Safety In Numbers; the case for deeper technical due diligence for academy schools and MAT’s.

There is increasing evidence of the need for schools to invest in greater depth and scope of due diligence services when converting to an academy from the Local Authority (LA) or when forming or joining an existing Multi Academy Trust (MAT).

Over the past year there have been newspaper articles, sector surveys and numerous reports on the increasing numbers of schools becoming ‘orphans’, of sponsors declining to take on both grant maintained schools and existing academy trusts.

The reasons given for their rejection range from unmanageable deficits, unsuitable pension arrangements, unwieldy PFI schemes and more increasingly, via the belated results of school stock condition surveys, which when fully costed, reveal that the risk/reward ratio does not stack up.

Financial due diligence makes use of the rich seam of available accounting and audit data to ‘run the rule over’ the schools financial health. However, there is a dearth of similar evidence available pertaining to the school’s built environment.

Evidence suggests that there is a correlation between how experienced or long established the MAT and the depth of comfort they seek before committing to sponsoring a school or merging with another MAT. Some have even fashioned a ‘try before you buy’ arrangement.

When buying a house how many purchasers would premise their acquisition on a survey supplied by the vendor?There are numerous war stories concerning schools transferring with simply their former LA’s condition survey data as evidence of the extent of the liabilities across their estate.

The technical part of the overall due diligence sum that has traditionally been included requires both deepening and widening as at present, it would be the house purchase equivalent of a drive-by valuation.The present tick box question of whether a condition survey exists does not provide any analysis as to what cost implications arise from the survey report.

The stock answer given as to why schools and some MAT’s do not invest in detailed levels of due diligence is that they are either not advised to by those representing them or when the school is so directed, they claim they cannot afford to.Given the magnitude of the decision to transfer there is a very strong case for ensuring no brick is left unturned. Surely, the question should be can they afford not to?

Far too often schools convert or join MAT’s without quantified data with which to evaluate the extent of the liabilities. There is often a nebulous awareness of building ‘issues’ but these rarely extend to the empirical costed evidence of what those issues amount to. Such are the legacies of these liabilities that the outcome can have a big impact on future balance sheets.

There is also an increasing need for trusts to commission strategic property development plans for each of the schools within their estate so as to better meet future needs of the likely rise in pupil numbers.

The existing schedule of accommodation may require large scale expansion to meet these evolving needs and the sooner an holistic approach is adopted the better the capital and maintenance programmes can be procured and planned, and best value achieved.

Schools need to plan for how they are going to manage their stock; is the trust or the MAT eligible for Condition Improvement Funding (CIF)?
Can the data collected be cited in support of such bid?

If above 3,000 pupils and in receipt of School Condition Allocation (SCA) ,will the top sliced funding stretch to large scale capital works or is SCA in reality more suited to preventative planned maintenance programmes and the data collected and collated used for such a purpose?

If so, then schools and MAT’s need to balance and equally importantly, time their push for expansion. Whilst there is the temptation to seek safety in numbers as a means of benefiting from economies of scale and better withstanding the future cuts to budgets, the size of the financial rewards that than can be secured from CIF before tipping over the threshold in to formulaic funding should provide pause for thought.