Belo Horizonte Schools Public-Private Partnership

Context^[1]

Belo Horizonte is the capital of the second most industrialised state in Brazil. Its demand for better education was strong, with over 11,000 children (many disadvantaged) on waiting lists to enrol in school. Without private investment, the municipality’s efforts to cater to its growing school age population were hampered by technical and financial limitations.
Belo Horizonte faced a shortage of school buildings and only had the resources to meet approximately 35% of demand. There was a lack of resources to manage procurement of construction services and manage the non-academic services of new schools.
Belo Horizonte appointed the International Finance Corporation (IFC) as lead adviser on how the private sector could advance the municipality’s education agenda

The municipality faced a challenge in meeting the existing and future needs of its preschool- and primary school-aged population due to a lack of resources (physical, technical, and human) and investment capacity for new construction. The shortage of educational facilities meant that a large portion of the educational demand was not being met, with the municipality obliged to provide education for children.
The municipality lacked the resources to manage the procurement of construction services and the ongoing management of the non-academic services of new schools.

Following a detailed feasibility study, the IFC proposed a bundling public-private partnership (PPP) approach, where 32 new preschools and five primary schools would be financed, built, and equipped, and non-academic services would be operated under a single PPP with a 20-year concession period.
This was the first application of a bundling PPP approach in the education sector in Brazil.
Under the PPP, the public sector was responsible for the delivery of non-educational operational services such as maintenance, cleaning, surveillance, and laundry, while the public sector was responsible for the delivery of educational services, school catering, and school transportation.
To speed up delivery of the schools, federal and municipal resources were used as funding sources of the PPP, with a pre-fixed down payment amount upon delivery of each unit. Units were built using modular construction to allow for scale, standardisation, and speed of delivery.
Down payment from federal funds:
- Reduced fiscal exposure of the municipality
- Decreased the monthly government payment while providing additional budget for other projects
- Reduced the guarantees needed for the project.

By bundling these services into a single contract, principals of the schools were able to operate more efficiently and focus on their work as educators and education strategists. This allowed over 18,000 children from low-income areas of the municipality to attend kindergarten and primary school.
Compared with the traditional procurement process, private sector involvement significantly shortened the time required to build and launch the new schools. All 38 new units were delivered within a two-year timespan, with 10 schools delivered within the first 12 months, and the remainder over the following 12 months. By comparison, the traditional school procurement model saw each preschool and primary school constructed over a 19- and 23-month period on average, respectively.
The IFC estimated that the bundled approach resulted in a 37% time savings for the preschools and a 48% reduction in construction time for the primary schools.
The bundling approach streamlined the works and delivery of schools while improving the quality of educational infrastructure, and having sole contracts allowed for better management and synergies between construction and operation.

The use of bundling (through a PPP mechanism) was an effective way of delivering a large number of assets in a short period of time by streamlining procurement and providing opportunities for standardisation and economies of scale and allowed for the separation of the delivery of non-educational and educational services.
The use of modular construction techniques is a valuable way of realising efficiencies from scalability and standardisation of components, providing opportunities for faster overall delivery.
PPPs are an effective tool to develop educational infrastructure through private finance initiatives, and when complemented by programs that enhance public educational services, the PPP approach could be structured in a simpler way to achieve good development.

[1]	https://www.gob.mx/cms/uploads/attachment/file/208424/29-03-2017-BH_Schools_Tomas_Anker_Mexico_Miercoles-final_final.pdf
[2]	https://www.ifc.org/wps/wcm/connect/a80594c1-e030-4f2a-8d26-4cd03aa2cd29/PPPStories_Brazil_BeloHorizonteSchools.pdf?MOD=AJPERES&CVID=lHoysFd

Last Updated: 29 November 2021