Capital funding and build cost increases

The past two years have seen construction material costs soar in the UK, the effect of COVID-19 has had a major impact on the availability of materials which has in turn increased prices.

Now with the war in Ukraine and soaring inflation (announced at 9.1% last week, it’s highest rates in 40 years!), even more pressure is being added in these areas and many Academy Trusts are feeling the effects.

We have spoken with a number of our clients who are having issues with capital build projects. Whether this be delays in projects from previous years due to shortage of materials and labour or more recently an ever increasing instance of projects needing to be retendered and in some cases doubling in price as a result.

For example, windows are in short supply along with roof tiles and it is difficult to find subcontractors who are able to pick the post profitable contracts.

Where Academy Trusts have priced projects and applied for funding, mostly through schemes such as the Condition Improvement Fund (CIF), many are now finding that their funding won’t cover the cost of the planned work.

This could leave Academy Trust with a decision on whether they can fund any potential excess costs with a contribution from their reserves. Delays to CIF projects also run the risk of non-compliance with regularity requirements so care must be taken to ensure an extension is requested for the project if required.

You may be able to amend the scope of the work to fit in with the grant award, but this will also require prior approval from the ESFA.

School Condition Allocation

For those larger Trusts which are eligible for School Condition Allocation (SCA), they now face the choice of how to distribute their SCA between projects required across their Trust. It has never been more important to check the calculation of your SCA funding to ensure you are awarded the highest possible amount for your Trust.

Condition surveys are currently being carried out by the DfE which directly impact on how your funding is calculated. A weighting is applied based on the condition of your school buildings, with schools deemed to be in good condition eligible for less than half the normal funding, and those deemed to be in poorest condition eligible for up to five times the amount of normal funding. These conditions range from A to Y and can therefore vary your capital funding significantly.

Budget setting

The budget setting process is well underway for Academy Trusts, with the Budget Forecast Return due on the 27th July. Increasing cost pressures and reducing funding means many Academy Trusts are forecasting in-year deficits for all or part of the next three years and excess funds for capital projects will be hard to come by.