend on the nature of the services being procured. Many standard forms of contract exist and typically include details of the parties, the scope of service and the various terms and conditions of the appointment.

Colleges should always take appropriate legal advice before entering into any contracts and ensure that the contractor has the appropriate insurances in place.

You should also take care that you are aware of the risk of engaging in any related party transactions when appointing consultants or contractors. There is a section on avoiding conflicts of interest with related parties in the College financial handbook.

Qualifications and training

Recognised accounting bodies offer bespoke courses on public sector asset management which are worth considering if you are looking for further in-depth study.  Details can be researched and compared via relevant course offer websites.

Procurement

The importance of budgeting covers advice for planning and budgeting.
Efficient procurement will help make sure that you:

• get advice on the most appropriate and efficient procurement route
• get best value for money
• understand and follow procurement procedures to minimise risks of challenge

Mistakes in procurement processes can be costly and result in significant delays.

When procuring and managing works or services, you should be aware of, and adhere to, the procurement policies within your organisation.

Supplier checks

If using a procurement framework, some of these checks may already have been carried out. Checks should be proportionate to the value and risk involved in the project. Further guidance is available in the Procurement Policy Note, and for works procurements, please see paragraphs 14, 25, and 34-37 of Annex A.

You should carry out checks to ensure that the supplier:

• is in good financial health and is likely to remain so for the duration of the contract
• has sufficient capacity and resources to undertake the work
• has declared willingness to comply with the terms and conditions of the contract
• will achieve the aims and objectives of the project - these should be defined in the scoping and specification of work and should generally be included in the contract
• provides documented insurance levels suitable for the project or works (for example, public and products liability, professional indemnity, construction all risks, and employer’s liability)
• provides assurance of compliance with statutory requirements and site access issues
• gives details of health and safety arrangements – policy and capability
• is able to deliver the completed project to schedule and within budget
• demonstrates commitment to work professionally, using safe working procedures to ensure that no harm can be done to staff, pupils, contractors or visitors
• demonstrates ability to provide data in a prescribed format to help you manage the estate
• has any other required experience and adheres to any policy matters your organisation wishes to include

You can also include any other required experience or policy matters in the checks you carry out.

Legal requirements

There are a number of legal requirements you must comply with when procuring goods and services for your college, and government guidance is available to inform your procurement policy.

Furthering Education and Learning in Procurement (FELP) has useful summary advice on compliance with the law in public procurement.

Your choice of procurement route will depend on the scope, and estimated value of the contract or works. There may also be grant conditions requiring a particular route to be selected. Your organisation will also have minimum requirements for procurement activity.

Procurement routes for capital projects

For construction projects with a value above the relevant threshold for the purposes of the Public Contracts Regulations 2015, a contracting authority must comply with the regulations and any applicable Procurement Policy Notes in full, unless procuring from a compliant framework.

Compliant frameworks include:

• the DfE Construction Framework 2021 which has a bespoke FE specification
• the DfE Offsite Framework which has a bespoke FE specification
• Crown Commercial Service (CCS) frameworks

When using another framework, you should ensure it is a compliant route for procurement and is suitable for your needs.

For larger projects you should obtain suitable advice on whether the procurement is:

• design and build: this will be the typical route following a feasibility study, as traditional build projects otherwise involve design risk and the appointment of architects is the responsibility and risk of the contracting authority
• a two-stage process: this approach allows early contractor engagement and can reduce bid costs. The selected contractor develops the final designs and proposals under a pre-construction services agreement before award of the building contract
• cost-led: this is suitable where the contracting authority is confident that it can set a cost ceiling against which contractors will tender the best proposal against your output specification

For projects with a lower value, a procurement route should be chosen which provides suitable competition to achieve value for money. Where a compliant framework is not used, an open advertisement on Contracts Finder will be appropriate for projects of any significant value. Smaller projects may be procured by seeking tenders from 3 or more contractors.

For all projects your options appraisal should list the procurement route options and an appraisal of those options.

Choice of contract

You should use a standard form of building contract which will be familiar to the market, such as Joint Contracts Tribunal (JCT) or New Engineering Contract. You should take legal advice on the most suitable form of contract, and whether any amendments to the standard form are appropriate for the procurement.

Standard form building contracts require the scope of works to be set out in a specification, against which the contractor will offer proposals to meet them.

Contracts must always include the requirement of prompt payment of invoices, both to the contractor and within the supply chain.

Procuring specialist services for capital projects

The different stages of any project will require and involve different skills and people.

Projects on a college estate can be complex, requiring the full integration of college managers, procurement advisers and technical property professionals. It is important that you understand the roles of everyone involved at the outset, making sure you procure the right skills at the right time.

Consider who will be involved with the core roles, including:

• a project lead
• an architect or designer
• a legal adviser
• a construction project manager
• a building services engineer
• a civil and structural engineer
• a cost consultant
• a contract administrator
• a health and safety adviser
• a procurement adviser or consultant
• the governors

Additional input may be required to help with:

• information management
• master planning
• sustainability
• ecology
• landscaping
• planning
• fire engineering
• external lighting
• acoustics
• interior design
• catering
• furniture, fixtures and equipment
• other specialist and support roles

Even on a small project, specialists might be required. Involving specialists early in the process can deliver efficiencies throughout the project.

Case study:  Dudley College of Technology

An independent facilitator plays a key role in IPI projects and makes certain aspects of the traditional project manager role redundant. An early action once the decision was taken to follow the IPI methodology was the appointment of the independent facilitator who supported the work of the alliance team from start to completion of the project.

Costs for this function represented around 1.5% to 2% of the total project costs but were significantly offset by savings on external project management and quantity surveyor costs not required under the model.

Procurement documentation

You should ensure your procurement and tender documentation is comprehensive at the outset. This will be important in managing the contract.

Your documentation should include:

• a form of invitation to tender, setting the procurement process
• a detailed scope of works
• specifications
• details of tender requirements, including method statements and contractors’ proposals
• evaluation criteria relevant and proportionate to the procurement, including both price and quality in such criteria
• a draft contract
• health and safety elements
• a programme of work
• a schedule of cost

Making payments

You may need to make staged payments for some works. The methodology for quantifying these should be set out in the procurement documentation. This may need help from qualified technical advisers or property professionals.

Sign-off process

You should consider the sign-off process as part of procurement. This will result in acceptance of the completed works. In some instances, you may need to use qualified professionals to give assurance.

Estimating cost

Because of the risks already highlighted, when estimating the cost of a capital project for financial planning purposes, you need to:

• use the most recent information on pricing available, perhaps by contacting a range of other colleges who have recently carried out building work and engaging with a reputable quantity surveyor for advice
• carry out sensitivity analysis on the forecast cost of your capital project, and model a range of possible scenarios for cost increases and impacts on financial forecast
• determine whether your project is still affordable even if the worst-case cost scenario materialises
• include an appropriate level of contingency cost in your planning to take account of inflation and other risks
• record contingency plans in advance to deal with unforeseen construction cost increases, and ensure your governors have seen them

Effective practice point

If sensitivity analysis shows that increases in pricing at the higher end of a reasonable range of risk models endangers cash flow solvency, and no additional financing is available, your project should not go ahead. You should not proceed with a project which is only viable if pricing risks do not materialise.

Case study: BHASVIC

Following the initial tender process for one of the project stages, a contractor was appointed by BHASVIC who then later submitted a greatly increased cost estimate for completion of the project.

The college retained an independent team of expert advisers for the project and the quantity surveyor advised that the proposed increase was substantially unfounded. Despite the pressure of time elapsing and additional work involved, the college then took the decision to refuse the revised estimate and go back out to a full retender instead.

Although this introduced some delay and reworking into the project, the result was that the project was delivered to the original specification and budget.

Read the full BHASVIC case study to find out more about how they’ve managed their estate.

Procurement resources for facilities maintenance and day-to-day running of the estate

Further Education and Learning in Procurement (FELP) offers advice on all aspects of procurement in FE.

The Crescent Purchasing Consortium is a not-for-profit organisation which has been set up to provide frameworks for the FE sector. It does not offer a procurement route for construction projects. The Crown Commercial Service can be used to buy goods or services for facilities management and estates maintenance.

General sources of advice on estates

When it comes to information and advice on estate-related matters, there are many resources available to colleges.

The Department for Education (DfE) website includes a variety of guidance, regulation and tools related to estates planning and operation. This includes technical standards in relation to design and construction advice on sustainable estates, and a space planning toolkit.

Professional bodies

Organisations such as the Royal Institution of Chartered Surveyors (RICS) and the Royal Institute of British Architects (RIBA) regularly publish information papers, best practice guides and research on a wide range of property and estate-related matters. These include resources such as the Building Cost Information Service (BCIS) and the RIBA Plan of Work.

Membership bodies

Organisations such as the Association of Colleges and the Sixth Form Colleges Association (SFCA) publish data, issue guidance and host networks.

Online resources

There are useful online resources providing information, advice and tools relating to land and property, including:

• the Planning Portal, which provides information and advice about planning applications, policy, and building control
• the Department for Environment Food & Rural Affairs (DEFRA) Magic Map, an interactive map which shows geographic information about rural, urban, coastal and marine environments
• HM Treasury’s Green Book, which sets out guidance on how to appraise policies, programmes and projects.

Option generation, appraisal and evaluation

It is important to frame the range of options to be tested and evaluated as part of your estate strategy. The nature and range of options you might consider will vary depending on the size, configuration and context of your college or group.

Option selection should reflect the outcome and conclusions of the assessment of your existing estate. It should also reflect your future curriculum priorities and demonstrate how they can be met.

The Treasury’s Green Book suggests a two-stage process to options generation, including a long-listing as well as a short-listing stage.

This two-stage approach is not commonly adopted in FE. The consensus on shortlisted options is that you should consider at least two other options alongside the base case. The Green Book suggests that, in addition to the base case, you should consider three alternative options reflecting different degrees of ambition and risk.

These options should include:

• the ideal or preferred option, where this is not the base case
• a more ambitious option with potentially higher benefits, costs and risks
• a less ambitious option with lower benefits, costs and risks

While each of the various options may contain common elements or features, the range of options should be more than simply the same option modelled with different sources of finance – they should be different strategic responses. As part of the consideration of alternative options you should consider the relative merits of new build versus refurbishment.

New build can:

• be more straightforward
• cause less disruption to day-to-day operations
• make a bigger impact
• reduce running costs
• attract more students

Refurbishment can:

• be less expensive
• be less contentious with planners and stakeholders
• offer a more environmentally sustainable option

Effective practice point

Sometimes colleges overlook viable alternatives by overly focussing on a favoured or promoted option ahead of the evaluation stage.

In extreme cases, the range of options can appear to be little more than a list of totally unworkable options to prove the case for a pre-determined solution. Such an approach is unlikely to satisfy funding bodies and can result in a sub-optimal outcome.

It is important to identify and properly consider all viable options.

Option development

You need to develop and model each option so that it can form a basis for a rational and objective evaluation. This is likely to require the assessment of:

• high level site-wide sketches illustrating each solution
• the site’s capacity to accommodate buildings and provide space for amenities, parking and deliveries, if considering new buildings
• legal and land title issues including land ownership, restrictions to title, site or plot availability and consents required
• the impact on condition, functional suitability, and student experience – for example travel implications where the option involves relocation or establishing a new site
• the impact on the environment and targets for carbon reduction
• timescales for project planning and delivery, including any temporary disruption to your operations or decanting required during implementation
• project costs and benefits, revenue implications (costs and savings) and sources of potential funding, including the potential for funding from disposal receipts, grant funding and match funding from college reserves
• risk, which will typically include programme delivery, commercial, planning consents, stakeholder support or resistance, resources and funding

This process will help to ensure that your shortlisted options are realistic and identify the key viable alternatives that should be evaluated. It will also provide a useful source of data to support your evaluation of those options.

Effective practice point

One way of mitigating risk is to break down a preferred option into phases. This may help reduce delivery risks and may also address issues of affordability and availability of grant funding.

You should ensure that the phases integrate well with any that come later in the project. They should not compromise value for money or the overall objectives of your estate strategy.

A high-level assessment is normally deemed sufficient for the purposes of the estate strategy. However, you should consider more detailed analysis and evaluation, such as a feasibility study, prior to commissioning a specific project or preferred option.

Option appraisal and evaluation

The approach to option appraisal and evaluation set out below is intended primarily for the purpose of producing your estate strategy. Specific approaches may need to be considered when you are submitting applications for capital funding to ensure that the application is aligned with the relevant funding criteria.

The outcome of the estates strategy should try to identify the college’s best property solution. Significantly amending proposals post-study to fit the criteria of a particular fund can be problematic.

Typically, your evaluation of options should consider:

• strategic fit and meeting the needs of the curriculum: it will be important to refer to the critical success factors and KPIs that you established early on in the preparation of the estate strategy and the assessment of curriculum needs and priorities
• cost vs financial benefits analysis: a quantitative, evidence-based assessment of the costs and benefits of each option
• finance, funding and affordability: practical consideration of sources of funding and an assessment of the impact on your college’s finances
• management, practicality and risk: implications and practicality of delivery plans, including management capacity and risk, including consideration of whether any option has the potential to be novel, contentious or repercussive in its use of public funds as directed by Managing public money (MPM)
• sustainability: the extent to which each option addresses social needs (for example, the wellness agenda) and environmental sustainability (including net zero carbon)

Case study: Bridgwater and Taunton College

In February 2021 the college suffered a major fire, caused by arson, at its Bridgwater campus. The fire did not result in any injuries, but the damage destroyed a 1,700 square metre arts and technology building, resulting in the need to relocate all timetabled provision, and the loss of all paper-based student coursework and resources located in the building. The building housed plumbing, electrical, production arts and motor vehicle provision. All of these required specialist facilities to be rehoused.

Once the site of the fire had been secured and decontaminated, the old building had to be demolished and a completely new education block was built in its place. The event tested the college’s business continuity process, but the resulting new build has successfully delivered improved facilities and a better configuration of space. Enrolments were maintained throughout and there has been no decrease in student numbers for the areas of provision affected.

Specific challenges of the project included:

• the need to rehouse student provision to alternative buildings as safely and quickly as possible
• significant safety works and decontamination required after the fire before any new building could begin
• planning for the new building needed to be achieved quickly

The college successfully navigated these challenges and approached the replacement building as an opportunity for better design.

Cost versus financial benefit analysis

Financial evaluation of options should take proper account of long-term implications and should be a whole-life appraisal. This approach can help to avoid a narrow focus, looking solely at short-term cost comparisons that do not necessarily result in optimal value for money.

Expectations can vary on how far forward investment appraisals should model costs and benefits. In some cases, a 30-year view may be required, though in practice 20 years is the most common approach for major capital projects in FE.

The construction excellence factsheet provides more information on how you can consider operational costs alongside capital costs during the lifecycle of a building.

In a whole life appraisal, you need to take account of:

• minimum lifespan of materials and systems
• repairs, including the cost of disruption while repairs take place
• maintenance and redecoration
• energy use
• environmental and social impact
• the flexibility of the building for alternative future uses
• financial issues, such as long-term funding, operational costs (including rent, rates and income), and facilities management costs
• procurement options
• acquisition costs
• ownership and potential disposal

Analysis of cost versus benefit should be based on credible assumptions and avoid the tendency for optimism bias about capital and operating costs, project duration and benefits as far as possible. In the worst cases, over-optimism can result in undeliverable targets and institutional failure.

An example of an existing investment appraisal tool which has been adapted for colleges can be found in the tools and templates section.

Key features of the existing investment appraisal tool include:

• a cashflow worksheet that calculates the net present value (NPV) of a capital project using a 3.5% per annum real (ignoring inflation) discount rate, consistent with the Treasury’s Green Book discount rate for the social time preference rate (the rate at which society values the present compared to the future)
• the facility to capture capital costs and receipts over a 20-year period and log additional revenue costs and income in years 0 to 10, with the projections then rolled forward from years 11 to 20
• a worksheet to capture key assumptions underpinning the cashflow worksheet, notably capital and operating costs plus changes in learner numbers and income, and total numbers of learners benefitting from the project
• a summary of the net present value with optional fields to model sensitivities such as capital cost increase, revenue costs decrease and revenue income decrease

Typically you would need to complete a separate investment appraisal worksheet for each shortlisted option in the estates strategy to compare the relative NPV of each option.

Effective practice point

The value of NPV analysis will depend on the accuracy of the costs and income modelled. You should avoid the temptation to tweak assumptions for the preferred option in order to generate the most favourable NPV.

You should also exercise caution regarding the likely timescales for any capital receipts arising. For example, colleges sometimes overlook or understate the challenges involved when replacing, redeveloping or disposing of sports facilities and pitches. In such cases, early dialogue with Sport England is advisable along with a sound understanding of the extent of your role in securing planning consent.

Case study: Trafford College Group

The TCG 2018 to 2021 accommodation strategy outlined a fundamental change in plans for the Stockport campus, informed by the curriculum vision and plan for the merged group and a full reappraisal of the property options.

As part of preparations for the merger between Trafford and Stockport colleges, the group undertook an options appraisal to test previous plans for relocation to the bus interchange against three alternative options:

• base case - do nothing
• relocation to another site
• major new build on the existing site

The group completed NPV assessments to support the preferred option. The NPV analysis backed up the case for an alternative to the bus interchange option and was helpful in securing capital grant support for a major redevelopment of the existing site.

Sensitivity analysis

Sensitivity analysis can be a valuable tool to help demonstrate the key changes in assumptions required either to generate a positive NPV for a specific option or alternatively to generate a negative NPV that suggests that the option should not be followed.

The Treasury’s Green Book recommends consideration of switching values. A switching value is the value that an important variable would need to take to switch preference from one option to another. This can be helpful in highlighting critical variables and the extent to which you might weigh apparent financial benefits of one option against risk.

Critical sensitivities that may be worth considering as part of your investment appraisal include:

• increased construction costs
• lower or delayed capital grants assumed
• lower or delayed capital receipts
• lower or delayed benefits in terms of income growth

Funding, affordability and value for money

Alongside any assessment of costs versus benefits, you will need to ensure that options take account of your college’s overall financial health and resilience and avoid putting solvency at risk.

You should ideally model your preferred option using the ESFA college financial forecasting return (CFFR) to demonstrate the implications for affordability and financial health.

This modelling is not always performed specifically for the completion of the estate strategy, but it is important before you commit to any major capital scheme. A formal feasibility study can help provide more detailed costings and capital cashflows that provide the basis for a formal business case to your governors, supplemented by your updated version of the CFFR.

Case study:  Dudley College of Technology

Alongside the schedule of risks, an important component of the IPI model is an ‘opportunities register’ that captures ways in which enhancements and efficiencies can be achieved. This approach helps:

• incentivise and promote upsides as something of a counterbalance against downside risks
• lead to affordable solutions being adopted without the need for traditional value engineering recovery

The college found that the IPI model incentivised every member of the alliance team to promote efficient solutions through the gainshare mechanism.

Feasibility studies and business cases

A feasibility study is a more detailed evaluation, testing and part-development of a planned course of action, or project, and any associated options.

Key objectives will be to:

• define the project brief in greater detail
• reduce risk by identifying investigations and surveys that reduce uncertainty
• refine the programme and costs (with emphasis on project or site-specific challenges)

This is an overview of the reasons why a feasibility study should be the starting point for your property development project, and how this should contribute to a proper business case to underpin your investment decisions.

The most common reason for the failure of property development projects is underestimation of development costs, such as the money that you need to fund the development.

In many cases, the impetus and timetable for major capital investment in your college is driven by external factors – typically the launch of a new round of grant funding. The application requirements for these funding opportunities will often include a range of evidence to support the capital bid.

Your project proposals should be clearly aligned with your estate strategy, and decisions to proceed should be informed by a clear business case proposal that demonstrates the feasibility of your project, the financial implications (both capital and revenue), key sensitivities and project risks.

Case Study: Dudley College of Technology

An important part of the planning phase was the completion of a feasibility study with associated work to reach agreement in principle with the council (as landowners) on site acquisition. This early work included securing planning permission which the college believes strengthened their case in their funding application and eliminated one of the risk factors that commonly delays major capital projects.

The feasibility stage also identified the affordable investment target, the financial ceiling which the alliance team was tasked to deliver the project in.

While the upfront costs of feasibility work had to be funded by the college and fell outside the grant application, the college is convinced this was the right thing to do and that again it helped them make the case for the substantial grants that external funders contributed to the final project.

Cost of making a mistake

Developing property is a dynamic process. The stakes are substantial, the projects can be complex, and timescales can be volatile. It can take a long time to recover from failed projects and, in some cases, they have contributed to financial failure and intervention.

Regardless of whether this is your first property development project, or you are more experienced in development, the key to a successful property development project is careful planning and a detailed feasibility study.

Think about whether you would start a business without a good business plan. How would you know what legal requirements you need to fulfil? How would you tell if your pricing and sales forecasts are adequate? How would you know what advertising campaign to run and when? The same principles apply to your property development.

A property development appraisal and feasibility study helps you deconstruct complex projects and execute them in a manageable and timely manner.

It can also form a key component of the overall business case process that should be part of your major investment decision making processes helping to:

• reduce risks
• forecast the investment required
• manage timelines
• get legal and other approvals and prevent unwanted delays
• secure buy-in from various stakeholders

Key elements of a feasibility study

Feasibility studies are best supported by the development of a design meeting the requirements of the Royal Institute of British Architects (RIBA) work stage 1: feasibility.

Sketches can be prepared to demonstrate that the broad spatial requirements can be accommodated on the site. In some instances, sketched variations in response to the same project brief might be prepared.

Preliminary property development viability study

This is the most important aspect and ensures you ascertain if your project is deliverable. This pre-property development assessment will determine an approximate profit and might save you from wasting your time, effort and money.

Concept testing

Cost inflation can cripple a property development project. A systematic property development assessment allows you to make mistakes on paper, rather than when the project is completed.

Confidence

A thorough feasibility study will increase your confidence to proceed with the development. Sometimes, it may even compensate for a lack of experience if the concept is sound and there is good demand for the development.

Liaising with the local planning authority will also test the concept against local and national planning policies.

Finance

A property development feasibility study shows the level of finance required and for how long. It can also inform more detailed investment appraisal as outlined in options generation, evaluation and appraisal to demonstrate the forecast return on your investment over the lifecycle of the asset.

Underfunding and early cash flow problems in a project are 2 major reasons new developments fail. Feasibility analysis helps you to convey your ideas to stakeholders and potential funders and helps them to understand and appreciate the reasoning behind the proposal.

Reflections on what the strategy has achieved

Your governors and the senior leadership team will need to be able to evaluate how well you have achieved your strategy’s objectives.

This will be important since there will have been significant resources invested in the strategy. This will also help reinforce accountabilities and capture any lessons learned for the future.

Monitoring progress against the estate strategy

Your estate strategy will need to be periodically updated and refreshed. In the intervening years, you should put in place appropriate mechanisms to review and monitor progress against your current plan. These should not focus solely on progress with implementing specific actions and projects but also the overall critical milestones and target outcomes within the original strategy.

Whilst you may need to make changes to the sequencing and timing of implementation of key actions and recommendations, the rationale for these should be clear along with an assessment of any consequences for the rest of the strategy.

One option is to consider some form of annual progress report on the achievement of your estate strategy that is presented to governors.

It is useful to reflect on lessons that you learned during the implementation of strategy as well as successes, achievements and performance against KPIs. These lessons are often drawn from examples of when things went wrong and how these may be avoided in future plans. This reflection is particularly valuable after a major capital project and could be captured fully by conducting a formal post project review.

Post-project reviews

For some grant-funded projects you may be required to conduct some form of post-project review or evaluation and you will need to comply with these reporting requirements in full. Even where this is not the case, it is often useful to carry out some form of post-project review for major capital investments.

Case study:  Bridgwater and Taunton College

The immediate post project review was divided into two sections, a standard review of the construction process and a fit-out review. 

The standard review of construction process was led by the project team. It analysed:

• the construction cost and time overruns
• risks materialising
• contractor performance
• internal management
• finished building quality
• snagging process
• retention
• lessons learned

The fit-out review involved the project management group also separately reviewing the building fit-out phase: 

• timeliness
• budget
• planning adequacy
• impacts of fit-out on curriculum staff and students
• integration with main project plan
• impacts on timetabling and resourcing

This phase was conducted as rigorously as the review of the construction process.

This review was introduced to ensure this phase was well planned. The project management team was keen to ensure that previous lessons had been learned regarding fit-out budget, timescales and quality of specification for equipment and fittings. This was particularly important since this phase impacts most immediately on classroom environment, learning resources and student and staff satisfaction.

Post-project evaluations

A successful post-evaluation involves completing a series of activities.

Set out your measures

Plan what you will measure to reinforce accountabilities and help to ensure that promised project outcomes and the assumptions underpinning these are realistic and achievable.

Map out a plan

Think about who is best placed to undertake the review, what key aspects should be covered and who will be responsible for carrying out any actions needed as a result.

Plan the timing

Ensure the review is not conducted too soon after project completion when there is not enough data to measure any longer-term impacts of the project or strategy. For example, financial benefits of student recruitment and quality benefits will typically need at least 2 years of post-project data for impact to be evaluated.

This is true for financial elements of evaluation where a large element of the strategic or project plan relies on 16 to 19 student delivery, which is funded on a lagged basis. Some types of provision, for example adult provision, short courses, community courses and traineeships, might be capable of assessment on a slightly shorter timescale.

You should also ensure the review is not left too long. Whilst the data may be more accurate, other elements of the post-project review may no longer be valuable as lessons learned due to changes in the operating environment. The further removed the exercise becomes from the project delivery, the less likely that there is fresh team memory of learning points. In practical terms, you may wish to conduct an initial review of the project implementation and construction period and follow up with a second-part review of educational, financial and environmental impact.

Effective practice point

Too often, post-project evaluation is seen as a compliance activity for grant funders rather than a meaningful assessment of impact and outcomes. This is particularly evident where evaluation reports are late and must be chased up.

It may be beneficial to diarise the timelines for evaluation reports when setting agenda plans.

Inform the governors

Governors need to be given information about the results of the post-project review and should be able to monitor actual results of previously approved investment against the agreed KPIs.

They should receive:

• qualitative information about student experience and staff satisfaction
• information on financial returns and impacts on sustainability and resources
• the same information as presented to senior leaders

Case study: Dudley College of Technology

The college confirms it is exceedingly happy with the Institute of Transformational Technology (IoTT) project and to date student numbers are on target. The second prospectus report provides more details of the project’s successes.

The IoTT was joint winner of the Constructing Excellence West Midlands Region 2021 Collaboration and Integrated Working Award and was commended in the 2022 MacEwan Award.

Financing the estates strategy

You will need to ensure your estates strategy is affordable by including it in a full financial plan. The plan will need to:

• extend to at least 3 years beyond the current academic year
• include the financial impact of planned capital projects set out in the estate strategy
• include a detailed monthly cashflow forecast which aligns to the main key forecast statements (statement of comprehensive income, balance sheet, and cashflow statement)

It is important that a user of the financial forecast should be able to see the alignment between your financial plan and your estate strategy.

Assumptions in the financial plan

Assumptions made about the implementation of your estate strategy should be set out in the commentary to the financial plan and should align with the strategy. There are some key assumptions which you should include.

Forecast inflation

You should forecast inflation individually for key lines of risk, for example energy costs and building materials. Where lines are not material to the plan, general rates of inflation such as the Consumer Price Index (CPI) can be applied.

Different kinds of income and expenditure will fall into different categories of risk according to the current economic environment, so you will need to review these assumptions every year.

Materials costs

These are relevant to both running costs and to capital projects. They could be affected by many factors other than ordinary inflation according to current supply lines.

Lead times

Your forecast expenditure patterns, particularly in the cash flow forecast, need to take account of the latest supply chain information.

Grant funding

You should describe any assumptions about the value and timing of grant funding.

Capital receipts

You should include prudent estimates about the level and timing of any capital receipts assumed as part of the estate strategy or a specific property proposal, taking care to take full account of any material conditions that may impact on the level or timing of the receipt.

Where a receipt is not guaranteed it is better to exclude it from your financial plan, although you should build it into any sensitivity modelling.

Calculating cash available for investment

Since 29 November 2022, following Reclassification of FE colleges, sixth form colleges and designated institutions in England to the central government sector, colleges are subject to the requirements of Managing public money. This includes the requirement that any new commercial debt offers value for money comparable to government debt, and it is very unlikely that commercial lenders will be able to meet this requirement.

If colleges do want to enter new commercial debt arrangements, or make further use of existing credit facilities, this will only be possible with the consent of DfE.

When considering investment in cash for significant projects, you need to analyse the impact of any proposed investment on monthly cashflow available for existing debt service (CFADS).

CFADS measures how much cash is left to pay debt and build up cash reserves after planned capital cash net outflows. It tells you how much cash you have left after your projects to pay existing loans and give you a cash buffer against downturns. It is a cash-based measure, so can predict any critical months of risk and allow you to model different scenarios.

Example calculation for a cash available for investment

Cash from operations – capex = CFADS

CFADS is a key measure of in-year cashflow affordability. However, you may also have built up historic cash reserves which are available to support the project, and these will also form part of your cash affordability assessment.

You should not use up all your reserves to fund capital projects since this will weaken your cash resilience and ability to respond to unforeseen events, but you should take them into account as part of the assessment.

This publication includes an example of a cash waterfall which forecasts CFADS.

Cashflow forecasts

To ensure that the long-term financial future of your college is secure, financial modelling for capital projects needs to:

• be long-term (at least 3 years) and include a monthly cashflow forecast, especially during the development period and while projects mature, for example if they create additional learner capacity and there are lagged funding impacts
• be sufficiently detailed to show key project movements as well as ordinary operating cash flows
• integrate financial information so that the cashflow forecast fundamentally agrees with the balance sheet, and income and expenditure account
• be in a standardised format which can be copied easily to create several different scenarios for sensitivity and risk analysis

Despite time pressures, any financial forecast for a major capital project needs to be modelled carefully as it has the potential to cause financial failure.

College financial forecasting return (CFFR)

The CFFR model provides a tool which essentially performs these functions, although any CFFR needs to be sense-checked against accurate working cashflow forecasts.

This is because the cash flow forecast of a CFFR is automatically generated from the inputs to the income and expenditure account and balance sheet. In other words, it is an indirect cashflow model. If the resulting CFFR cashflow does not look very similar to your direct working cashflow forecast, despite the CFFR income and expenditure forecast being accurate, the CFFR balance sheet will need checking.

Pay particular attention to forecast debtors and creditors to make sure that the balance sheet movements are dealing with timing differences between income and expenditure and cash, and so feeding into the cashflow forecast correctly.

Managing monthly cashflow patterns

Even before including forecast net capital expenditure, a college’s forecast cash balances will usually vary quite significantly from month to month.

Major capital projects can drastically alter your forecast balance sheet as well as your forecast cash movements, and in combination with the variable cash balances generated by ordinary operations, can create real solvency pressure if not planned for thoroughly.

Your forecast should therefore be subject to sensitivity analysis which models various adverse circumstances affecting the core financial forecast and sets out mitigations to deal with them.

Effective practice point

Identify a minimum cash balance (in cash days as well as a cash figure) that your college needs to hold to be able to meet all its obligations with an adequate comfort margin.

This should be a conservative figure and include a reasonable buffer for managing liquidity and unforeseen costs. If the project causes the cashflow to breach this minimum cash balance, you should not proceed with the project without adjusting the planned project cost or funding availability.

Sensitivity analysis for specific project risks

There are some specific risks which often arise when managing capital projects, such as:

• project slippage impacting on project cost, especially in times of high inflation – project delays can increase costs leading to increased final cost, complex negotiations with contractors, the project halting or, sometimes, contractor insolvency
• project slippage delaying the use of the completed capital asset which can result in a reduction of cash generation from its use and unexpected additional costs such as temporary accommodation or asset hire
• delays in asset sales which are required to fund the project
• timing of capital grant receipts

You should make sure that you have thought about all these risks and whether they apply to your project. If they do, you should model their financial impact and report what strategies you will put in place to make sure that your minimum cash level is not breached in the event that they arise.

You should also make sure that these financial risks, and others you identify, are included in the overall project risk register.

Effective practice point

If a capital grant is due to be received in advance of project expenditure, you should ringfence the receipt in the accounts and clearly show it as a grant in advance or as restricted grant income.

This will ensure that the funding you have received cannot mask the position of the ordinary working capital of the college and that governors understand how much of your cash balance is already committed for capital projects.

Integrated Project Insurance

IPI is in essence a collaborative model for procurement and delivery of major capital projects in place of traditional competitive tendering approaches and design and build methodologies. This new approach which was piloted from 2014 seeks to achieve cost, time and carbon savings and helps to minimise exposure to cost overruns.

You can find further guidance on the Integrated Project Insurance page.

The scheme is intended to manage financial risk for projects in the £10million to £25million range. It represents the purchase of insurance which sets a limit on liabilities for additional project cost as part of a new model of integrated project delivery, with the intention of providing greatly increased certainty in cash flow planning. It could be helpful for many colleges undertaking projects in this value range, but particularly for any with critical cash flow risks which cannot be exceeded.

Case Study: Dudley College of Technology

Dudley College was one of the very first bodies to trial the Cabinet Office’s IPI model for the construction of their Advance II construction and engineering centre. Based on the positive experience from this project, the college adopted the same approach to the institute of technology centre and is currently trialling the approach on a smaller project for refurbishment of animal care facilities.

Measuring project financial returns

As part of your financial analysis, you will also want to forecast financial performance of the project and look at expected returns and cash generation. A common tool for such evaluation is the Net Present Value model. Financial evaluation of projects is covered more fully in the options evaluation and appraisal section.

Grant funding

The most common source of grant funding for capital projects is government match funding. This is sometimes awarded in a competitive capital bidding process and is based on an expectation that your college funds the substantial part of the project from cash reserves, although this is generally adjusted for affordability. However, sometimes, capital grants are made on the basis of a formula which is applied to the whole sector.

Other common sources have been:

• Salix Finance
• donations from industry
• various special interest bodies, such as the Football Foundation

Grant funding opportunities sometimes arise at relatively short notice and are often linked to specific criteria. This may not align perfectly with the priorities and options identified in your estate strategy and may require a degree of tactical adjustment to take advantage of each opportunity as it arises. It also means that advance preparation and scoping of future projects is likely to increase your prospects of success. Capital funding allocations also come with terms and conditions for colleges to adhere to.

Applying for grant funding

The most successful applications tend to be the most advanced at point of submission, with projects that have been scoped in detail, and which are ready to commence delivery immediately, potentially more likely to be approved for funds.

You should decide if it is good value for money to invest in time and professional advice to prepare the core parts of an application in advance, as these are likely to be generic to all applications. This allows elements which are specific to the capital funding opportunity to be developed responsively and to a high quality.

Financial planning for grant funding

At the point where you are producing your latest financial plan, you may already be aware of plans for a capital project or multiple future projects.

If your project is not yet approved to progress, it should not be included in the core financial plan. A version of the plan which contains the project should be produced for information, so that leaders and governors can see the impact on the financial projection should the project go ahead.

This allows for the right level of awareness and strategic oversight for project impact. If the value of grant funding included in the project is significant, and not yet approved, the effect of different levels of funding on the proposed model should also be reported.

Contingency planning for grants

As part of financial risk management of your project, you should:

• produce sensitivity analysis for different grant application outcomes
• plan for the risk of any delay in receiving grant funding, where a grant award has already been confirmed and particularly where the receipt might be critical to a cash low point - this is particularly true of grants from non-government bodies which may follow different payment arrangements and are dependent on evidence submissions and administrative arrangements

Complying with conditions of grant funding

To comply with the grant funding conditions you should keep all grant letters as part of the document store referred to in managing data so they are accessible.

You should ensure that compliance with conditions of funding is reviewed by project managers and college leaders regularly so there is no risk to the funding, for example by reporting on it in the commentary to the management accounts or in an estate update.

Remember that, depending on the terms of the award or allocation, grant funding may need to be repaid if you dispose of the property or project. Grant funding that is allocated may be recovered if it is not spent in accordance with terms and conditions of the grant.

Loans

Historically, there have been 2 main types of loans available in the FE sector:

• commercial debt
• non-commercial debt

Since November 2022, when colleges were reclassified as public sector organisations by the Office for National Statistics (ONS), any new commercial debt agreements, or amendments to existing agreements, need to be approved by central government. This includes the requirement that any new commercial debt offers value for money comparable to government debt. It is very unlikely that commercial lenders will be able to meet this requirement.

If colleges want to enter new commercial debt arrangements, or make further use of existing credit facilities, this will only be possible with the consent of DfE. Colleges should continue to service existing debt, under existing agreements, through repayment management, cash flow planning and compliance with loan conditions and covenants, until fully repaid.

Non-commercial debt

This is offered by public sector bodies and charitable organisations. It is generally offered on more favourable terms than commercial debt but still requires due diligence before committing to a loan agreement.

Commercial debt

Commercial debt is no longer likely to be a vehicle for funding new projects, but may exist on the balance sheet as part of a college’s existing funding plan. It can take many forms, but, historically, the most commonly used vehicles in the sector were repayment term loans and revolving credit facilities (RCFs).

RCFs stipulated an overall borrowing limit and an end date final repayment term. Within these parameters, they allowed you to draw down funds and repay funds flexibly to suit the cashflow needs of a project.

Interest on an RCF is usually charged at a floating rate on daily balances applied to the values currently drawn. There is usually a charge for the value of the undrawn facility, depending on the agreement, referred to as a commitment fee or non-utilisation fee.

As a method of funding large projects spread over a longer period, the flexibility and cash responsiveness of this model was potentially useful, but it’s important that enough cash is available at the end of the project to repay the facility in full at its end term. These final payments are typically much larger than regular repayments spread over a longer period as required by term loans.

If a college forecasts that it will be unable to repay an existing RCF at the originally expected term date, it can no longer presume to be able to refinance this balance commercially and must discuss this potential funding deficit with the Department for Education at the earliest opportunity.

If an RCF is expiring within 12 months, this maturing loan can impact your auditors’ position regarding going concern since they may need evidence before the year-end that funding is available to repay the full loan.

Facility agreements and loan conditions

Loan facility agreements are important documents which are issued by lenders which set out all the terms and conditions attached to a loan.

As well as commonly scrutinised elements, including repayment terms and interest cost, these agreements are likely to contain loan conditions, covenants and requirements to notify the lender formally in the event of certain circumstances, such as a fundamental reorganisation of the borrower’s organisation.

Regular reporting of compliance with conditions for existing loans in the commentary to the management accounts reduces the risk that a college may fail to notify a lender of a key event and inadvertently breach the loan agreement, putting the debt in default.

Simple practices like diarising dates for submission of financial information to the lender also help to prevent an inadvertent breach of terms.

Repayment terms

You should model existing loan repayments accurately in your cashflow forecast, as appropriate to the terms of the loan agreement. For commercial borrowing, the most accurate forecast of monthly interest is likely to be provided by the lender, who will usually calculate projected interest daily.

You could check this with an internal model, which can be set up to feed into cashflow forecasts. Any significant “balloon” repayments, where a large part of the debt is paid down at the end of the debt in order to create lower interim repayments, need to be modelled for impact well in advance of the period when they are due. This may require you to extend your cash flow forecasts over a longer time period. If forecasts indicate that you may struggle to meet any future debt repayment, this can no longer be presumed to be refinanced with commercial debt and should be discussed with the Department for Education as soon as possible.

Covenants and compliance for existing loans

Most commercial loans will specify covenants which must be complied with as part of the loan agreement. A breach of covenant for an existing loan is a serious regulatory issue and is a technical default on any loan, and so you need to monitor compliance as part of regular management accounting and reports to governors.

It’s important that you show the effect of any proposed capital project investment on all of your existing covenants before the project is approved. If a project or capital plan causes a potential covenant breach on an existing loan, you should discuss this with your governors, the Department for Education and the lending bank well before your plan is approved.

Such a forecast breach does not mean that the project cannot go ahead, but it does require that you keep governors informed and discuss the risk with the bank and the Department for Education.

If the bank is supportive of your proposed investment plans and feels that the potential covenant breach is not a fundamental risk, it is possible that the bank may be able to amend the covenants, but this would need to be formally approved by the bank in advance of going ahead. If you don’t discuss this risk with the lending bank before proceeding with the project, and then the covenants are breached. This will put you in breach of your existing loan terms and your governors will be placed in a difficult regulatory position. A change to a bank covenant does not require DfE consent, unless it results in a change in interest rate or other significant terms, but it is advisable to inform the DfE and discuss your plans with them in advance.

Effective practice point

As well as finance covenants on existing lending, there could also have been operational loan conditions such as:

• negative pledges – a binding commitment not to grant further security without the lender’s permission
• other consent requirements – such as the need to gain the lender’s consent to dispose of a significant (subject to a de minimis level) proportion of assets
• the need to inform the lender of a proposed significant change to the business plan or restructure of the organisation
• restrictions on taking out additional borrowing

If you are already planning disposals, you can ask to include these as permitted disposals in a facility agreement to save the need for further consent. However, such a change also requires consultation with the Department for Education before going ahead as it represents a significant change to loan terms.

It’s good practice to:

• note the operational conditions of any existing loan
• monitor loans in the same way as finance covenants
• report compliance in summary to governors periodically

If these conditions are monitored and reported along with your finance covenants, this prevents an inadvertent breach of your loan agreement.

Any proposed changes to existing commercial loan conditions, particularly significant changes (such as to security, repayment terms or agreed interest rates), should be discussed with the Department for Education before implementing with your bank.

Security

Historic commercial loans of a significant value will generally have been secured on your college’s assets. There were occasional exceptions where debt was unsecured, but these have become increasingly uncommon. Some non-commercial lenders may also require security on their debt and colleges should be aware that there could be competing requirements from various lenders. Since November 2022, any new security against debt is likely to be required by central government rather than commercial lenders.

The security granted should have been approved by your governing body, with each instance carefully recorded in the central document store. Before disposing of any estate assets or proposing any extension of borrowing via government-funded routes, you need to check records of existing security held by lenders and loan terms.

The ESFA may also require security before providing certain types of funding, which could mean the negotiation of an intercreditor agreement with any other existing lenders, including commercial banks. Lenders will require regular valuation of security, typically reviewed every 3 years. You should check what their approach is likely to be, and whether valuations will rely on value generated by college use or value generated by alternative use, as this will affect the valuation.

Intercreditor agreements

In some cases, colleges may have more than one major lender providing financing and lenders will generally have agreed to their ranking for receiving secured assets in the event that the college becomes insolvent. Any change to such an agreement needs prior approval from the Department for Education. Changing an intercreditor agreement is a potentially complex process and good legal advice is also important.

Finance leasing

Operational leasing of property and assets is covered in leasing property. These types of leases concern the rental payment for the use of an asset, but with operating lease arrangements the ownership, financial risks (for example repair and replacement) and rewards of the asset remain with the lessor.

A finance lease is different. It is essentially a method of financing an asset, where the ownership risks (for example repair, replacement and insurance) and benefits of the asset substantially transfer to you, the college. As with all such transactions, the terms of any lease can vary significantly, and a careful review of a leasing contract is advisable before commitment.

A typical finance lease is not generally secured on your college assets and lease repayment terms are usually offered over a relatively short time scale, for example 3 years, during which time interest will be charged. The legal ownership of the asset remains with the lessor. At the end of the lease, there is usually an optional final payment required to transfer the asset into the legal ownership of your college, which can be nominal or significant. You would need to return the asset to the lessor if choosing not to exercise the option to pay for permanent ownership.

The benefits of using finance leases, especially for the purchase of smaller assets, is that they:

• are simpler and quicker to secure
• do not require security
• are not subject to the same level of lending conditions and covenant compliance as historic borrowing
• do not require permission from HM Treasury unless they are novel, contentious or repercussive

However, you need to take care that aggregate finance repayments are affordable and that approval from existing lenders is not required before entering into the agreement.

Effective practice point

There are many potential models for finance leasing which vary in:

• security
• repayment terms
• interest terms
• terms for final transfer of the asset if the college requires permanent ownership

You should check lease terms carefully and make sure that you understand them fully before committing to any significant finance agreement. Some colleges have had unexpected liabilities arise at the end of lease terms where a substantial payment is required to keep the assets permanently.

If you are not fully confident, consider taking professional advice. Always make sure that any significant leasing commitments follow your normal financial and procurement processes, including governor approval if needed.

Disposals

Guidance is available when disposing of or selling a property or assets.

Similar principles of financial planning apply to those set out for grant funding. If the sale of an asset is an integral part of the funding for your planned estates development, you should not include the project in the college’s basic financial plan until the sale is legally binding.

You should model the forecast financial transactions underpinning the proposed project, including the asset sale, in a second version of the financial plan for users of the financial information, so that they are able to see the effect of the project.

If there is significant doubt about the timing or value of the proposed sale, you should also model different scenarios as part of a sensitivity analysis. The number of scenarios modelled depends on the value of the sale and how critical the sale is to the solvency of the project. If there is significant uncertainty about the sale value, a range of possible receipts should be modelled, together with costed strategies for responding to these scenarios.

Where a disposal is critical to a project, you need to develop contingencies in advance to prepare for the event of a late sale, legal barriers, or loss of value affecting project delivery.

Effective practice point

There are numerous examples of over-reliance on a capital disposal or receipt that has been delayed or fallen through. In some cases, this can undermine the solvency and financial health of the college.

Whilst it is not practical for every case, where possible you should consider asset receipts as a bonus rather than an essential source of funding. Where this is not possible, you should include a comprehensive assessment of timing and risks in the project pre-approval planning, to model the options available should problems arise.

Taxation

VAT liability implications for the construction and implementation of capital projects can be complex and need to be considered carefully. This also applies to the effect of changes set out in your strategic plan for the location and type of educational provision that you are planning to carry out, especially after major capital projects.

There are also potential corporation tax implications for certain kinds of disposal or business trading. Financial planning needs to incorporate consideration of these potential tax impacts. Taxation is an area where you might consider the need for external specialist advice, as long as the advice does not conflict with the requirements on tax planning of section 5.6 of Managing public money.

A few helpful general principles are set out below, but these principles are not tax advice and taxation case law changes regularly. You should always check the latest tax position before making a decision.

Construction

When planning layout and delivery of a new building, you should bear in mind that the type of educational provision could affect taxation charges for its construction and use.

VAT zero-rating is currently available for the construction of buildings that are planned to accommodate greater than 95% non-business activity, which would typically mean 16 to 19 years provision. The qualifying building needs to be an entire new building, not an extension, and not joined to existing buildings by a linking structure. The > 95% non-business usage of the newly built asset will need to be maintained and evidenced for at least ten years following completion, or the original VAT liability will become due (subject to apportionment rules, such as the time elapsed since first use).

Given these restrictions, historically the majority of new general FE college buildings have not been zero-rated.

Another consideration for planned use is that, for partial exemption calculations – and therefore any recovery of VAT (residual input tax) – to apply to activities carried out in a building, there must be some taxable supplies being made in the building. Taxable supplies include such items as:

• sales of food or other products from a vending machine
• some kinds of standard-rated food from a cafe or items from a college shop

You can find more information on new buildings and construction (including the guidance on zero-rate for relevant charitable use, dwellings and change of use), as well as what is or is not a new building and what can be zero-rated in the way of fitting out and design and build contracts in the government guidance on buildings and construction VAT.

Disposals

There are several things to check when planning the disposal of a building or piece of land:

• option to tax: you should check whether the asset has been subject to an option to tax in the past 20 years, which means that the owner of the building has chosen to charge VAT on rental income and recover VAT on its purchase or construction. If this has happened within the previous 20 years, output tax will be chargeable on your sale (unless other rules apply)
• if an option to tax has been applied within the previous 20 years, output tax will be chargeable on your sale (unless other rules apply)
• sale within 3 years of completion: if you sell your building fewer than 3 years after practical completion and it is freehold, the sale is automatically standard-rated for VAT. If VAT is not charged on sale when it should have been, there will be a liability for the unpaid VAT arising for the college
• disposal: if a building which benefited from certified charitable use to take advantage of zero-rating at construction is sold within 10 years of completion, a change-in-use charge is automatically applied and the full original VAT liability becomes due (subject to a time apportionment)
• corporation tax liability: there could be a corporation tax liability if you are selling land or buildings to a private developer, which generally arises if there is contractual provision for additional income linked to a share of developer scheme receipts
• if a sale to a private negotiator is part of contract negotiations, you should consider taking advice from a tax specialist regarding the extent of any liability arising and any potential tax value to be included in your financial forecasts. Make sure that any advice does not conflict with the requirements of section 5.6 of Managing public money on tax planning. In some cases, a sale might include a condition that, if the purchaser expects to receive income from commercial development sales derived from the purchased asset at a later date, there will also be additional sale receipts due to the seller at this point. This conditional additional income is known as “overage”. Overage is likely be considered a novel, contentious or repercussive transaction and require permission from the Department for Education before including it in a contract

Mergers

In general, VAT liability crystallises on the transfer of a zero-rated charity building within 10 years of practical completion at merger in the same way as disposal. As an informal concession, HMRC may agree that zero-rated VAT will continue to apply on the construction of a building which continues to be used in the same way as previously for >95% non-business activities following a merger.

You can find more information about the transfer of business as a going concern and anti-avoidance rules.

Documentation on taxation

You should use good data management of central documentation regarding property transactions. This should include a record of any zero-rating of VAT claimed during construction of a new building and a copy of the VAT certificate issued to construction suppliers, and whether an option to tax has been exercised on a property or land and associated records.

The importance of budgeting for estate management

To get the right combination of costs and benefits, you need to:

• understand how all your resources are used
• challenge yourself to use them more efficiently
• get value for money from the estate

Thinking about the estate strategically will help you do this by:

• providing a framework to identify issues and recognise risks early
• forecasting investment need in the short, medium and longer term
• identifying capital budgeting requirements, enabling consideration alongside revenue budget planning
• helping you sequence and prioritise works to maximise outcomes
• coordinating efficient procurement of services

Responsibility for estate budgeting and finance

Budgeting for the strategic management of the estate is an integral part of the budget planning cycle. It should not be treated as a standalone item.

Assets recorded in the balance sheet need to match the value of assets in the asset register. Any planned additions need to be included in the financial plan to the extent that full funding is already secured.

Any planned disposals should be included if the disposal is contractually secured. If a significant disposal is included but the value and timing of the disposal is uncertain, an alternative plan which does not include the disposal should also be produced.

Capital and revenue budgets

The operation of the estate will impact both capital and revenue budgets. Capital projects could include:

• internal alterations
• extensions or new buildings
• invest-to-save schemes
• improvement works to ensure the sustainability of the estate through asset change

Revenue costs are associated with the operational running of the estate, including facilities management costs.

You should know the full cost of occupying the estate. This can be a challenge if you have:

• inconsistent budget recording
• fragmented responsibilities and data recording

Understanding the financial implications of proposals as a whole supports:

• better decision-making
• delivery of best value for money

You should consider the revenue implications of any investment in the estate in the short, medium and long term.

Capital projects may have revenue implications that you need to consider in your decision making. You should consider invest-to-save projects, which could reduce revenue expenditure in the future.

Effective practice point

Monthly management accounts do not always provide adequate information on capital budget performance (actuals versus approved plans). Have a look at your management accounts to see if this is covered well in reporting. Further guidance on management accounts and good practice is available.

Prioritisation

Prioritising work is important to make sure your budget is used to deliver best value for money overall. Taking a strategic approach identifies investment needs across the whole estate.

This will help you to:

• plan your budget
• avoid unexpected budget pressures

Working this way makes sure that decisions on prioritisation are made in a consistent and transparent way.

Case study: BHASVIC

An overall increase in floor area from two major projects increased estate running costs.

The college budgeted for a 20% increase in overall utility cost for both buildings based on increased space. In fact the Copper Building, which uses natural ventilation and solar panels for heating, did not generate any significant increase in utility cost.

The Elms Building, however, has more complex internal mechanical installations and is generating costs slightly greater than those budgeted, despite making use of heat exchange technology. The college can measure energy requirements of the buildings separately and so has been able to track impact and plan offsetting measures.

Read the full BHASVIC case study to find out more about how they’ve managed their estate.

Risk management

The budgeting process and prioritisation of funding should take account of risk management.

Whilst risk cannot be completely avoided, recognition of the risks and their impact should be a factor when prioritising expenditure.

As well as financial risks (both capital and revenue related), consideration should be given to:

• risks around statutory compliance
• educational delivery
• strategic risk
• reputational risk

Case study: Trafford College Group

As part of the governance oversight and project management of TCG’s redevelopment of the Stockport campus, the group maintained a dedicated risk register for the scheme which was reviewed monthly by the project team and the strategic property working group.

Read the full TCG case study to find out more about how they’ve managed their estate.

Determining value for money

When determining value for money from investment and the management of the estate, you should consider the:

• potential to reduce revenue expenditure by investing in the estate – this could include invest-to-save projects
• options to deliver savings through rationalising the estate – this could include disposing of surplus capacity, releasing costly assets or acquiring more efficient space
• potential to generate income through the estate which could include letting parts of the estate for occasional community use, or longer-term release of surplus space
• options to procure services differently, which could include grouping all your requirements into a single contract or using frameworks for professional services

What governors need to know

The Department for Education has published a FE and sixth-form college corporations: governance guide to provide advice on responsibilities and best practice for governance teams. It contains a section on finance and estates management which underpins the advice in this guide. Part of this section includes guidance on preparation of an estates strategy and a regular maintenance plan.

Preparation of an estate strategy should be an integral part of your strategic planning process. It should link to your college’s overall strategic plan, as well as an up-to-date curriculum strategy. You should comprehensively review your estates strategy every 3 years as a minimum.

Timing of your input to the estate strategy

You should be involved in the creation and update of an estate strategy from an early stage in the process. This is because it links intrinsically to the strategic direction of the college and is needed to support changes to the curriculum offer. One way to achieve this might be participating in a visioning workshop at the beginning of the process and then asking for time to check in on progress. Your role is less effective if you are simply presented with a finished strategy to approve.

Involvement in the estate strategy

You need to check with curriculum staff that they have been consulted and involved in creating the estates strategy. This is so that you are sure that their perspective has been heard.

You should check that your estates strategy is informed by any locally produced skills plans such as the local skills improvement plan (LSIP) and takes account of employer views.

If your college is making use of external professional advisors to implement an estates project, make sure you are kept informed of their appointment. You should also make sure that leaders discuss plans with you as the project progresses as well as with their advisers.

Major investments

Before planning any major investments, you should be aware of your responsibilities for ensuring good use of public funds and diligent oversight of college financial solvency as set out in Managing public money and the College financial handbook.

If the college is planning a major capital project, make sure that you have seen sensitivity analysis on possible project cost fluctuations. You should also be informed on how these could impact long-term cash flow forecasts before you approve the project.

When you are planning a major investment, you should evaluate more than one option for the investment plan. These options should have different educational and financial outcomes. Check whether the options presented to you are all viable options and represent a genuine choice. You should avoid allowing a bias towards one option to develop before all costs, benefits and outcomes have been fairly considered.

Forecasts

Before approving an estates development project, you need to have seen a feasibility study. This should include development options and, once a preferred option is selected, a minimum 3-year monthly cash flow forecast for the preferred option with sensitivity analysis. This will show the impact of important project risks materialising.

It is advisable to have identified a minimum cash balance for the financial forecast. This is so that if any of the sensitivity models presented to you breach this minimum balance, you should not approve the project. You may approve it once you have seen evidence of further action to rectify the position, such as reducing costs or arranging finance.

You should also see forecasts of any project’s impact on existing loan covenants or loan conditions.

Take care that the financial forecast for your estates strategy does not rely on an unconfirmed capital receipt from a property disposal. There are many occasions when over-reliance on a capital disposal or receipt is delayed or has fallen through. In some cases, this can undermine the solvency and financial health of the college. You should make sure timing and risks are included in sensitivity analysis to model the options available should problems arise.

Monitoring estate performance

You should be monitoring the performance of your estate as part of your regular KPI reports so you can see the impact of any planned development. You can also check that the objectives of the development have been achieved.

A good way to achieve this is to receive a post-project implementation report. This gives data on actual development outcomes, compared with planned outcomes, and highlights any lessons learned from implementation.

Case study: Peter Symonds Sixth Form College

Governors were fully involved in the project from grant application stage, with six separate information points designed into the approval and monitoring process.

The following list describes the actions undertaken by the project team and how these were integrated with governance throughout the project. 

Stage 1

Select suitable consultants based on the outline brief and scope of duties. Governors approved the final shortlist of consultants for interviews.

Stage 2

Develop a brief and prepare a feasibility report, including design, programme and cost estimate for approval. Governors approved costs to proceed.

Stage 3

Develop, design and prepare tender documents, selecting a list of contractors. This enabled governors to approve the list of contractors invited to tender.

Stage 4

Evaluate tenders and award contracts subject to approval. Governors approved contractor appointments.

Stage 5

Construction activities commenced. The governors reviewed the progress reports.

Stage 6

Completion of works and agreement of final accounts. The governors were made aware of any issues.

Stage 7

Facilitate user occupation and resolve snagging issues. The governors supported the project by being made aware of any issues.

Stage 8

Post completion review of the project. Here the governors undertook a full organisational post project review.

A separate committee called the Capital Project Working Group was set up to oversee the project with clearly defined delegated authority and terms of reference.