Contact: Phil Samms, ext 7072 email: [email protected]

1. Summary

1.1 The following decisions are sought:

(i) That the Buildings, Land and Procurement Panel supports the procurement initiatives proposed to be taken forward by the Environment Department.

(ii) That the Executive Member for Policy and Resources approves the procurement initiatives proposed.

2. Reason

2.1 The key objectives of the 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:

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

(ii) Aim 3, Achieving Economic Prosperity - encouraging and developing the use of local resources which contributes to the local economy and leads to greater prosperity;

(iii) Aim 5, Improving Services - the new arrangements involve closer working and collaboration with the industry which is instrumental in driving continuous improvement into County Council services; and

(iv) Aim 6, Developing councillors and staff - by developing procurement skills and competencies of staff.

2.2 The Executive Member for Environment: South Hampshire and Resource Management recommends these initiatives.

3. Other Options Considered and Rejected

3.1 Taking no action.

4. Conflicts of Interest Declared by the Decision Maker or Other Executive Member Consulted - None.

5. Dispensation granted by the Standards Committee - Not applicable.

6. Reason(s) for the Matter being dealt with if Urgent - Not applicable.

Approved by: ................................... Date: ..............................

Councillor T K Thornber

350/PS Decn

Contact: Phil Samms, ext 7072 email: [email protected]

1. Summary

1.1 The Corporate Procurement Network has lead on aligning and monitoring the County Council's procurement initiatives, against those existing and emerging from Central Government.

1.2 This report is an interim review of the current arrangements for all construction related procurement carried out within the Environment Department. This covers a range of procurement for highway works delivered through the Local Transport Plan, including both Capital and Maintenance and Professional Services contracts. The report also highlights a number of new initiatives which it is proposed to introduce over the coming three financial years (2006-08) to further enhance the service delivery of the Department and achieve efficiency savings.

2. National and Regional Overview

2.1 The Environment Department has been involved in the improvement of service delivery at a national and local level since the concept of Best Value was developed in the late 1990s.

2.2 Since this time the County Surveyors' Society (CSS) has provided a coordinating function to ensure that best practice is shared between authorities. Arising out of the need for authorities to benchmark against each other, County Councils in the south-east formed a service improvement group (SECSIG). The aim of this group was to provide mutual support and develop best practice in delivering a range of service streams (ie engineering design and construction). Officers from the Department sit on the management board of SECSIG and report through CSS, thereby ensuring national coordination and development of service delivery and benchmarking.

2.3 In parallel to the SECSIG, the south-west counties have formed a similar group in which Hampshire also plays a lead role in developing highway construction and maintenance best practice. A benchmarking club for these areas has now been developed and launched nationally through CSS to provide greater sharing in these topic areas.

2.4 Benefits have been derived through these collaborative working groups. During the development of Best Value and the audits of authorities, membership of a benchmarking club provided evidence of an improvement culture and scored highly in assessments. The sharing of data and experience has enabled greater collaboration amongst member authorities and reduced the need for duplication of effort. Sharing of experience on contract procurement has been key to the development of more collaborative working with consultants and contractors and improved contract formulation.

2.5 As the `efficiency' era is entered into, the networks set up have already developed their terms of reference to take on the need to identify and share efficiency savings. Following on from the Gershon Report the Highways Agency were tasked by the Government to act as the change agent in developing efficiencies amongst local authorities. Also, the regional centres of excellence have been tasked with improving service delivery efficiency. Through the SECSIG network the Transport Efficiency sector of the South East centre of excellence is to be supported and will advise on the terms of reference and improvements. This in turn will be fed back through CSS and the Highways Agency.

2.6 Collaboration is seen as a key driver of efficiency and service delivery improvement. Sharing at the national and regional level has and will continue to enable best practice to be developed in an effective and efficient manner. Work undertaken on these areas at the local level will both feed into this process and be guided by advice from these networks.

2.7 In addition to the efficiency agenda, there is increasing recognition that public sector procurement has a crucial role in furthering sustainable development through the procurement of goods, services and construction projects. The Government has set up a Sustainable Procurement Task Force to bring about a step change in sustainable procurement.

3. Existing Procurement Arrangements

Capital Programme Delivery

3.1 Capital schemes identified through the Local Transport Plan have historically been delivered through many procurement routes, mainly dependent upon the value of the works being commissioned. These can be summarised as follows:

(i) traditional tenders based solely on lowest price returned;

(ii) cost/quality tenders with the quality section varying between 20% and 60%;

(iii) partnering arrangements, both formal and informal (eg collaborative working); and

(iv) Framework for Minor Highway Works, used for all schemes less than £200,000 in value.

3.2 Generally these contracts have proved very successful over many years, with costs kept well under control. Quality considerations in recent years have also proved beneficial, with contracts being more focussed on the major issues for the public and sustainability, as well as best value.

3.3 Historically, a Schedule of Rates contract has been used for procuring minor maintenance and, more recently, capital works over nearly 20 years. This has proved very successful in reducing procurement costs, by using an annual/bi-annual tendering process for rates. More recently, this contract has been revised and re-tendered, and is now known as the Framework Arrangement for Minor Highway Works, running from April 2005 to May 2008.

3.4 The new framework contract has brought in a number of new initiatives, including performance management of contractors. It now offers a streamlined process for delivering simple highway works through an electronic ordering system, with additional controls on contractors designed to ensure that schemes are completed on time and to budget. The contract is also made available to district councils, which regularly use it to benefit from the economies of scale that such a framework arrangement can offer, whilst ensuring a strong base of small and medium-sized contractors in the local area.

Highway Maintenance

3.5 Hampshire County Council has had a Term Maintenance Contract (TMC) since 1996. Prior to that the maintenance work was undertaken by Hampshire Works, the County Council's Direct Labour Organisation. The original TMC operated for four years from May 1996 and there have been two subsequent contracts; the second ran from 2000 until 2002 and the third from 2002 to date. This latter contract was for five years with three possible one year extensions subject to satisfactory performance and the agreement of the Employer. The second shorter contract was to give time for the developments that were taking place in the construction industry and more particularly in Local Government eg Best Value Studies, Partnering Ethos, Sustainability, etc to be finalised and built into the third generation TMC. The second and third TMC contracts were let on a price quality basis, with the ratios being 80:20 and 60:40 respectively. Raynesway Construction Southern Limited has been successful in winning all three TMCs issued to date.

3.6 The contract involves close collaborative working between Hampshire County Council and Raynesway Construction Southern Limited, formalised through a partnering agreement. All Planned and Routine Maintenance plus Minor Works up to an individual value of £250,000 are carried out through the contract, which also includes for Arboriculture Works and Special Surface Dressings.

3.7 The contract also includes significant emphasis on performance monitoring, for both parties to the contract. In particular, a number of maintenance elements in the contract have been wholly transferred to the contractor, who is responsible for inspection and repair of the relevant parts of the network, without reference to the employer.

3.8 When this contract was let in 2002 it was one of the largest highway maintenance contracts in the UK and contained many new and innovative features. The contract has also ensured close liaison between the highway authority and contractor, leading to many initiatives such as the current Construction Lean Improvement Programme (CLIP), designed to minimise design and construction time and costs through efficiencies.

3.9 All maintenance work exceeding £250,000 in value (classified as Major Maintenance) is completed through the tendering processes described for Capital Schemes in paragraph 3.1 (i), (ii) and (iii) above.

Street Lighting

3.10 Hampshire County Council has had a Term Street Lighting Contract in some form for more than 20 years. The current contract started in 2002 for five years with three possible one year extensions subject to satisfactory performance and the agreement of the Employer. The contract was let on a cost/quality basis (80:20). Southern Electric Contracting Limited is the current supplier for this contract.

3.11 The contract involves close collaborative working between Hampshire County Council and Southern Electric Contracting Limited, formalised through a partnering agreement. Recently this close working relationship has been extended to include co-location of County Council/Southern Electric staff at Cosham.

3.12 The contract includes significant emphasis on performance monitoring, with five key performance indicators identified to ensure service delivery maintains acceptable levels.

Intelligent Transport Systems (ITS)

3.13 Hampshire County Council has had a Term Traffic Signal Maintenance Contract in some form for more than ten years. The current contract started in 2003 for five years with three possible one year extensions subject to satisfactory performance and the agreement of the Employer.

The contract was let on a cost/quality basis (80:20). The current contract broadened previous maintenance contract requirements to include new construction and installation of traffic signals. Siemens Plc is the current supplier for this contract.

3.14 The contract involves close collaborative working between Hampshire County Council and Siemens Plc, formalised through a partnering statement.

Professional Services

3.15 Since April 2001 the Environment Department has been operating a partnership arrangement for professional engineering design and transportation services. This £2 million per annum contract was originally set up to cope with the significant increase in workload predicted as a result of Hampshire's successful Local Transport Plan bid in 2001. The arrangement supplements the in-house Engineering Consultancy resources, which currently delivers a £5 million fee workload.

3.16 The contract was the first term service contract that the Environment Department had used for such a wide range of professional services, and was based on a three year initial period, with a possible two further one year extensions subject to satisfactory performance and the agreement of the Employer. The contract was let on a cost/quality basis (30:70), reflecting the emphasis on service delivery rather than overall cost. Atkins is the current supplier for this contract, which ends in March 2006.

3.17 The contract involves collaborative working between Hampshire County Council and Atkins, formalised through a partnering statement.

Other Arrangements

3.18 On occasion, the need to deliver a particular scheme to very tight timescales requires the use of quicker procurement methods. In such cases, and only with approval from the Chief Executive, negotiation of contract rates and values has been completed with trusted contractors. Whilst this type of procurement provides benefits in terms of service delivery, no competitive element for pricing takes place, and the final costs of the scheme may therefore be higher. As such, negotiation is used as a last resort, when no other procurement options are available.

3.19 In conjunction with negotiated contracts, Hampshire County Council's good relations with local contractors has also allowed it to encourage informal involvement with contractors at an earlier stage of design. This has provided benefits to all involved in scheme delivery; however a more formalised approach is desired for this process in the future, in order to ensure best value is achieved.

4. Review of Existing Arrangements

4.1 The variety of procurement options employed within the Environment Department has always ensured that good value for money has been achieved. Regularly going back to the market enables reflection and monitoring of market conditions, and existing data is regularly benchmarked against industry through the DTI's tender price index. Inclusion of quality assessment criteria has further enhanced delivery; however care is needed in its implementation, in order to avoid excessive tendering costs.

4.2 The use of term contracts for Highways Maintenance, Traffic Signals and Street Lighting has highlighted the benefits that can be derived from closer working relationships with contractors. Partnering arrangements for these contracts have certainly provided benefits for the County Council, particularly in relation to the development of joint processes.

4.3 The current professional services contract has also highlighted issues with respect to contract management and partnering. Lessons need to be learnt from this first generation contract before implementation of its replacement.

4.4 On a wider scale, consideration also needs to be given to the potential benefits of merging some or all of the term contracts, in terms of possible economies of scale and benefits for more sustainable methods. Careful consideration is required, however, to ensure that contracts are compatible and that tying large sections of the Department into long term contracts continues to deliver the value that current arrangements provide. In addition, it is important to ensure that problems will not present themselves when a generic type contract is administered for specialist areas.

4.5 Recent experiences have also identified the potential of involving contractors and other suppliers at an earlier stage than has traditionally been the case. Construction contractors in particular possess key skills required in the detailed planning of works, and this knowledge could be better used than is currently the case. In considering this benefit, however, it is imperative that competition rules are strictly observed, to ensure that any new initiatives do bring added value to the service. It is also important to consider that the main benefits of earlier contractor involvement are best found on medium and large schemes. The current programme of works consists predominantly of smaller schemes, where there are fewer benefits to such arrangements.

4.6 Benchmarking through the South West Counties Highway Design Benchmarking Club, highlighted in Section 2, has been used within the highway sections of the Department for several years now. It is clear that benchmarking provides significant opportunities to identify areas for improvement and innovation, and there is a desire to widen its use within the Department, and to incorporate other suppliers, such as the Professional Services Contract.

4.7 The Department has already developed numerous innovations in terms of sustainable construction with our long-term partners and through good contractor relations. Whilst this has given the Department a privileged position at the leading edge of its industry, there is a need to extend this work further into whole life costing and asset management, to ensure that the sustainability agenda becomes fully integrated into normal practice for the Department and its suppliers.

5. Proposed Procurement Initiatives

5.1 As part of the drive towards meeting the efficiency targets set down by the Gershon Report, improvements in procurement clearly have a major role to play. Major gains can be achieved if the appropriate procurement strategies are developed and implemented, with the overall objective of Department procurement achieving sustainable projects.

5.2 To help in achieving these aims, the Department has piloted a Procurement Innovations Group (PIG), comprising representatives from across the Department's service delivery areas. This forum enables innovative ideas and strategies in procurement to be discussed in an open and honest atmosphere, and has assisted in the formulation of some of the ideas detailed below.

5.3 Before bringing any new initiatives into operation, it is important that there is a common understanding of the aims within the Environment Department. Crucial to this understanding is staff development and training in respect of procurement methods and options. It is proposed that a Procurement Model be developed for the Environment Department, including Best Practice guides on all aspects of procurement and contract management.

5.4 As part of these wider initiatives, it is proposed to move forward on the following key areas for innovation:

Packaging of Schemes

5.5 Through the new approved Local Transport Plan it is envisaged that schemes will be identified within capital programmes much sooner than may have been the case in the past. This advanced notice will afford opportunities for procurement to be considered much earlier in the scheme development process. Given sufficient notice, it is intended that schemes of a similar type or geographical location should be considered for packaging together through the procurement process, and proposed links from the scheme tracking database to GIS will further these possibilities.

5.6 By packaging schemes together, fee costs can be reduced for contract preparation, tendering and site supervision. In addition, construction costs will be reduced through economies of scale in respect of plant, labour and materials.

5.7 Packaging of schemes also affords the opportunity of earlier contractor involvement (see paragraph 4.5 above), as packages need not be fully designed before tendering.

Renewal of Professional Services Contract

5.8 The Professional Services Contract is currently being re-tendered, with a two year contract, and an option to extend by a further two single year extensions, due to commence in April 2006. The new contract has been written to resolve a number of areas of concern with the existing contract, and focussed very much on the quality of service delivery at a reasonable price.

5.9 The new contract includes significant emphasis on performance by the consultant, but also the development of a close working relationship with the existing in-house Engineering Consultancy. Co-location of staff and collaborative working between the partners is a strong driver within the quality assessment criteria for the tender, which constitutes 70% of the overall tender assessment score.

5.10 The new contract represents a major step forward over the existing arrangement and, through closer administration and performance monitoring by the in-house Engineering Consultancy, it is hoped that further lessons will be learnt for the third generation contract, that is likely to follow in the future.

Consideration of Combined Term Contracts

5.11 There is currently a major review underway into the potential for combining a number of major contracts operated by the Environment Department. A number of term contracts could end in Spring 2008, and there is therefore an opportunity to consider what benefits such a combination may bring to the Department.

5.12 CWC Consulting has been employed to review and recommend a way forward on this matter, and the findings of this study will be reported in due course.

Performance Management

5.13 Ensuring performance of suppliers delivering services and works is crucial to confirm that the best service is being obtained for the best price. Whilst monitoring has been carried out in the past, it has often only provided retrospective information on supplier's performance.

5.14 New initiatives seek to proactively monitor performance through regular review and feedback. Monthly monitoring of contractors has already commenced, and is included as an intrinsic part of the Framework Arrangement for Minor Highway Works. In particular, close monitoring is

also in place for all contract awarded on the basis of quality assessments, ensuring that contractors are delivering on the promises that they have made to win the work.

5.15 Consultants will also be closely monitored through the new Professional Services Contract, which has performance indicators written into the partnering agreement to ensure service delivery meets expectations.

Best Value

5.16 Whilst tenders are already regularly assessed on the basis of cost and quality, there is a desire to broaden the quality criteria out to consider the best value and long term impact of the proposals. Asset management is becoming an important part of the Department's consideration, and the assessment of schemes in terms of the whole life costs and wider sustainable development considerations would enhance this process.

Value Management

5.17 Value management has been used with significant success in the automotive and other manufacturing sectors of industry. The process allows a structured approach to be applied where multi-faceted Clients representing different groups have an involvement in projects. Value management is conducted by providing a number of separate stages with the use of workshops where the different groups can provide input into the project allowing objectives and stakeholders to be identified.

5.18 Although adaptation of the techniques would be necessary to align with the County Council's requirements and to account for procurement methods peculiar to the construction sector, use of value management could provide benefits to the County Council in respect of closer working relationships between all stakeholders, with open and improved decision making processes leading to enhanced value.

E-Procurement

5.19 The Corporate Procurement Network is actively seeking opportunities to develop e-procurement options throughout the County Council, and have recently commissioned a study by Level 3 Group. The Environment Department has contributed towards this study and awaits feedback on potential areas for further improvement in this expanding discipline.

5.20 The construction-related work delivered by the Environment Department has not, up to now, taken full advantage of the developing technology in this area, partly due to the difficulties in publishing contract drawings electronically. Potential new IT software currently being purchased by the Engineering Consultancy will, however, resolve this important difficulty.

5.21 Opportunities are currently being sought to trial a scheme through the Corporate e-tendering package, InTend. If trials are successful, it is hoped that e-tendering will become a standard part of the Department's financial processes, producing savings in administration costs.

Earlier Contractor Involvement

5.22 Whilst the Environment Department has excellent relations with the majority of its regular contractors, there has not been a formalised method for including them within the design process. Often complex schemes are delivered that would significantly benefit from the involvement of an experienced contractor before commitments are made to price and complete the works. Quality assessments have helped to improve this situation, by understanding the methods that contractors are proposing to adopt during construction; however this process can still be too late to gain full benefits for certain schemes.

5.23 For example, schemes requiring complex traffic management and difficult restrictions on programming of the works can have many problems identified and resolved prior to works actually starting on the ground. In this way delays and disruption to the construction process can be anticipated and designed out at reduced cost, ensuring that contract periods and traffic management arrangement are optimised. Ultimately, this passes on to the public, which will benefit from reduced disruption during the works.

5.24 Whilst formalised early contractor involvement (ECI) has been successfully trialled on the A30 Brighton Hill scheme in Basingstoke, the Department is keen to further this approach to include other medium/large schemes. Discussions with contractors have indicated a willingness on their part to be involved with such an initiative, and it is believed that this approach provides significant opportunities to drive through efficiencies in the design and procurement process. Discussions are ongoing with the Chief Executive to ensure that appropriate procedures are developed in line with the County Council's Financial Standing Orders.

Sustainable Procurement

5.25 The Environment Department, as a major procurer of construction services, can play a key leadership role in stimulating demand for sustainable products and services (eg the use of recycled materials).

5.26 By specifying such products and services, where they are fit for purpose and value for money, the County Council can send clear signals to the market place about the way this area needs to develop. A good example of this type of initiative has been the development of `foamed bitumen' for use in highway construction and maintenance. By championing this material, the Environment Department has encouraged a substantial investment in a production plant and the marketing of the product to

developers across Hampshire. It is the desire of the Department to further encourage innovation in this area across the County Council for the benefit of all Hampshire residents, both present and future.

6. Impact Assessments

6.1 As part of the proposed initiatives described in Section 5, it is also intended to develop existing procedures considering the impact on the environment and equalities for all contracts procuring construction work and professional services.

6.2 For construction contracts, particular emphasis will be placed on developing the contractor's approach to the temporary works and traffic management required to construct the works. In addition, the opportunity to develop early contractor involvement and increased partnering will afford opportunities to influence the permanent works design equally.

7. Conclusions

7.1 Overall the Environment Department has delivered a variety of procurement options over recent years that have been successful in providing the wider service needs of the Department. The Framework for Minor Works, term contracts, cost/quality assessments and early contractor involvement have already been implemented to improve the value and quality of scheme delivery, but there are still changes that could further benefit these key issues and drive through greater efficiency.

7.2 The opportunity to work more closely with suppliers, both those delivering services and works, is recommended, as benefits have already been drawn from current experience in this area. Lessons learnt from existing generation contracts are critical to seeing this implemented successfully.

7.3 Throughout the development of the proposed initiatives over the coming years, managing and monitoring performance is crucial to ensure that benefits continue to be drawn from the process.

Recommendations

1. That the Buildings, Land and Procurement Panel supports the procurement initiatives proposed to be taken forward by the Environment Department.

2. That the Executive Member for Policy and Resources approves the procurement initiatives proposed.

350/PS Rpt