Yorkon launches new finance package for school buildings
Yorkon, a subsidiary of Portakabin, has introduced a new finance package for the funding of school facilities built using off-site construction. This innovative solution is a much faster and simpler alternative to PFI.
The new design, build and finance package, which has already been used for a £5m primary school, has been developed by Yorkon in conjunction with its finance partner UniLink, to allow local authorities to fund the acquisition of new school buildings by using an operating lease arrangement. This has significantly lower set up costs compared to PFI and is not treated as an increase in borrowing under the Local Authorities Capital Finance Regulations.
Commenting on some of the advantages of operating leases, Allan Wright, a consultant with lease advisor UniLink, said, "It is important to consider all the funding options available to establish which represents the best value for money. PFI can be an effective solution where there is a shortage of capital resources to fund larger schemes - £20m plus. However, whilst this method can work very well, it can also be a relatively expensive and complex route."
"The Government's Local Authority Capital Finance Regulations have recently been reviewed and should give authorities greater freedom to explore alternative funding solutions. Our experience has shown that well constructed operating lease arrangements are an excellent value for money option, offering a high degree of flexibility and minimal risk for the authority."
Keith Blanshard, Director and General Manager of Yorkon said, "Modular construction has many advantages. The facility to manufacture a building off-site, in a controlled environment that is not subject to the vagaries of the weather, means fewer on-site problems, improved quality and better cost control."
He added, "Schools can also be designed so that future extension of the building can be undertaken with minimum disruption to the running of the school. This flexibility can then be reflected in the leasing arrangement."
Editor's Notes
- Advantages of operating lease finance:
- Operating leases are not considered to be "credit arrangements" and so are not treated as an increase in borrowing
- Rentals are accounted for as revenue expenditure, spread over the life of the lease
- Lease documentation is very simple
- Set up costs are very low compared to PFI
- There are no issues of land ownership transfer
- Rental profiles are fully fixed for periods of up to 20 years, giving greater certainty and cost control
- No unbudgeted costs can be imposed during the lease
- The repayment profile of the lease can be structured to match the authority's cash flow requirements
- Transparent end of lease options are available allowing control of whole life financing costs
- Risk is transferred away from the authority – design and build risk is transferred to Yorkon and all funding, interest rate and tax risk is transferred to the funding bank
- Flexibility can be designed into projects so that additional accommodation can be added should future needs change. The benefit of this flexibility is also incorporated into the leasing arrangement
- Yorkon's award-winning modular building system is an efficient alternative to traditional site-based construction, which saves time, guarantees quality and minimises disruption to existing operations.
- Modular building involves the manufacture of steel-framed modules in a factory environment, using production line technology, whilst the foundation works are completed on site. The modules are delivered to site by road where they are craned into position in just a few days ready for completion and handover.
