Hampshire County Council

Buildings, Land and Procurement Panel Item 13

24 March 2004

Executive Member for Policy and Resources

8 April 2004

Procurement Initiatives

Report by the Director of Property, Business and Regulatory Services

How the conclusion in this report fits with the Corporate Strategy

The key objectives of the Rethinking Construction Agenda are to improve the quality and efficiency of construction and provide value for money, recruit and retain a skilled workforce; and to promote sustainability. These objectives significantly contribute towards:

Aim 2 Stewardship of the Environment - by considering whole life costs, and working closely with our partners to eliminate waste, we aim to develop more sustainable solutions

Aim 3 Achieving Economic Prosperity - encouraging and developing the use of local resources contributes to the local economy and leads to greater prosperity

Aim 5 Improving Services - the new arrangements involve closer working and collaboration with the industry which is instrumental in driving continuous improvement into our services

1

Summary

1.1

1.2

The Executive Member for Policy and Resources approved at his meeting of 10 April 2003 the annual review of procurement initiatives for 2002/3 and a series of new initiatives to be implemented over the current financial year and beyond.

The purpose of this report is to summarise the actions taken during 2003/4, analyse the outcomes, seek approval to further procurement initiatives and set out a number of procurement development objectives.

1.3

A key component of the initiatives in 2003/4 has been the introduction of the Framework Agreement for major capital projects, which was reported in detail to the Cabinet on 27 May 2003. This report focuses on the development and operation of this arrangement and comments on the early performance of the contractors involved.

1.4

Another development area has been the introduction of long term consultant partnership arrangements. This report also reviews these arrangements and proposes further long term partnering for professional services.

2.0

Analysis and Review

2.1

During the last twelve months there has been a significant growth in construction related activities procured through the department. A major factor in this expansion has been the implementation of the Nursing Care Initiative Strategy, which accounts for some £50 million worth of construction work. As a result the planned commitments for 2003/4 are currently worth £120 million (almost double the volume of 2002/3).

2.2

The use of collaborative means of procurement has been of significant benefit in creating the capacity to deliver these large volumes of work. The tables in Appendices `1' & `2' summarise the procurement strategies implemented in 2003/4:

· Appendix `1' describes the schemes being developed through the Framework Agreement for major capital projects

· Appendix `2' details the other forms of alternative procurement

Both tables show the project, contractor, value of scheme and method of selection together with particular reasons for the procurement method chosen.

2.4

Over the reporting period development work on 56 individual schemes and 23 major packages of multiple projects worth nearly £83 million using a combination of methodologies has begun. Of these projects some £55 million worth of work has been let, with some schemes now at an advanced stage or completed.

2.5

To summarise; the extent to which new forms of procurement have been implemented during the current financial year are as follows:

· Framework Agreement for major capital projects - £47 million

· Other alternative procurement - £36 million

2.6

Appendix `3' summarises a number of new initiatives for which approval is requested:

· Long Sutton Primary school

· Sharps Copse Children's Centre

· Romsey Library

· External redecoration work (further packages)

· Harriet Costello School - temporary reinstatement work following fire damage

· Temporary Buildings Term Contract (extension of existing contract)

3.0

The Framework Agreement for Major schemes

3.1

Following the endorsement by Cabinet on 27 May 2003 to the report entitled `Supply Chain Management - Framework Agreement for Major Capital Projects', six contractors were selected to be appointed to the arrangements. The report also identified that the Framework Agreements would be a critical element of the County Council's capacity to implement its capital projects.

3.2

The opportunity for utilising the Framework Agreement for major capital projects began during the late summer of 2003, with the nursing care accommodation programme and specific schemes included within the original framework tender documentation (pricing models). It is intended to allocate further schemes to the Framework contractors by utilising the following process:

· The "Preferred" or "logical" framework contractor for a scheme is established

· Individual contractor's current capacity and preferences are considered along with availability of key staff and teams, giving continuity where possible.

· Key performance indicators (as information becomes available)

· Overall balance based on value (and number) of contracts already awarded under the Agreement

· Very large schemes (for example the new John Hunt of Everest Secondary School) will be subject to a best value appraisal process involving a number of the contractors

3.3

Now that the Framework Agreements are established, the following future major projects are proposed to be undertaken through the arrangements:

· The Winchester Cultural Centre

· Further Nursing Care schemes at Tatchbury Mount Hospital, Emsworth House, Bickerley Green and Westholme

· Nightingale Primary School and Early Years Centre

· Harriet Costello School

· East Hants Special School

4.0

Performance and Achievements

4.1

Currently just under sixty percent of the overall value of work undertaken by the department is procured through alternative means of procurement. Traditional lowest price competitive tendering makes up the balance and serves as an essential benchmark of tender price levels and contractor performance for the new arrangements.

4.2

A representative sample of major projects has been compared and benchmarked for performance against a set of eight key performance indicators encompassing:

· Programme management

· Financial Control

· Quality achieved

· Contractor performance

· Supply chain performance

· Health and safety management

· Customer satisfaction

· Whether claims or disputes have emerged

The sample was drawn from 34 recently completed major capital schemes, comprising an equal number of projects delivered through alternative procurement and traditional lowest price tendering. The results are shown on the chart in Appendix `4'. In seven out of the eight categories alternative means of procurement have scored significantly higher than traditional tendering methods, with an equal score achieved on the remaining category, i.e. financial control. Similar results have been obtained through the major maintenance and improvement programmes.

4.3

The information gathered will now be used to set new performance targets for improving services through a programme of continuous improvement. Future reports to this Panel will follow progress with this process.

4.4

The general performance feedback in Appendix `5' also highlights the success of the new arrangements and demonstrates that in many instances real benefits are being achieved through:

· Commitment of contractors to jointly resolve issues and achieve cost effective solutions

· Higher quality products with fewer technical issues and elimination of waste

· Improved management arrangements and joint working to achieve project objectives

· Securing reliable resources to meet planned objectives (creating capacity)

· Enhanced customer satisfaction

5.0

Cost Comparisons

5.1

Tender price levels remain under close scrutiny. National indexation methods through the DTI and the Royal Institution of Chartered Surveyors (RICS) continue to be used to compare price levels of traditional tendering with alternative methods of procurement.

5.2

Current analysis from both the DTI and RICS shows that the price levels which are being obtained for both alternative and traditional methods of procurement are very similar. In addition projects continue to compare closely in terms of net costs, and other benchmark pricing characteristics.

5.3

In some instances price levels for alternative procurement are marginally higher than traditional competitive tendering equivalents. However, these price levels are probably a reflection of the a greater understanding of the delivery requirements by the preferred contractors, as evidenced by the key performance indicators in Appendix `4'. In addition as supply chains are developed through the major frameworks, it is hoped longer term involvement will lead to lower unit costs. Early evidence of this is already being obtained on the Nursing Care Initiative Strategy, where over half of the work is being procured through common supply chains; discounts are being obtained and prices are being held firm for up to two years.

5.4

As part of the price benchmarking process for Framework Agreement for major capital schemes, framework contractors have been invited to tender against other firms from the Approved List. On three occasions out of five, Framework contractors have been successful, providing an important price benchmark to compare with projects procured through the Framework Agreements. The particular projects were:

· Elvetham Heath Phase 2

· Priestlands School Lottery Project

· Alton Amery Hill

6.0

Future Developments

6.1

With the Framework for major schemes established, development work is about to begin for the complementary arrangements for the small and medium size contractors and key supply chains. Initially firms who have established a track record of working for the County Council will be utilised, prior to instigating longer term arrangements:

· Some piloting will be required - particular arrangements could be bespoke for example responsive maintenance work and emergency work (i.e. fire damage reinstatement)

· Creating supply chains for major specialist areas of work such as engineering services, roofing, cladding, windows, framed structures - initially building on existing arrangements (i.e. the Term Engineering contracts, Nursing Care packaging and the Flat Roofing Framework)

· Establishing preferred suppliers in order to achieve common standards, quality and availability

7.0

Mechanical and Electrical Services Consultant Partnering

7.1

7.2

7.3

Following the successful introduction of structural engineering consultant partnerships in November 2002, similar arrangements were proposed for mechanical and electrical engineering consultancy services. In the autumn of 2003 six practices were selected, following response to an OJEC notice and a tender process, for an initial period of three years. This arrangement may be extended to five years depending upon performance.

The report to the Buildings, Land and Contracts Panel of 24 October 2003 confirmed the names of the six practices selected for a combined annual commission value of approximately £1.2 million.

Each year on the anniversary of the introduction of the partnerships an internal review will be undertaken using KPI's to ensure that there is "continuous improvement" in the arrangements.

8.0

8.1

Structural Engineering Partnerships

Formal partnerships were entered into with six practices in the autumn of 2002 with a total annual fee of approximately £1M. Following the first anniversary of these commissions an internal audit was undertaken to review the effectiveness of the arrangements. Many positive outcomes have been noted including:

· a more cost effective service (lower fee levels)

· better working relationships with design teams and an improved level of service (proactive resolution of design issues)

8.2

Output requirements will now be refined in order to obtain further improvement and encourage innovation.

9.0

Quantity Surveying Partnerships

9.1

Following receipt of 26 expressions of interest to an OJEC advertisement, a best value shortlisting process was undertaken and 10 firms invited to tender. This process has still to be concluded, and it is anticipated that between four and eight partnering commissions will be placed in April 2004, at an overall annual fee of approximately £1.25M. The appointments will be for two years, which could be extended to four years depending upon performance.

10.0

Building Surveying Partnerships

10.1

An OJEC procedure will be followed in the near future for Building Surveying consultancy services in support of property management activities. The particular professional services required relate to repairs and maintenance work, alterations and improvements, and condition surveys. The overall estimated annual fee will be in the order £350,000. The OJEC process will commence shortly with a target date for the partnering firms to be in place of January 2005.

11.0

Conclusion

11.1

Over the last 12 months further confidence has been gained with alternative means of procurement, better performance is being achieved and supply chain development is emerging . Of the projects completed there is significant evidence that the industry has made a positive contribution to the outcomes, through better technical solutions and management of risk, which exists with all building projects. This is supported by the benchmark information as evidenced through Key Performance Indicators.

11.2

Similar confidence has been obtained through the consultant partnering arrangements, where dedicated staff are being put forward and service improvement being achieved.

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 Appendices `1' and `2.'

2

The procurement initiatives set out in Appendix `3' relating to:

· Long Sutton Primary school

· Sharps Copse Children's Centre

· Romsey Library

· External redecoration work (further packages)

· Harriet Costello School - temporary reinstatement work following fire damage

· Temporary Buildings Term Contract (extension of existing contract)

3

The arrangements for the appointment of `preferred' consultant partners for Quantity Surveying and Building Surveying Services.