Hampshire County Council

Cabinet Item 11

25 April 2005

Procurement Initiatives - Key Decisions and Policy Review

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

1

Summary

1.1

A detailed report on construction related procurement including the benefits emerging from the use of the Council's Framework Agreement was presented to the Buildings, Land and Procurement Panel on 5 April 2005 and formally endorsed by the Leader at his Executive Member for Policy and Resources meeting on 14 April 2005. In light of the number of Social Services and Education Schemes being completed through the framework arrangements, it was agreed to present a report to Cabinet highlighting the key actions and initiatives relating to building procurement and their impact across the County Council's built estate. The report identifies a further tranche of work to the value of some £70 million which will be procured through the Framework Agreement.

1.2

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.

1.3

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 further improvement across a range of criteria. This report gives details of the outcome of current assessments both for individual projects and across a range of services and begins to form the basis of how we develop a consultant management framework to establish efficiencies relating to capital building projects.

2

Analysis and Review - Context

2.1

Over the last twelve months construction work procured through Property, Business and Regulatory Services has continued at a very high level, with over £100 million of construction work being committed. This was similar in volume to the previous 12 months.

2.2

In addition to the Major Frameworks, work continues to be procured across a range of best value procurement mechanisms, 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, with the remainder being largely done through `lowest cost competitive tendering'.

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

This work can be broadly categorized as:

· 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

3

Major Frameworks

3.1

Over the last two years some £110 million of construction work has been allocated to the major frameworks since their inception in 2003/4. The final projects for the Enhance Scheme have been allocated to the contractors involved with the earlier phase of projects, following good performance on earlier schemes. One of the significant factors to contributing to improved performance has been the County Council's ability to provide a consistent workload to the contractors and for it to be of a scale that significant benefits can be secured from the relevant supply chains.

3.2

It is proposed that the following 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

3.3

The scale of the County Council's capital building programme is such that for operational reasons, and in particular to meet programme and expenditure deadlines, the Director of Property, Business and Regulatory Services be authorized to add appropriate schemes to the Framework Arrangements. The action taken being reported through progress reports to the Buildings, Land and Procurement Panel.

3.4

Using these 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 which are discussed below.

4

Performance Assessment

4.1

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 secured through best value approaches 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 3 showing combined scores for both best value procurement and traditional lowest price competition. The chart demonstrates that best value has scored higher than projects procured through lowest price competition. However, the results do 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 earlier sampling a 10% improvement in overall performance has been achieved. This is illustrated by the `Radar Chart' in Appendix 4. 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. Translating this improved performance into cashable and non cashable efficiencies is the subject of further analysis.

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 the 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 update 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

Cabinet approved at its meeting on 27 September 2004 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 for the County Council the capacity and quality to deliver the capital programme.

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 5 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.

6

Development of Modern Apprenticeships

6.1

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.

6.2

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.

6.3

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.

7

Waste Management

7.1

A system for monitoring construction waste which has been designed by the Building Research Establishment (BRE) is currently being piloted by the 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.

Recommendations

That:

1

The procurement initiatives that have been implemented in the last year as set out in Appendices `1' and `2' be endorsed

2

That the under noted schemes be developed under the Framework Agreement for major schemes

· 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

3.

That the Director of Property, Business and Regulatory Services be authorised to add appropriate schemes to the Framework Arrangements.

4.

That a further report on translating the benefits of improved procurement and performance by contractors into efficiency gains be prepared.