Hampshire County Council

Buildings, Land and Procurement Panel Item

5 April 2005

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 Constructing Excellence (formerly Rethinking Construction) 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 1 Maximising life Opportunities - by providing opportunities for young people through skills training and apprenticeships in conjunction with our partners and industry training providers

Aim 2 Stewardship of the Environment - by considering whole life costs, and working closely with our partners to eliminate waste

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

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

Aim 6 Developing councillors and staff - by developing procurement skills and competencies of staff.

1

Summary

1.1

The Executive Member for Policy and Resources approved at his meeting on 8 April 2004 the annual review of procurement initiatives for 2003/4 and a series of new initiatives to be implemented over the current financial year and beyond.

1.2

The purpose of this report is to summarise the actions taken during 2004/5, analyse the outcomes, seek approval to further procurement initiatives, and set out a number of procurement development objectives for 2005/6 and beyond.

1.3

Longer term Frameworks and Partnerships have now been established across a range of activities and this report focuses on the development of these and further arrangements following the approval given by Cabinet on 27 September 2004 to the 'Hampshire' procurement model.

1.4

The development of performance management techniques is also key to the successful development of new arrangements, which are built upon learning from experience and seeking improvement. This report gives details of the outcome of current assessments both for individual projects and across a range of services.

1.5

This report also highlights issues associated with whole life costs and proposes that a `value for money' statement be introduced into the project development appraisal process, and that further consultation be completed to establish how whole life costs will fit with the assessment of efficiency savings.

1.6

This report also focuses on how new arrangements are being used in connection with wider procurement objectives and leading on the building work stream for the South East Centre of Excellence.

2

Analysis and Review

2.1

Over the last twelve months construction work procured through this department has continued at a very high level, with over £100 million construction work committed.

2.2

In addition to the Major Frameworks work continues to be procured across a range of best value procurement, including preferred small to medium size contractors and specialist firms. In 2004/5 just under 60% of the overall value of work procured was through the best value approach.

2.3

A summary of all best value procurement approved in 2004/5 is shown in Appendices 1 and 2:

· Appendix 1 details all of the work committed to the major Frameworks for 2004/5 and beyond

· Appendix 2 details work procured through other best value procurement including preferred contractors and specialist frameworks

2.4

Around £75 million has been committed by best value forms of procurement through:

· Major Frameworks - 12 projects worth £68million including the

final phase of the Enhance project

· Preferred contractors - 35 projects worth £6million

· Preferred contractors - 12 packages of multiple projects worth £3million

2.5

Appendix 3 details a number of further best value initiatives proposed:

· Brookfield School - Schools Access Initiative and Scola Recladding

· Hamble College - Science Lab and Escape Stair

· Mill Chase - Science Labs and Specialist Teaching

· Noadswood and Hayling School, Alderworth College - Design Technology

· Roofing Framework - 2005/6 projects

· Hard landscaping framework - development of arrangements

· External Redecoration - 2005/6 projects

· Chantry House

· Asbestos Survey Work

· Responsive maintenance

· Floodlighting to NOF MUGAs and STPs

3

Major Frameworks

3.1

£109 million has been allocated to the major frameworks since their inception in 2003/4. This includes both work planned for 2005/6 and work already committed during the previous financial years.

3.2

The allocation of the final projects for the Enhance Scheme to the contractors involved with the earlier phase of projects, following good performance was reported to this panel in October 2004. Much of this work (worth £20 million) has been let in 2004/5.

3.3

It is proposed that the following further major schemes are developed under the Framework arrangements during 2005/6:

· Holbury Primary School

· Waterside Primary School

· New 1FE Primary School (Dowd's Farm site)

· New 1FE Primary School (Kings Copse School)

· Pinewood School

· Romsey Primary (amalgamation)

· Harriet Costello College, Basingstoke

· Ashburton Court

3.4

Using these longer term arrangements and closer partnership working with the industry it has been possible to develop a wider agenda of collaboration. This is particularly notable with the Modern Apprenticeship scheme and cooperation over construction waste management.

4

Performance Assessment

4.1

As previously reported to this panel in March 2004 all major projects are measured against a set of key performance indicators The indicators are:

· Programme management

· Financial control

· Quality achieved

· Contractor performance

· Supply chain performance

· Health and safety management

· Customer satisfaction

· Claims or disputes

4.2

A large sample of major projects which were completed or substantially complete in 2004/5 has been assessed against the same indicators. This sample includes the first projects to be completed under the Framework for major schemes, including major new build schemes under the Enhance project.

4.3

The results are presented in the form of a `Radar Chart' in Appendix 4 showing combined scores for both best value procurement and traditional lowest price competition. As with the March 2004 report to this panel, best value has scored higher than projects procured through lowest price competition. The results do however show that whilst there is a similar trend to 2003/4, there has been an improvement in the work secured through lowest price competition. This is largely attributable to the careful application of competitive tendering, which tends to be used to a lesser extent for larger more complex projects with the advent of the Major Frameworks.

4.4

By combining the results for 2004/5 and comparing to them to the earlier sampling presented to this panel in March 2004 a 10% improvement in overall performance can be seen. This is illustrated by the `Radar Chart' in Appendix 5. The overall value of work analysed is worth £120m, comprising a sample of 34 major schemes completed up to March 2004 worth £69m, and 39 major schemes completed/substantially complete in 2004/5 worth £52m.

4.5

Improvement trends are also being noticed across a range of other activities, particularly property management through maintenance work and large scale refurbishment programmes.

4.6

Best value forms of procurement are leading to improved outcomes across all programmes of work, through aggregation and closer collaboration with the industry.

4.7

The analysis of performance on major projects highlights improvements in most areas of delivery. An 11% improvement in the score for time management and less propensity for major claims has lead to a more effective use of resources. Here project teams are free to move on to new opportunities, rather than be drawn into lengthy project completion issues and protracted claims. This is highlighted by recent analysis based upon 30 schemes completed prior to 2004/5 which shows that a 9% saving in professional time for best value procurement as compared to lowest price competitive tendering.

4.8

On the Enhance project under the major framework agreements, key supply chains have been established across the whole programme of work. Not only does this mean the project is efficient to administer, but benefit has been achieved in terms of net construction cost, which is about £200/m2 under than national benchmark examples. By aggregating the work and generating a significant scale, discounts are being achieved, and prices are being held firm, in spite of inflationary trends. For example the latest project to be launched is showing 4% annual inflation as opposed to the national trend of 7.5%.

4.9

Another recent example of efficiencies being be seen is with external redecoration programme. Here analysis shows costs holding firm for over two years with average costs showing a slight fall as compared to national inflation trends as noted above.

Further efficiencies will be targeted over the coming year through:

· Greater aggregation and collaboration

· Opportunities which may be generated through the South East Centre of Excellence

· Introduction of electronic forms of tendering

· Considering waste management strategies in conjunction with our construction partners

· Extended supply chain strategies

5

Development of the 'Hampshire Procurement Model'

5.1

The report to Cabinet on 27 September 2004 put forward a 'Hampshire Procurement Model' for the development of best value procurement over the next two years. The importance of developing the new arrangements was highlighted, both in terms of securing the capacity and quality of delivery, and to align with the strong national agenda.

5.2

Work is now underway to develop long term framework partnership arrangements which would be suitable for small to medium size enterprises (SME) for both project work and building maintenance. The template in Appendix 6 details the proposed strategy, comprising a combination of partnerships with general building contractors who will undertake projects up to £2.5million, maintenance contractors and specialists firms. In respect of the building work framework there will be an overlap with the Major Frameworks which can operate down to a project size of £1million. The reason for this is to generate greater capacity and choice to the County Council in terms delivering projects in the £1million to £2.5million range.

Through these new arrangements it is intended to develop a number of standardised solutions, which will benefit the end user in terms of speed and quality of delivery and lead to greater efficiency in terms of use of resources. The template that is being developed is very much based upon a mixed economy, with flexibility and choice, and will suit a side range of organizations of varying scale and expertise including the SMEs. New framework arrangements will allow for potential collaboration and participation with the other authorities and public sector providers through the South East Centre of Excellence (SECE).

5.3

Many of the initiatives proposed will be the subject of European procurement rules requiring an OJEU notice prior to formal tendering. A key area will be the renewal of Term Engineering Contracts which need to coordinate with the renewal of the Service Level Agreement with the schools and are likely to be tendered later this year.

5.4

The arrangements set out in Appendix 6 will build upon what has been learnt from working with preferred small to medium size contractors and specialists on earlier best value initiatives. These have ensured sufficient capacity to implement an expanded programme of work and have produced good results in terms of key performance indicators. Formal long term arrangements will build on these arrangements through closer collaboration, making possible more effective delivery.

6

Whole Life Costs

6.1

Whole life cost appraisal is a widely recognised technique that quantifies financial values for buildings from inception throughout the building life balancing capital with revenue costs to achieve an optimum solution. It is an important component in demonstrating value for money (value for money is defined by HM Treasury as the optimum combination of whole life cost and quality (or fitness for purpose) to meet the user requirement).

6.2

For a whole life cost approach to be effective it must be implemented as early as possible in the design process. For this reason the technique is frequently used for option appraisals and it should be considered standard procedure to consider the whole life of projects during the option appraisal stage. The procedure, however, can be applied throughout the project development process e.g.

Feasibility/Option Appraisal

Cost Planning/Cost Analysis

Benchmarking exercises e.g.

_ Low maintenance finishes reducing external maintenance cycles

_ Higher thermal efficiency reducing energy costs

_ Investment in sprinklers to offset fire damage reinstatement

_ Steel frame v concrete frame

Post contract

Building in operation

6.3

Throughout the development of a major project, value-for-money judgements are made all the time in the design, planning and procurement stages. These are not always formally recorded and project appraisals do not currently draw attention to this.

6.4

It is proposed that a `Value-for-Money Statement' be introduced into the project development/appraisal process so that value for money judgements are more explicitly and formally built into the decision making process. This statement would demonstrate the approach to value-for-money through:

WLC appraisal

Design and specification assessments

Procurement decisions

Resource costs

Sustainability

Future proofing - designing for the future through flexibility

Development planning

Etc

6.5

Efficiency gains

6.5.1

At the Cabinet meeting on 27 September 2004 the County Treasurer presented a report on Value for Money and Efficiency savings. The report outlined the requirement for value for money to be a more significant priority for the Audit Commission in respect of Councils' Comprehensive Performance Assessments (CPA) for 2005.

6.5.2

It is uncertain how the Government's requirements for efficiency gains will impact on a Whole Life Cost approach. Several issues need to be addressed:

· How are efficiencies on capital spend to be assessed?

· Whole Life Costs will often show higher capital costs with lower revenue costs - how is this reconciled?

· How is a tender price inflation to be dealt with? TPI for 2005/06 is 6% but the Government's default rate of inflation for assessment of efficiency gains is 2.52%.

Further discussion and consultation will be required to establish how Whole Life Costs will fit with the assessment of efficiency gains. The outcome of these discussions/consultations will be reported to the Panel at a future meeting.

7

South East Centre of Excellence

7.1

Members will recall the ODPM announcement of nine Centres of Procurement Excellence to support Councils in delivering the National Procurement Strategy. These centres have now been renamed Centres of Excellence, to embrace the drive for efficiency savings following the Gershon review.

7.2

The County Council has been chosen to lead the South East Centre of Excellence (SECE) with the development of the Buildings Workstream. In the South East there are 74 local authorities comprising 7 county, 12 Unitary and 55 District Councils who have a combined annual spend on buildings of some £600million. By making best use and getting best value in this activity there will be significant benefits across the authorities.

7.3

A business case has been submitted to the Management Board of the SECE for some £434,000 of resources to develop the Buildings Workstream over the next two financial years by providing leadership and management. A work plan is being drawn up in consultation with the other County and Unitary authorities. This will involve greater levels of collaboration and aggregation through working with the industry and other authorities within the region, to achieve common objectives and greater efficiency.

7.4

Future reports to this panel will record the progress being made with this initiative.

8

Development of Modern Apprenticeships

8.1

The new framework arrangements have provided an opportunity to work in partnership with construction industry partners to provide young people with an opportunity to " earn and learn" whilst developing their chosen trade or skill. All six major Framework Contractors have signed up to this initiative and in the first year have successfully recruited 7 trades apprentices. Whilst salary and overhead costs are met fully by the Contractor, apprentice development is overseen by Property, Business and Regulatory Services which co-sponsors training though the provision of financial enhancements linked to the achievement of key milestones in learning.

8.2

A Welcome Event for the trades apprentices was held in early January. The event provided an opportunity for apprentices to meet one another and to gain an understanding of some of the important values of the County Council. A visit to Lanterns Early Years project was also included in the event.

8.3

Over the next 18 months, it is hoped to extend the scope of the apprenticeship programme to the mechanical and electrical supply chain. This will be achieved (subject to available funding) through the direct employment of two engineering apprentices. Although the apprentices will be direct employees of the County Council, their work experience will provide a combination of office based practice alongside practically based site experience. Apprentices will be seconded to work with partner organisations as part of a co-coordinated programme of learning.

8.4

The next generation of Term Engineering contracts will include provision for the 'Hampshire' lead apprenticeship scheme within the arrangements as direct employees of the specialists. A similar approach will be followed with the development of other long term partnership arrangements. Further progress will be reported to future meetings of the Panel.

9

Waste Management

9.1

A system for monitoring construction waste which has been designed by the Building Research Establishment (BRE) is currently being piloted by this department. This involves the major framework contractors who are assessing waste generated on a small number of major capital projects. The volume of different categories of waste is being recorded to provide a greater understanding of the amounts and types of common waste leaving each site. The system generates an Environmental Performance Indicator (EPI) for individual sites and for the Council's projects overall, which can then be benchmarked against the national average. The data collected can then be used to identify and prioritise actions to produce a waste management strategy. It is planned to extend this across a range of construction activities with the following benefits:

· Reduce construction waste leaving sites

· Maximise materials for reuse and recycling

· Minimise waste materials going to landfill

· Facilitate better links and communication within supply chains

· Enable measurement of Environmental Performance indicators, benchmarking against industry standards and setting of targets.

10

E-procurement

10.1

Property Services is participating in an e-tendering pilot as part of the Corporate Procurement Strategy. The pilot will include a trial `mini competition' with three of the major framework contractors and at least one project with small to medium size firms from the approved list. In the longer term it is anticipated that the introduction of an e-tendering system will lead to efficiencies in the tender process for both the County Council and its suppliers when compared with the existing paper based system. On completion of the pilot, the process of selecting a suitable e-tendering system will be undertaken and the results reported at a later date to this Panel.

10.2

The department is also reviewing collaborative working software and the publication of project documentation on the Web. By reducing tendering costs the County Council will meet e-government targets and create greater accessibility to up to date project documentation. In another development the advertisement of forthcoming tender opportunities has been launched on Hantsweb.

11

Consultant Partnerships

11.1

Consultant partnering arrangements are now in place for structural and services engineering, quantity surveying and landscape design. In addition arrangements are in place for urban planning and design and transport planning, both of which will be re-tendered later this year. It is also proposed to run a pilot partnering arrangement for building surveying consultants with a view to establishing a longer term arrangement over the next 12 months.

11.2

A review of consultant performance during the last year indicates generally good performance with an average score of 74% for work completed during 2004/5 compared with 71.3% for 2003/4. Performance ratings are based upon quality, timeliness and effectiveness of the consultancy work.

11.3

The partnering arrangements are generally working well, with an average score of 75% for partner consultants. In spite of this overall good performance there are instances where improvement is required and this is being addressed with the firms concerned. The overall value of consultancy work committed in 2004/5 was in the order of £7.5m. It is envisaged that similar levels of expenditure will prevail over the coming financial year and into 2006/8, given the significant programmes of work underway.

12

Land at Manydown

12.1

Following the formal allocation of the land at Manydown in the Basingstoke and Deane Borough Revised Local Plan which is currently at Public Inquiry, further planning and design work has continued under the guidance of the Manydown Land Joint Development Committee.

12.2

In order to deliver the proposed development within the projected Plan Period of 2011-2016, it will be important to complete the next planning stage involving the preparation of a Master Plan and Associated Transport and Environment Assessments for the proposed sustainable urban extension to the West of Basingstoke by the end of 2005.

Recommendations

That:

the Panel advises the Executive Member 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 `2' and `3'

2

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

· Brookfield School - Schools Access Initiative and Scola Recladding

· Hamble College - Science Lab and Escape Stair

· Mill Chase - Science Labs and Specialist Teaching

· Noadswood and Hayling School, Aldworth College - Design Technology

· Roofing Framework - 2005/6 projects

· Hard landscaping framework - development of arrangements

· External Redecoration - 2005/6 projects

· Chantry House

· Asbestos Survey Work

· Responsive Maintenance

· Floodlighting to NOF MUGAs and STPs

· Harriet Costello College, Basingstoke

· North Popley - Urban extension - acceptance of tender for

Contract 1 phases 1a and 1b

3

That the development of the following schemes under the Framework Agreement for Major Schemes and Programmes of Work is noted:

· Holbury Primary School

· Waterside Primary School

· New 1FE Primary School (Dowd's Farm site)

· New 1FE Primary School (Kings Copse School)

· Pinewood School

· Romsey Primary (amalgamation)

· Harriet Costello, College, Basingstoke

· Ashburton Court

4

A summary of the key actions and findings from this report is presented to Cabinet particularly in light of the number of Social Services and Education schemes being completed through the framework arrangements.

5

That a `value for money' statement be included in the project development/appraisal process and that further consultation be completed to establish how whole life costs will fit with the assessment of efficiency gains.