Hampshire County Council

Buildings, Land and Contracts Panel Item *

26 March 2003

Executive Member for Policy and Resources

10 April 2003

Procurement Initiatives

Report by the Director of Property, Business and Regulatory Services

1

Summary

1.1

The following decisions are sought:

That subject to the views of the Buildings, Land and Contracts Panel approval be given to:

i) the procurement initiatives implemented in 2002/3 and as set out in Appendix 1

ii) the procurement initiatives set out in Appendix 2 relating to:

· Nursing Care

· Malmsbury Lawn Elderly Persons Home

· Secondary School Sports Hall

· Brookfield School Performing Arts Block

· Wyvern Technology College Sports Lottery

· South Basingstoke Schools reorganisation

· Alton Day Care services and Alton Library

· Elvetham Heath New Primary School Enlargement

· Schools Specialist Accommodation Programme

· Capital Repairs Programme

· SCOLA masonry wall repairs

· Temporary Buildings Term Contract

iii) the arrangements for the appointment of `preferred' consultant partners for Mechanical and Electrical Design and Quantity Surveying.

2

Reason(s)

2.1

To ensure sufficient capacity and arrangements are in place to implement schemes within the capital and revenue programmes.

3

Other options considered and rejected

3.1

None

4

Conflicts of interest declared by the decision-maker or a member or officer consulted

4.1

Not applicable

5

Dispensation granted by the Standards Committee

5.1

Not applicable

6

Reason(s) for the matter being dealt with if urgent

6.1

Not applicable

Approved by:

..........................

Date of decision:

.........................

Councillor T K Thornber

Hampshire County Council

Buildings, Land and Contracts Panel

26 March 2003

Procurement Initiatives

Report by the Director of Property, Business and Regulatory Services

1

Introduction

1.1

The Executive Member for Policy and Resources at his meeting of 11 April 2002 approved the review of Procurement Initiatives to be used by the Director of Property, Business and Regulatory Services in order to implement the Capital and Revenue programmes for the following two years subject to an annual review.

1.2

This report summarises what actions have been taken during 2002/2003, analyses the outcomes and expands upon an interim update report given to the Executive Member for Policy and Resources on 16 October 2002. This report also seeks approval to the application of the above for the following :

· The provision of additional Nursing Care beds

· Malmsbury Lawn Elderly Persons Home

· Secondary School Sports Halls

· Brookfield School Performing Arts Block

· Wyvern Technology College Sports Lottery

· South Basingstoke Schools reorganisation

· Alton Day Care Services and Alton Library

· Elvetham Heath New Primary School Enlargement

· Schools Specialist Accommodation Programme

· Capital Repairs Programme

· SCOLA masonry wall repairs

· Temporary Buildings Term Contract

· Consultant Partnership Arrangements

2.0

Analysis and Annual Review of Works Procurement

2.1

The attached table in Appendix 1 summarises the procurement strategies implemented over the past twelve months. The table indicates the project, contractor, value and selection method, together with particular reasons for the procurement method chosen.

2.2

During the last twelve months some 29 individual schemes and 22 packages of multiple projects with total value of £30 million have been developed using a combination of methodologies. Of the schemes being developed £21million worth of work has reached construction stage and many projects are fairly well advanced or complete.

Benefits continue to accrue in terms of:

· Commitment by contractors to jointly resolve issues and reduce costs

· Major disputes leading to claims have been avoided

· Higher quality products with fewer technical issues are resulting

· Project programme objectives are being achieved

· Costs continue to compare favourably with competitive tendering and there is a higher degree of certainty

The following results on major projects are worth highlighting:

· John Hanson School was completed on time and the school took occupation as planned in September 2002. In addition agreement of the final account was achieved in parallel with completion of the project; well within the available funding. The total funding for the project was £15.85 million (including £14.8 million of capital receipt). The net result is a surplus of £600,000 available to the County Council after meeting Test Valley Borough Council's overage entitlement under the agreement set at planning stage.

· The Sir Harold Hillier Gardens Visitor Pavilion has been successfully completed with the final account agreed within the Contract Sum. The success of the project is attributable to close teamwork with significant evidence of joint problem solving and co-operation to reach this outcome. With traditionally procured work of this size, final account negotiations can run for long periods of time and consume valuable resources which would otherwise be directed towards new opportunities.

3.0

Further Action Proposed

3.1

The summary in Appendix 2 details forthcoming projects for which alternative forms of procurement would be appropriate. Approval is sought to these initiatives which include a number of substantial programmes of work. The combined value of all such initiatives to date is in excess of

£80 million.

4.0

Costs Comparison

4.1

4.2

A representative sample of major capital projects has been analysed in terms of tender price levels. The sample taken included both traditional lowest price tendering and alternative procurement routes over the last three years. Key attributes have been compared:

· Net building costs

· General pricing levels (externally assessed project indexation)

· Overheads and profit recovery

· Preliminary costs (mainly site supervision and facilities)

The results obtained show that alternative procurement methods compare favourably with traditional tendering methods. On the whole tender prices are shown to exhibit similar characteristics across the whole range of project types tested, from simple school extensions and refurbishment schemes of about £500K to major new build Secondary Schools. The results give a clear demonstration that the new forms of procurement are delivering cost effective buildings for the County Council.

4.3

The evidence of project outturn costs also supports the conclusion that more effective cost control is being achieved. Better financial management of project costs has resulted through greater collaborative working with contractors. This is leading to the early agreement of final accounts, the avoidance of protracted negotiations or disputes and the release of resources to pursue fresh opportunities.

4.4

On the major maintenance and refurbishment programmes for recladding, science laboratories and Ballard Heater replacement analysis has also been undertaken to compare tender outcomes. On similar types of work again negotiated tenders are consistent with results obtained in competition. Alternative procurement methods have been particularly beneficial in:

· Securing reliable resources to meet planned objectives

· Collaborative development of improved solutions

· Generating greater cost and programme certainty

4.5

The Department continues to operate the traditional lowest price tendering approach to stimulate competition and serve as a benchmark for comparison with other forms of procurement.

5.0

The Next Steps

5.1

The evidence of the procurement initiatives to date is that longer term relationships are being forged with the industry. Some of our preferred contractors have now established dedicated teams to undertake repeat work. Preferred contractors are emerging across a range of the County Council's work from external redecorations packages to major capital schemes for new secondary Schools. Key supply chain partners are also beginning to be identified as repeat opportunities arise for key specialists and suppliers.

5.2

The next logical step would be to formalize closer relationships with the industry by offering Framework Contracts for repeat opportunities over an agreed term. The report entitled `Rethinking Construction and Supply Chain Management' to the Executive Member Policy and Resources dated 16 October 2002 outlined this approach.

5.3

A process of inviting tenders for the major projects framework is currently underway following OJEC procedures. This will be followed by a separate framework for packages of work for small to medium size construction companies.

5.4

It will be important to ensure that not all procurement is channelled through the frameworks. An element of competitive tendering will always be retained as an essential check to benchmark tender price performance under alternative procurement forms.

6.0

Consultant Partnership Arrangements

6.1

At the meeting of 16 October 2002 the Executive Member Policy and Resources approved the implementation of Structural Engineering Partnership arrangements. This followed a review as part of the Work Force Plan for Property, Business and Regulatory Services. The Plan also highlighted similar concerns with recruitment and capacity for other disciplines. It is now proposed to address these concerns and to appoint consultant partners for:

· Mechanical and Electrical Engineering Design

· Quantity Surveying

6.2

"Expressions of Interest" have now been invited for Mechanical and Electrical Engineering Design "partners". It is anticipated that this process will be complete by 1 July 2003. An OJEC procedure is being used similar to that for Structural Engineering Design endorsed by the Executive Member Policy and Resources on 16 October 2002, and will cover consultant appointments for all sizes of projects. The approximate total annual fee for all "partner" consultants will be approximately £1.2 million.

6.3

Quantity Surveying will follow the same process in the immediate future.

7.0

Conclusion

7.1

We have gained confidence with the procurement initiatives that been piloted. On the projects completed there is significant evidence that the industry is making a positive contribution to the design and construction approach. Alternative forms of procurement have also secured better technical solutions and management of risk, which exists with all building projects. We are also obtaining similar confidence with early consultant partnering arrangements, where dedicated staff are being put forward and good service and relations are emerging.

Recommendation(s)

That the Panel advices the Executive Member for Policy and Resources that approval be given to:

1

The procurement initiatives that have been implemented in the last year as set out in Appendix 1.

2

The procurement initiatives set out in Appendix 2 relating to:

· Nursing Care

· Malmsbury Lawn Elderly Persons Home

· Secondary School Sports Halls

· Brookfield School Performing Arts Block

· Wyvern Technology College Sports Lottery

· South Basingstoke Schools reorganisation

· Alton Day Care Services and Alton Library

· Elvetham Heath New Primary School Enlargement

· Schools Specialist Accommodation Programme

· Capital Repairs Programme

· SCOLA masonry wall repairs

· Temporary Buildings Term Contract

3

The arrangements for the appointment of `preferred' consultant partners for Mechanical and Electrical Engineering Design and Quantity Surveying.