SFC/16/105
Agenda item 12
16 December 2016
Infrastructure Strategy
·
This paper provides the Board with an initial infrastructure strategy with which
it can shape its future policy work around capital investment, digital
infrastructure investment and supporting the sectors’ low carbon programmes.
Recommendations
·
Council’s views are sought on this updated strategy in order to help shape
future policy work and interactions with Government in these areas. Specifically
Council is invited to agree that the proposed actions set out in this paper are
appropriate as the next steps in implementing the strategy.
Financial implications
·
The aim of this infrastructure strategy is to set out the policy framework for our
work around capital investment, digital infrastructure investment and our
support for the sectors’ low carbon programmes.
Annex
SFC Infrastructure Strategy
Purpose
1.
To provide the Board with an initial infrastructure strategy with which it can
shape its future policy work and interactions with Government around capital
investment, digital infrastructure investment and supporting the sectors’ low
carbon programmes.
Background
2.
Council last discussed a long-term infrastructure investment strategy in March
2016. Since then the Council’s executive has refined the strategy, incorporating
the feedback from the March 2016 discussion, has undertaken further work
with the sectors’ representative bodies, commissioned and delivered a baseline
report on the condition of the college sector estate and developed new funding
arrangements for low carbon programmes in both sectors.
3.
Councils’ views are sought on this updated strategy in order to help shape
future policy work in this area and to inform future spending review discussions
with Scottish Government.
4.
The strategy provides the context around the capital needs in each of the
sectors, the challenges facing digital infrastructure investment and the
developing programmes for low carbon in order to meet the more challenging
carbon reduction targets facing both sectors.
The changing funding environment
5.
1
The Council’s infrastructure strategy needs to be seen against a backdrop of a
significant funding change, both in terms of the overall funding environment
and the mix of funding being provided to each sector. Both recent Audit
Scotland Reports 1 commented on the significant drop in SFC capital funding to
both sectors since 2010/11. The charts below show how that decline has
impacted the Council’s ability to fund both strategic capital projects and
provide capital maintenance support.
‘Audit of higher education in Scottish universities’ July 2016 and ‘Scotland’s colleges 2016’ August 2016
1
6.
As the first chart illustrates, whilst FE formula capital (used to support capital
maintenance) has stayed relatively constant over the period, the amount of
funding supporting major capital projects has declined significantly from more
than £70M in 2010/11. The second chart, for HE capital, shows how research
capital has remained relatively constant whilst formula capital (used mainly to
support the teaching and learning estate) has declined significantly.
7.
The sections below show how, looking ahead, the Council’s infrastructure
strategy could be developed against the above funding context.
The Universities
8.
The Scottish university sector faces a considerable challenge in tackling the
proportion of its non-residential estate which is in poor condition. The
2
proportion of the Scottish university estate in poor condition is approximately
25% of the total non-residential estate, significantly higher than the rest of the
UK. 2 The backlog associated with this has remained at approximately £500M for
many years. The cost of investing in the estate to address this need is
approximately 28% of the Scottish HEI sector’s non-commercial income,
compared with 17% for the UK as a whole 3.
9.
Within the Scottish university sector it is also clear that there are a small group
of institutions where the challenges in terms of capital investment are very
significant relative to their non-commercial income, in some cases much higher
than the 28% Scottish sector average. There is a strong argument that part of
SFC’s infrastructure strategy – as well as seeking to address the issues across
the sector – should be to work with that small number of institutions to
develop specific projects/solutions which deliver more modern, flexible,
teaching and learning environments for students, and at the same time
eradicating some of the poorest quality estate.
10. One of the key strengths of the sector is its ability to lever in funding from other
sources. SFC’s annual capital funding is typically about one tenth of the sector’s
total annual capital expenditure (on non-residential estate). Institutions often
use SFC capital grant as seed capital, allowing them to access funds from other
sources. 4 . Providing this ongoing funding to allow leverage of this scale to
continue, should be another important strand of SFC’s infrastructure strategy.
11. The recent Audit Scotland report 5 recognised the pressures facing the sector in
terms of being able to generate surpluses and reinvest in the estate. It also
commented both on the significant increase in the use of internal funds and
borrowing to fund capital investment and on the likelihood that many
institutions are decreasing the amount they spend on planned maintenance,
particularly in light of the decline in SFC capital funding illustrated in the chart
at paragraph 6.
12. In light of both of these factors we propose that a key strand of the SFC
infrastructure strategy should be to argue for a sustained capital maintenance
funding stream going forward, which, when combined with resources attracted
from other sources, would ensure that the existing university estate does not
deteriorate in condition any further.
13. As highlighted above, the backlog maintenance needs of the sector have
remained relatively constant at approximately £500M for many years, despite
2
Association of University Estates Directors CBRE benchmarking report (November 2016)
Association of University Estates Directors CBRE benchmarking report (November 2016)
4
An example being the University of Strathclyde’s Technology Innovation Centre (SFC contribution £15M to a
total capital cost of £90M)
5
‘Audit of higher education in Scottish universities’, July 2016
3
3
the sector investing more than £200M per annum in its non-residential estate.
The university estate is large (circa 2.5million square metres) and diverse, and
capital investment – including maintenance – is funded from a variety of
sources, including SFC. This makes it extremely difficult to arrive at an accurate
figure for what a sustainable capital maintenance figure from SFC should be
going forward. Different proxy measures have been developed over the years,
including the percentage of insured replacement value, but all have
disadvantages. In addition most institutions would not tackle backlog as a
specific issue, they would build backlog maintenance into their future capital
investment plans.
14. The most recent Ministerial guidance provided SFC with a £10M Financial
Transaction facility towards capital investment in the university sector. This is
essentially a treasury-backed interest-free loan scheme, to be administered by
SFC on behalf of the Scottish Government. For FY2016-17 the facility will be
provided to fund spend-to-save low carbon projects but could, in future years,
be targeted at other capital investment needs across the sector.
15. Given this novel funding facility, and the complexity in arriving at a robust figure
for SFC capital maintenance, there is an argument that the SFC infrastructure
strategy should include a commitment to work with the sector to arrive at a
shared understanding both of the nature and scale of its backlog maintenance
needs and of what a sustainable ongoing capital maintenance funding stream
should look like, which could then provide SFC with a basis for considering the
extent to which it is reasonable for SFC to be expected to contribute. Part of
the discussion could include consideration of how Financial Transactions could
be used as a funding source for the sector.
16. SFC currently matches an annual research capital grant from UK Government
(DBEIS HE research capital) and allocates it to the most research intensive
universities, in proportion to each of those universities’ research income.
Funding is targeted at improving research infrastructure, including laboratories.
In recent years, the DBEIS allocation has been as high as £17M per annum, with
a matching £17M from Scottish Government, giving a £34M per annum
investment, shared between the eight Scottish universities with the highest
research council incomes, allocated in proportion to those incomes.
17. Having the capacity to match fund DBEIS capital allocations in the future
should remain a priority for the Council’s infrastructure strategy, as this
maximises the investment potential for the sector’s research infrastructure.
18. In terms of research equipment, the most challenging cost range of research
equipment for universities to acquire is the middle-ranging (£3-5M) type, so
essential to keeping research at the cutting edge, in STEM in particular. This
range of equipment is the most difficult to finance as it is more expensive than
4
can typically be included in individual grants from the Research Councils, but is
not of the scale that Research Councils, research charities or Government will
view such equipment as stand-alone national infrastructure to invest in for the
nation. SFC last year surveyed the research pools for their most pressing
equipment needs and so we have some evidence of need. Having the ability to
respond to equipment requirements in this area should remain an aspiration
of the Council’s infrastructure strategy, particularly where that investment can
be based on a shared (pooled) basis for Scotland.
19. The strategy should aim to exploit all available opportunities to share
resources, as well as the capacity to leverage funds. For instance, Universities
Scotland and Interface have been working to offer inter-university facilities
access as well as to offer access to facilities from commercial companies.
Scotland’s Universities also continue to benefit from UK-wide funding streams
for major investments, including the UK Research Partnership Investment Fund
(RPIF). SFC’s infrastructure strategy should continue to explore opportunities
such as these.
20. In conclusion, the contribution SFC makes to the capital needs of the university
sector is modest relative to the total capital spend of that sector but the role
SFC capital plays is hugely important - in leverage, in strategic influence and in
maintaining relationships. The executive suggests that we use our available
capital primarily for capital maintenance and for match-funding research capital
from DBEIS. In addition we must develop a closer and live understanding of
both capital needs and investment opportunities in the sector to target
resource that becomes available at short notice on the most pressing ‘shovel
ready’ projects ie to respond if we can to the extreme needs that could
threaten educational provision in individual institutions.
The Colleges
21. The College sector has benefited from significant capital investment in the past
10-15 years, with SFC providing around £500M of capital funding towards a
capital programme of circa £1.2BN, not taking into account the more recent
college projects funded under the government non-profit revenue-funded NPD
programme. These have a combined capital cost of £333M. As a consequence,
there are geographic areas where large proportions of Scotland’s college
students are taught in modern, fit-for-purpose accommodation.
22. Nonetheless, a recent high-level review of the college estate by our technical
advisors confirmed that there remains a significant backlog to be addressed in
specific parts of the country. The recent Audit Scotland report on colleges
quoted a figure of approximately £290M for these colleges, which our
consultants arrived at in 2014. Our consultants extended their review very
recently to include campuses not previously included (such as SRUC’s estate)
5
and estimated the backlog at closer to £400M.
23. For these colleges the capital maintenance funding they receive is being used to
address some of their most pressing estates needs but it is nowhere near
sufficient to provide them with modern teaching facilities for their students.
And this situation has been significantly exacerbated by the ONS reclassification
preventing them from borrowing or accumulating reserves, and by the recent
decrease in SFC capital funding, as Illustrated by the graph in paragraph 6.
24. As things stand the only long-term solution for these regional colleges is
through the Scottish Government’s NPD programme, with the recent exception
of Forth Valley College’s Falkirk campus which was converted from NPD to
traditional direct capital grant by the Scottish Government in recognition that it
was close to being presented to the market and recognising the continuing
uncertainty around whether NPD will continue in its existing format. Despite
this uncertainty, SFC’s infrastructure strategy should be to continue to work
with these regional colleges to identify long-term solutions for their estates,
through the development of robust business cases which can, at an
appropriate time, be presented to SFC and Scottish Government to identify
funding solutions.
25. As well as the issue that need to be addressed in the campuses that need
replacement, evidence collated by our technical advisors, using updated data
from projects approved by SFC between 2005 and 2012 and also recent NPD
projects, suggests an ongoing life-cycle maintenance cost of £20-25 per square
metre which, extrapolated across the sector, would suggest a ‘steady-state’ SFC
capital maintenance grant of circa £20-25M is required to meet the sector’s life
cycle needs.
26. We now have 3 live NPD projects within the sector, where life cycle is a
contractual obligation for the private sector partner. This should reduce the
capital maintenance ask of SFC in future years. Our best estimate, therefore, is
an ongoing capital maintenance grant from SFC in the region of £20-22M is
required for those regional colleges not part of the NPD programme. This leaves
aside the colleges where campus replacement is the long-term solution and we
also have anecdotal evidence that many colleges whose campuses were
replaced 5 to 10 years or so ago, have been unable to maintain their estates in
line with life cycle needs and so are now facing their own backlog challenges.
27. The above illustrates a clear requirement for SFC’s infrastructure strategy to be
underpinned by a comprehensive condition survey of the sector’s estate. This
would give us a more robust evidence base for the extent of the backlog needs
across the whole sector and, consequently, given the constraints colleges face
post ONS, the future capital maintenance funding requirements from SFC. This
was also a conclusion in the recent Audit Scotland report.
6
28. To better understand the sectoral needs, we will commission a full condition
survey at the start of 2017. We will aim to deliver the condition survey over the
coming 6-7 months. It is essential that it is completed in time to influence the
2017 spending review. In addition we have commissioned our technical
advisors to develop a risk-based approach to managing backlog maintenance,
such as has been implemented in other sectors (such as the NHS). This
approach uses a model for measuring and categorising risks that backlog
maintenance issues become business-critical, allowing future investment to
tackle backlog, to be targeted at those areas of the highest priority for colleges.
29. A key strand of our infrastructure strategy should be to provide a sustainable
capital maintenance grant for the sector’s needs, and to develop a model
which will help colleges, possibly with appropriate ongoing technical support,
to target available grant towards those areas where backlog issues risk future
business delivery.
30. Regional Colleges are now major players in terms of providing the skills
required by industries/employers in their regions. One of the challenges faced
by colleges is the need to continuously update and change their facilities in
order to be able to change their curricular offer in response to industry needs.
An ongoing aspiration for the infrastructure strategy should be to be able to
support regional colleges in responding to rapidly-changing employer needs.
31. In conclusion, there are two key areas for the infrastructure strategy looking
forward. The first is to develop a robust evidence base, through a
comprehensive condition survey of the college estate, which will allow us to
assess, firstly, what a sustainable SFC capital maintenance funding stream
should be and also whether we should target future maintenance funding at
estate ‘need’(rather than continuing to base it on regional activity levels).
Secondly we should continue to work with those colleges where major capital
investment needs are required, to develop business cases and identify potential
funding solutions.
Digital/ICT
32. Universities spend about £110m annually on ICT. Priority areas for investment
are likely to be cyber-security, refreshing student records systems and
upgrading learning spaces. (Other needs were: wi-fi, videoconferencing, and
systems to support online learning, data analytics, digital marketing, CRM,
student retention). In addition, over the medium term there are opportunities
for large-scale national shared service projects such as low-carbon data centres,
which we could scope and support through the IS Shared Service Catalyst
formed under APUC.
33. Colleges spend about £25m annually on ICT. Priority areas for investment are
7
likely to be replacing ageing kit (e.g. PCs, smartboards, switches, core
networking), mobile access including wi-fi and enabling BYOD, storage, and
migrating services to the Cloud.
34. Overall, the sectoral adoption of Cloud-based infrastructure and services is
increasing the need for institutions having fast and resilient fibre links, as well
as placing more emphasis on revenue/annual budgets (rather than one-off
injections of capital).
35. At the national level, SFC provides funding to JISC for shared digital services.
This includes capital for the Janet6 backbone (which enables international
research collaboration) and recurrent costs of fibre links to most colleges and
universities in Scotland. The 10 year contract for Janet 6 expires in 2022.
36. JISC is raising an increasing amount of its income from institutional
subscriptions. SFC will shortly consult universities and colleges on JISC
subscriptions and the future role of central funding. A key priority for central
funding would be for services which – being used universally - achieve
economies of scale and a level playing field for all institutions, as well as other
technical benefits. The backbone and regional networks are obvious priorities
for the infrastructure strategy, since they serve the whole country, but
increasingly we would expect institutions to pay for the JISC services they use
via their subscriptions and the strategy should aim to reflect this change.
Low Carbon
37. Baseline reports commissioned by SFC show that the carbon footprints of the
college and university sectors have decreased slightly in recent years. However,
this masks considerable progress in achieving greater energy efficiency, given
the continuing expansion of the university sector (particularly in energy-hungry
research facilities). Increasing pressure on university funding mean that SFC
capital funding is likely to be focused on new campus developments and
backlog maintenance work. Targeted financing for carbon reduction and energy
efficiency will restore important momentum to this area.
38. To reduce the college sector footprint we have supported the development of
business cases with 6 colleges for energy efficiency retrofit projects. We have
been awarded £5M capital funding from Scottish Government to implement
these low carbon projects, working closely with Scottish Government and
Scottish Futures Trust colleagues. The projects will be implemented by the
colleges during the course of 2017.
39. We are also exploring the use of new £10M financial transaction funding from
the Scottish Government to support a programme of energy efficiency projects
in the university sector. We expect to announce the HE low carbon interest-free
loan programme during December 2016. The overall aim of both of these
8
programmes is to reduce the footprint of the sectors by around 10% (approx.
30,000 tCO2).
40. Continuing to explore different ways to support both sectors reduce their
carbon emissions should form a central part of the infrastructure strategy.
Partnership working and Governance arrangements
41. SFC will continue to work with a number of key partners to deliver its
infrastructure strategy. These include:
· Universities and colleges: universities contribute significantly to their own
redevelopment and renewal programmes. In the college sector a strategic
approach to supporting capital investment is vital. Close working with both
sectors, initially through the representative bodies, will help to identify how
SFC can better target future funding.
· Scottish Futures Trust: SFC currently works with SFT across a range of
activities, notably on the existing NPD projects (including Fife College), the
sectors’ low carbon programmes, the major disposal programme associated
with the NPD programme, and is currently exploring with SFT’s Strategic
Asset Management team ways of delivering more closely-aligned strategic
asset management plans across Scotland’s regions.
· DBEIS: Leading research universities in Scotland benefit from additional
capital funding from DBEIS to support infrastructure investment. This
funding is focused on maintaining excellent departments with the critical
mass to compete globally and the expertise to work closely with business,
charities and public services.
42. We are creating an appropriate governance arrangement within SFC which can
ensure proper scrutiny and due diligence of major capital projects being funded
by SFC, either through traditional capital grant (notably Forth Valley) or through
NPD, or its successor procurement model. This governance will be assurance
based but is expected to draw on the expertise of our Board to supplement
professional advice.
43. Finally we are strengthening the SFC infrastructure team, both by assigning
more SFC staff time and by better integrating the ongoing support of our
technical advisors (the property support service). To further bolster our team
to cope with the rising workload, we are creating more formal links with the
Scottish Futures Trust.
9
Proposed actions to further develop SFC’s infrastructure strategy
44. The following actions are proposed as the next steps in implementing the
Council’s infrastructure strategy:
·
·
·
·
·
·
·
·
·
·
·
Engage more closely with Universities Scotland initially, and subsequently
with the relevant institutions, to work with those institutions and develop
‘shovel-ready’ business cases that can help deliver long term solutions for
their estate needs
Engage more closely with the university representative bodies (including
SAUDE) to gain a closer understanding of how the sector’s significant
backlog needs can be addressed and also what a reasonable ongoing SFC
contribution should be to the sector’s capital maintenance needs
Continue our commitment to match fund resources made available by
DBEIS, to maximise the investment opportunities for research
infrastructure
Develop a better understanding of the research equipment needs of the
sector, particularly in support of the research pools
Continue to explore the opportunities for universities to share capital
resources and to bid into wider available funding streams
Discuss with Universities Scotland how future Financial Transactions can
best be targeted in support of capital investment in the sector
Undertake a comprehensive condition survey of the college estate,
concluding in time to inform the 2017 spending review
As part of the outcome of the survey, consider whether there is a case for
targeting capital maintenance at estate need rather than using a proxy
Continue to work with those colleges with the highest capital investment
needs to help them develop ‘shovel-ready’ business cases (including
colleges where significant capital needs are required in support of major
curricular developments)
Prioritise Janet backbone and the regional networks as the highest needs
for digital infrastructure
Continue to explore with both sectors how we can support them tackle
their carbon emissions, including through specific funding programmes.
45. The attached Annex sets out the financial implications of the strategy, as far as
we are able to anticipate them. It includes the potential costs associated with
developing a supporting evidence base, including those likely to be need to
develop ‘shovel-ready’ projects.
Equality and diversity assessment
46. An equality and diversity assessment of each of the individual capital
programmes will be carried out as and when they become financially viable,
10
including ensuring individual projects to be funded have undertaken their own
assessments.
Financial implications
47. The aim of this infrastructure strategy is to set out the policy framework for our
work around capital investment, digital infrastructure investment and our
support for the sectors’ low carbon programmes.
Recommendations
48. Councils’ views are sought on this updated strategy in order to help shape
future policy work in these areas. Specifically Council is invited to agree that the
proposed actions set out in this paper are appropriate as the next steps in
implementing the strategy.
Publication
49. This paper is publishable on the Council website.
Further information
50. Contact: Stuart Fancey (tel: 0131 313 6559, email: [email protected]), or
Martin Kirkwood (tel 0131 313 6583, email [email protected]).
11