Lack of Due Diligence Puts New Academies at Risk of Hidden Cost Time Bomb

MAC Construction Consultants are warning Academies and Multi Academy Trusts that they risk taking on significant hidden costs when either setting up new Academies and transferring control from the Local Authority or when bringing existing Academies into Multi Academy Trusts due to a lack of due diligence being undertaken on the buildings and land.

As part of the process of transferring an Academy from Local Authority control, a lot of the due diligence emphasis is around assessment of educational performance, historic, current and future admissions data, finance, operations, leadership, management and governance. These are important in their own rights as they are critical and must be properly assessed.

However, the risks of not assessing the current condition of the buildings and land and not understanding the future maintenance, improvement and repair costs and running costs could result in significant costs being incurred later that cannot then be recovered or insufficient funds being set aside for these elements.

Some Academies and Trusts appear unaware that the property and land costs are a significant part of their annual expenditure or fail to notice that their building stock may be dated and in need of significant investment to bring it up to current standards, especially for elements such as roofs where deterioration may not be directly visible, leaving the Trust with no option later but to further delay replacement or repair works as no funds are immediately available.

If the Trust was aware of the condition of the buildings or realised that funds could be available by releasing small areas of land that had no direct consequences to the school operations, then they could plan accordingly, introduce sinking funds or negotiate the inclusion of such costs as part of the overall funds being provided by the Local Authority as part of the deal for the transfer.

MAC Construction Consultants have experience of providing lean technical due diligence services for those Multi Academy Trusts who are considering sponsoring an Academy or any School stepping away from the Local Authority.

Due to the time constraints that are often imposed the Sponsor needs independent evidence producing as quickly as possible to a level of quality that can aid future decisions and negotiations.

The Sponsor will frequently require quantifiable data as to the extent of any liabilities that may form part of the transferred building and land assets. Data collected generally comprises of the following:

1. Land tenure (freehold, leasehold) including any non-LA ownership or third party rights / restrictions / covenants / sitting tenants
2. Terms of transfer
3. Brief description and condition analysis of buildings, hardstandings and land, identifying the current condition of these elements and the likely costs of undertaking repairs, maintenance or replacement
4. Assessment and comment on PFI contract terms if applicable
5. Extent of the school grounds
6. Surplus land for possible sale and whether brownfield or playing field designation

The condition survey identified at Item 3 above addresses all aspects of the Academy’s built environment and provides the Sponsor or new Academy with a costed appreciation of the risks and liabilities identified, with details ranked under a scoring criteria of A-D for condition and 1-4 for priority.

In addition to the buildings and land due diligence, MAC recommend the provision of a compliance audit that concentrates on the Academy’s statutory and insurance requirements and thus covers some 60 individual items ranging from Asbestos Registers and Fire Risk Assessments to Mechanical & Electrical Service records and Asset Management plans. This will compliment and allow the Academy to present documentation to the Education Skills and Funding Agency when they inspect the buildings for the current Condition Data Collection.

MAC’s Academy Compliance Audit is designed to provide the Trust with an overall score of the school’s current performance in terms of statutory compliance. The scope includes but is not restricted to a review of the following:

1. Asbestos Register
2. Fire Risk Assesments
3. Disabled Access Provisions
4. Electrical Fixed Installations
5. Emergency Lighting
6. Energy Certificates
7. Fire Alarm Systems
8. Gas Appliances
9. Gym Equipment
10. Mechanical Services Maintenance Records
11. Asset Management Plans

All the above information can then be brought into a final report that includes findings and recommendations extrapolated from the collected data, and ensures that all cost risks associated with the buildings and land are identified in advance of the transfer, and allowing costs to be claimed from the Local Authority for the property risks being taken on by the Trust or allowing a Trust to plan and arrange in advance to fund repair, maintenance and replacement works that will be required in the future.

Walking into the unknown is no longer a suitable procedure.

This article has been written by Joe Beckett, Senior Building Surveyor at MACS Building Consultancy.

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