Hampshire County Council

Buildings, Land and Procurement Panel Item

30 June 2005

Construction Procurement and Efficiencies

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 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 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.

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

1.0

Summary

1.1

The Executive Member for Policy and Resources approved at his meeting on 5 April 2005 the annual review of procurement initiatives and a series of new initiatives to be implemented over the current financial year and beyond. A key feature over the coming two years was the development of `best value procurement' by implementing further Framework Arrangements for project work and for maintenance services. The earlier 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 which was approved. The recommendations in this report are in line with Cabinet policy. The County Council's approach is line with central government policy in this area, as detailed in the `National Procurement Strategy for Local Government'.

1.2

This report proposes further development of the `Hampshire Procurement Model', particularly:

· Framework Arrangements for capital projects and packages of work up to
£2.5million

· Arrangements for planned and reactive maintenance work

· Renewal and extension of Term Engineering Maintenance arrangements

· Specialist works such as asbestos

1.3

The National Procurement Strategy for Local Government and `Gershon' Efficiency Review of public services have also led to a focus on how improved efficiency is achieved through construction procurement. This report also considers the evidence of efficiencies and how these could be evaluated in terms of cashable and non cashable savings. More work needs to be done in this area to translate improvements in performance to cashable and non cashable benefits.

2.0

Efficiencies in Construction Procurement

2.1

The Office of the Deputy Prime Minister (ODPM) has recently published further guidance dealing with the mechanisms for reporting efficiency gains through the Annual Efficiency Statement (AES), which is to be completed in two parts: a forward look for the year ahead and a backward look for the previous financial year. The way in which construction efficiencies will be determined and evaluated will be many and varied, but are likely to involve a combination of factors, including:

· Gains through aggregation (economies of scale)

· Better (or more effective) use of resources

· Improved procurement processes

· Added value

The guidance on how these efficiencies will be translated into cashable values is less clear.

2.2

Backward Look

2.2.1

Evidence of greater efficiency in construction procurement can be seen by the improvement flowing from performance indicators which capture data on the underlying efficiency trends. For example, the report to BLPP on 5 April 2005 noted an overall improvement in performance which is set out in the table below.

Performance Indicator

2003/4

2004/5

Difference

Improvement

Contractor Performance

65.0

73.6

8.6

13%

Supply Chain Performance

55.5

69.6

14.1

25%

Health and Safety Management

61.0

75.0

14.0

23%

Quality Achieved

74.0

73.6

-0.4

0%

Customer Satisfaction

73.5

79.1

5.6

8%

On Time

64.5

71.6

7.1

11%

On Budget

76.0

87.8

11.8

16%

Avoidance of claims/Disputes

66.2

73.6

7.5

11%

Average results/improvement

67.0

75.5

8.5

13%

2.2.2

Over £110 million of construction work has been developed through the Major Framework Arrangements which gives a reasonable sample size. The figures above point to a significant increase in performance. Can that improvement be translated into cashable and non cashable benefits?

2.2.3

Evidence of improved efficiency can also be seen from the following examples:

1 Price savings/volume gains:

· Re-roofing and redecoration work costs have show a slight fall
compared to annual inflation trends of about 7.5%

· On ENHANCE the packaging arrangements for the first six schemes
have been let at £155/m² (approx 12%) below the average regional
cost of similar buildings

2 Actual reduction in process costs:

· Re-roofing and redecoration - a fee level of about 3% of construction
cost is being achieved through rationalisation of staff arrangements

· Major Frameworks avoid the need for lengthy tendering processes
involving evaluation of multiple bids (possibly under European
procurement legislation), saving professional time and easing
inflationary pressures

· Greater standardization has led to shorter pre-construction
programmes on major initiatives such as ENHANCE (approximately
50% of the time required to implement an equivalent project through
traditional means) and the MOF sports hall programme.

Once again the trick will be to attach suitable values to the above efficiencies.

2.4

Forward look

2.4.1

The development of the `Hampshire' procurement template is based on the principle of aggregation through longer term partnerships with the industry. The intention is to extend these to around 70% of overall activity over a two year development period. Greater efficiency will be generated through increased early contractor involvement linked to a process of continuous improvement across all services. The Department is beginning to work with the OGC to begin to develop a framework for this work.

2.4.2

In December of 2004 the role of the Regional Centres of Excellence was expanded to include the efficiency agenda. Members will recall that the County Council is leading the Building Workstream for the South East Centre of Excellence (SECE) and long term efficiencies should accrue through this work, in particular:

· Collaborative Frameworks across Councils

· Establishing and sharing good practice across Councils

· Alignment of supplier capacity with long term regional and sub-regional
demand

· Common processes and procedures to minimize progressive costs and
maximise the benefits of greater standardization.

2.4.3

The key areas which will be developed for the County Council over the coming year are Term Maintenance, Frameworks to suit SME contractors (principally package procurement), and specialist supply chains. The majority of these activities are currently procured by individual `spot' transactions and would clearly benefit by adopting a more aggregated strategic approach.

2.4.4

Major supply chains are vital to the success of capital projects, as most of the physical work on site is undertaken by them. On many `Hampshire' schemes such as Enhance, as well as involving the Major Framework Contractors with design development work, key supply chains have been appointed early in the design process. Integrated teams are then formed who deliver:

· Better design coordination - fewer changes during construction (improved
cost predictability)

· More effective programming and planning (time saved)

· Added value (improved product)

· Simplified processes (time saved)

· Improved management through better understanding (more effective risk
management)

2.4.5

A recent analysis of 30 benchmark projects has shown a 9% saving in professional time for best value procurement as compared to projects won through lowest price competition. The 15 best value schemes were worth £40 Million. Greater use of collaborative means of procurement should lead to similar efficiencies.

e-Tendering

2.4.6

An e-tendering pilot is underway with both the Major Framework contractors and

Small to medium size firms. Initial findings are that this will likely benefit the smaller projects and specialist works in particular rather than major schemes, due to the practicalities of transferring large volumes of information such as drawings electronically. Totally paperless contracts are also unlikely to be fully achieved as formal contracts for major schemes will continue to involve signing and exchanging documents. For minor works however, normally signed under hand, virtually the whole process could be handled electronically. This should show efficiencies arising including:

· Reduced staff time opening, recording and circulating results

· Saving Copying and postage

· Storage space and handling records

· Speed of transactions/ordering

Construction Waste Management

2.4.7

More effective means to deal with construction waste is a further example of added value measures. Recent legislation has meant that construction waste has become costly to dispose of. Licensed tipping and control of active waste is now strictly controlled. The Department is currently working with the BRE to assess waste generated on a number of major projects. From this information and working closely with our partners a waste management strategy for construction work could be developed.

3.0

Procurement Development - Next Steps

3.1

Framework Arrangements Development - `A Second Framework'

3.1.1

The report to the Panel on 5 April included proposals for the development of Framework Arrangements for projects up to £2.5million, which would be suitable for small to medium size contractors, and other initiatives. These arrangements will be complementary to the Framework for Major Schemes and Programmes of work which were launched in 2003.

3.1.2

As a precursor to longer term arrangements it is proposed to run a number of

pilot packages. This will enable the development and testing of potential procurement and project management templates prior to entering into longer term arrangements. The work which will be piloted will include:

· Improvement work to schools - often for schools delegated resources

· Major repairs and Improvements on behalf of Landlord

· Office accommodation schemes

3.1.3

It is proposed that each pilot framework will run for an initial period of around 6 months, and may be extended subject to good performance. Each pilot will be worth in excess of £500,000. Tendering for each pilot will be on the basis of best value to a select list of three contractors. It is envisaged that the long term arrangements will be in place by the final quarter of 2006 following a tendering process under European procurement directives.

3.2

Extension to Term Engineering Contracts

3.2.1

The current Term Engineering Contracts, which cover maintenance of mechanical and electrical systems and plant across the whole of the County Council's estate, were established in November 2001. The contracts are for a five year term which, subject to satisfactory performance, can be extended for a further two years

3.2.2

To enable the term engineering contracts to run con-currently with the Service Level Agreement for Schools, new contracts will be tendered to operate from April 2007. To provide continuity of the service in the interim it is proposed to extend the current term contracts for all properties outside the Castle Complex for a five month period from November 2006 until the end of March 2007, through negotiation with the existing contractors. A recent performance review confirmed that all the term contractors are currently performing well. A further review of performance will be undertaken prior to finalising the extensions to the contracts.

3.2.3

The requirements for provision of the engineering maintenance services to the Castle Complex differ somewhat from the rest of the estate. It is therefore proposed to separate the Castle Complex buildings from the mainstream Term Engineering Contracts and negotiate a 2 year extension of the current arrangements for the Castle Complex with the existing service provider, Johnson Controls. This arrangement would run until November 2008, or possibly longer, which would allow sufficient time for further review of the provision of services to the Castle Complex and procurement of appropriate longer term arrangements to deliver these services. This is consistent with the refurbishment of Ashburton Court.

3.2.4

Details of the proposals for tendering new term contracts will be reported to BL&PP in the autumn. The proposals are likely to include an expansion of the existing services to incorporate an element of planned maintenance and minor capital work.

3.3

Asbestos Removal Pilot

3.3.1

Currently up to £400,000 per annum of asbestos repair and removal work is undertaken by a small number of licensed contractors through direct orders with the County Council. In order to achieve better planning and management of this work and improved contractor performance, it is proposed to establish up to four pilot framework contracts prior to tendering longer term arrangements.

3.3.2

Each contract would be worth up to £100k and will operate on a call off basis within defined geographical areas. Suitable contractors will be selected through a best value tendering process, with up to four contractors selected from a shortlist of eight. The contracts will run initially for 6 months with the option to extend for a further 6 months subject to satisfactory performance.

3.3.3

In addition to directly procured work it is proposed to look at the potential to establish supply chain arrangements for asbestos removal undertaken on a subcontract basis as part of larger projects. This will done in consultation with both the selected asbestos contractors and a sample of our larger contractors to determine the most appropriate approach. Further reports to the panel will report on the progress and performance of the arrangements.

3.4

Reactive Building Maintenance Pilot

3.4.1

As set out in the report to BL&PP of 5 April, it is proposed to tender three pilot reactive building maintenance contracts worth up to £150,000 each.

3.4.2

The contracts will be on a geographical basis and will provide a 24 hour reactive maintenance service to cover repairs to building fabric such as blocked drains, leaking windows and brickwork repairs as well as damage caused by vandalism, in particular replacement glazing. It is anticipated that the pilot arrangements will also incorporate provision of emergency cover following a major incident such as a fire. This service is currently provided under the Major Framework Agreement by Brazier and Mansells under a 12 month supplementary agreement which is due to finish in November 2005.

3.4.3

The contracts will be tendered to a minimum of 6 contractors with tenders evaluated on a best value (combined price and quality) basis to select three

preferred contractors. It is envisaged that the pilot contracts will be in place during the autumn term and will run initially for 3 months with the option to extend for up to a further 6 months. The pilot contracts will allow investigation of the best arrangements for provision of this service in consultation with the industry to provide a basis for tendering longer term agreements during 2006.

3.5

Further reports to this panel will review the success of all the pilot arrangements.

3.6

Additional Procurement proposals

3.6.1

Attached at Appendix 1 are details of procurement proposals to complete project work at:

· South Baddesley Primary School

· Parsonage Farm Library Extension

· Hart Plain Infant and Junior School

· Waterside Primary School

It is customary, albeit that the policy has Cabinet and Building, Land and Procurement Panel approval to this report, to record major procurement decisions for the Panel.

Recommendations

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

1

Further work to develop efficiency savings from construction procurement initiatives as noted in the report be reported back to the Panel.

2

The procurement development proposals set out in Section 3 relating to:

· Framework arrangements development for SME's

· The extension of the existing Term Engineering Contracts

· Pilot arrangements for Asbestos repair and removal

· Pilot arrangements for reactive maintenance

3.

The procurement initiatives referred to in Appendix 1 relating to:

· South Baddesley Primary School

· Parsonage Farm Library Extension

· Hart Plain Infant and Junior School

· Waterside Primary School