HAMPSHIRE COUNTY COUNCIL

Report

Committee:			Environment and Transportation Select
Date of meeting:			6 October 2009
Report Title:			South Coast Street Lighting Private Finance Initiative
Report From:			Director of Environment
Contact name:		Chris Lait
Tel:	01329 824485			Email:	chris.lait@hants.gov.uk

1. Purpose of Report

1.1 To provide Members with an update on the street lighting private finance initiative.

2. Contextual Information

2.1 The County Council is procuring the replacement of a substantial part of its street lighting stock through a joint Private Finance Initiative (PFI) with West Sussex County Council and Southampton City Council. The PFI covers the investment, maintenance and operation of street lighting over 25 years.

2.2 In November 2008 Cabinet agreed that the Director of Environment, in consultation with the Executive Member for Policy and Resources and the Executive Member for Environment, be authorised to agree the specification to be included in the final tender and to conclude the procurement, provided it remains within the financial limits approved by Cabinet in 2007, to be contained within the operational budgets of the Environment Department.

2.3 The procurement process is nearing conclusion and a Preferred Bidder, Tay Valley Lighting (TVL), has been nominated. Discussions are ongoing to fine tune the contract documents with the view to signing the contract in early November 2009. At this point three separate contracts are signed with each Authority and the formal joint working arrangements come to an end.

3. Procurement

3.1 Since the report to Cabinet in November 2008 the procurement process, under the Public Contract Regulations 2006, continued with the final two bidders, Amey and Tay Valley Lighting. Both bidders went through the competitive dialogue stage and the Department for Transport (DfT) agreed the derogations to the contract documentation and the interim Final Business Case.

3.2 A call for Final Tenders was made in June 2009 with a submission date of 17 July. Both tenders were returned on time and evaluated in accordance with the agreed evaluation criteria (70% quality and 30% cost).

3.3 The Project Director reported to the PFI Board on 18 August 2009 the outcome of the assessments. The overall scores of the combined qualitative and quantitative assessment being 40.6 for Amey and 67.0 for TVL.

3.4 The Director of Environment in discussion with the Executive Members of Policy and Resources and Environment endorsed the decision to appoint Tay Valley Lighting as the Preferred Bidder on 19 August. Both West Sussex County Council and Southampton City Council independently agreed the appointment.

4. Finance

4.1 In December 2007 Cabinet approved:

(i) a procurement budget of £1.1 million which has subsequently been increased to £1.509 million funded from savings in the maintenance budget;

(ii) the full commitment of existing budgets of £5.57 million per annum at 2007/08 prices for the duration of the contract term, which now stands at £5.665 million in 2009/10 prices, but excludes the energy budget; and

(iii) a base case maintenance affordability gap of up to £600,000 per annum at 2007/08 prices for the duration of the contract and notes the possible increase energy consumption of up to 15 million kilowatt hours amounting to approximately £1.2 million per annum at current prices, which would need to be contained within the overall operational budgets of the Environment Department.

4.2 The total budget available to meet PFI costs, including the additional £0.6 million, energy and client team staff costs is £10.014 million.

4.3 The preferred bidder falls within these affordability criteria and currently does not require the additional £0.6 million approved by Cabinet.

4.4 These figures, however, are not the final financial position as adjustments are currently being made for updates to the inventory (to include the additional lights adopted and the parish and district lights where they have indicated they wish to be included), final bank funding terms, swap rates and other fine tuning. It is not expected that these changes will take the bid beyond the affordability criteria, and potentially still not need to use any or much of the additional £0.6 million approved.

4.5 With the completion of the financial amendments a Final Business Case will be submitted to the Department for Transport for approval to enable the release of the appropriate PFI credits.

4.6 Based on the final tender submitted by the Preferred Bidder, and subject to further increase following the inventory re-run, energy consumption has also been indicated to fall notably across the whole project, and by as much as 15% for Hampshire, falling from a baseline of some 46,000 GWH to 39,000 GWH by the end of the core investment period. Figures are still to be finalised but it does indicate that risk of increased consumption has been mitigated. The purchase of energy is still the responsibility of the County Council and will be subject to price volatility, although the financial model currently prices energy at 9p per KWH compared to our contracted price of 8.33p which is fixed until April 2011.

5. Service Specification

5.1 The service specification has remained as included in the report to Cabinet in November 2008, namely:

(i) to replace lighting in most locations with white fluorescent lamps;

(ii) in low crime, residential areas, to replace lighting on a `1 for 1' basis with lighting levels at or below the low pressure sodium lamps currently in place;

(iii) to specify the installation of remote monitoring equipment on all street lighting columns, with discretion to switch to dimming equipment if the early phases of commissioning show that performance is unsatisfactory and that this cannot be resolved; and

(iv) in low crime, residential areas, lamps to normally be dimmed at midnight by 25% in the first instance.

5.2 Both tenders submitted comply with the agreed specification and in particular for Hampshire (and Southampton) include the provision of remote monitoring technology.

6. Risk

6.1 There is a risk that delay may occur in concluding the contract and financial close. This could be due to external factors such as the preferred bidder's banks delaying the conclusion of the contract. The timetable to conclude the contract documentation is tight and any protracted issues may impact on the timetable.

6.2 Alternative arrangements may need to be implemented should the delay mean that contract commencement cannot be before 21 March 2010, the end of the County Council's current contract arrangements. However, with the current progress in concluding the PFI contract this risk is reducing.

7. Conclusions

7.1 The results of the procurement process have identified TVL as the preferred bidder whose final bid complies with the requirements as detailed in the service specifications and affordability criteria agreed by Cabinet in November 2007.

7.2 Fine tuning to the contract documentation, including incorporating an updated inventory and rerun of the financial model, is ongoing and subject to the approval by DfT to the Final Business Case it is anticipated the contract will be signed in early November with a likely contract commencement date for Hampshire County Council in February 2010.

Section 100 D - Local Government Act 1972 - background documents
The following documents discuss facts or matters on which this report, or an important part of it, is based and have been relied upon to a material extent in the preparation of this report. (NB: the list excludes published works and any documents which disclose exempt or confidential information as defined in the Act.)
Document	Location
None

IMPACT ASSESSMENTS:

1. Equalities Impact Assessment:

1.1. Not applicable.

2. Impact on Crime and Disorder:

2.1. The proposals will enhance lighting levels within high crime areas.

3. Climate Change:

3.1. How does what is being proposed impact on our carbon footprint / energy consumption?

Following completion of the core investment period, which is five years, the energy consumption will be reduced and the carbon footprint will also be reduced by remote monitoring, removing the need for night-time scouting.

a) How does what is being proposed consider the need to adapt to climate change, and be resilient to its longer term impacts?

The proposals use the latest energy efficiency technology and seek innovation through the terms of the contract to ensure the most carbon efficient processes.