agenda item 9 16 december 2014 by: director of communities ... · 12/16/2014 · price options and...
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Agenda Item 9
Report to: Cabinet
Date of meeting:
16 December 2014
By: Director of Communities, Economy and Transport
Title: Highways Contract Re-procurement Project (HCRP) Purpose: To present the outcomes and recommendations from the Detailed
Business Case for the Highway Contract Re-procurement Project
RECOMMENDATIONS Cabinet is recommended to agree: 1. To note the findings of the Detailed Business Case (DBC) for the Highway Contract Re-procurement Project; 2. To the development and tender of an Executive Client led contract; 3. That the services currently provided by ESCC, and set out in Section 1.13 Appendix A as future contractor functions, be included in the invitation to tender specification with a view to being undertaken by the new service provider; 4. That the Authority continues to develop its asset knowledge and pursue long term, affordable investment options to deliver the desired outcomes for the service; 5. The key outcome be amended from “To improve the condition of the highway network” to “To have the best network condition for the investment available”, recognising the uncertain financial future; 6. To delegate authority to the Director of Communities, Economy and Transport to take any action he considers necessary to give effect to or in consequence of, the above recommendations including (but not limited to) determining the procurement process, the terms and scope of the Executive Client contract, Invitation To Tender and the services that are included in them.
1 Background 1.1 This report presents an overview of the recommendations and service outcomes from the Detailed Business Case (DBC) for the re-procurement of the new highway maintenance contract. The DBC has developed the recommendations from the Outline Business Case (OBC) and the three options approved by Cabinet in April 2014. These were to develop further the creation of an Executive Client led Contract, Strategic Client led Contract and a Staged Executive/Strategic Client led Contract (these are detailed on page 1 of Appendix A (DBC Executive Summary). The DBC represents the ‘Plan’ stage of the Council’s Strategic Commissioning approach.
2 Supporting information 2.1 The Proposed Approach 2.1.1 In developing the DBC, more detailed work has been carried out with further exploration, analysis and research undertaken including planning and design work in sufficient detail to determine which of the three options presents the best opportunity to deliver the outcomes required. The outcomes set out in the OBC were developed from the County Council’s priorities and through discussion with Scrutiny Members Reference Group. These have been further developed with Scrutiny Members around the key outcome of improving the condition of the road network, which in turn will deliver the other outcomes, namely: promoting economic growth, reducing the level of third party claims, providing value for money, promoting local engagement and improving customer satisfaction and communications. Given the financial forecast for future years these outcomes will need to be balanced against other County Council priorities through the Reconciling Policy, Performance and Resources (RPPR) process. The conclusion of the DBC triggers the start of the next phase, the Procurement ‘Do’ stage of the Strategic Commissioning process. Further details are Section1.6 of Appendix A.
2.2 Future Challenges
2.2.1 In July Cabinet considered the RPPR Report - State of the County and noted the likely financial outlook for 2016/17 – 2018/19 when it is anticipated a further £70-£90m of service savings may be required from across the authority’s services. In considering the findings from the Detailed Business Case, Cabinet
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will want to consider the future funding situation and the Authority’s ability to fund the desired improvements in highway condition alongside other County Council priorities. It would nevertheless be advisable to signal to the market during the tender process the likely level of funding available, without this the market will have to make certain assumptions and make provision for associated risks in their tenders.
2.2.2 The outcome of the RPPR process is unknown at this stage in the re-procurement project and will continue in parallel. It is therefore proposed to manage these challenges by advising the market at time tenders are invited, and keeping the market informed of the County Council’s position during the procurement process. The project board will continue to regularly review the risks, ensuring as much flexibility as possible in the contract to change service levels, reviewing the services for inclusion in contract before the contract is awarded.
2.2.3 In discussions with the Scrutiny Member Reference Group, Members were keen that the key outcome from the re-procurement remains as “To improve the condition of the highway network.” It is however suggest that this outcome be amended to “To have the best network condition for the investment available” as it is felt that this better reflects the uncertainties surrounding future funding.
2.3 The New Contract Model 2.3.1 The key issues that have shaped the proposed future contract model to deliver the project outcomes are:
Service Packaging - Following more detailed assessments of the services provided by both the contractor’s staff and our in-house staff a package of services has been drawn up for inclusion in the new contract (see Section 1.13 Appendix A). This has been tested through market engagement, confirming this to be attractive to the market and well within current market capabilities. This would entail the (TUPE) transfer of staff with associated services to the contractor. This process will be undertaken in accordance with the Council’s Human Resources (HR) policies for transfer of staff and TUPE regulations during the procurement process.
Asset Management Requirements - Further work has been done to fully understand the condition of our highway network, and in particular our understanding of other ‘key’ asset types eg. drainage, bridges and structures, and street lighting. Until recently the focus of the County Council’s capital investment has been to improve the condition of the road surface, but the other highway assets need to be included and consideration given to the impact of the current levels of expenditure on these assets. Although modelling work is in its infancy and our knowledge of the condition of a significant portion of our assets (drainage for example) is limited, modelling suggests that at current levels of investment our asset stock will continue to deteriorate.
Modelling also suggests that a ‘steady state’ condition could be achieved with levels of investment similar to current levels with new contract prices giving greater value and efficiency savings, over and above savings currently identified in the MTFP, re-invested into the service. The importance of Asset Management and continuous efficiency is reinforced by the DfT as their desired approach in a recent consultation document setting out their likely approach to future highway maintenance funding. This sets out a graduated move from needs-based funding to one based on asset management with longer term funding streams linked to a published Asset Management Plan (AMP) and demonstration of delivery and value for money. The DfT state not adopting this approach will lead to a reduction in available funding from 2016/17 onwards.
Executive Client Led Contract - The DBC concludes that, of the three options set out in the OBC, moving to an Executive client led contract represents the best opportunity for the County Council and the least risk to the authority to achieve the required outcomes. An Executive client would comprise approximately 30 staff providing specialist contract, commercial, performance and asset management functions. Moving to a Strategic client led contract poses significant risks at the current time, particularly given our limited knowledge of asset condition, which the market would also see as a significant risk. In recommending the Executive client model, the new contract will retain the flexibility to move to a Strategic client when the time is right, although Cabinet should note that this may not be achievable in the life of the new contract. (See section 1.14 Appendix A Future Client Shape and Service Delivery Model).
Performance Management and Governance - A robust performance management, incentivisation and governance arrangement is proposed to ensure the right level of service will be delivered by the contractor but also ‘reward’ the contractor for innovation and year-on-year efficiency in service delivery. An outline performance framework has been developed that will incentivise the contractor to deliver year on year efficiencies but ‘penalise’ the contractor for poor performance. (see section 1.15 Appendix A). This will be
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managed by a contract management team providing greater commercial focus and governance. (see Figure 13 section 1.14.2 and Figure 17 section 1.15.21 respectively of Appendix A).
Price Options and Benefits - Using a range of payment options will provide greater budget certainty for annual and cyclic services such as winter maintenance and grass cutting; flexibility of prices for planned works such as road surfacing; and open book pricing for emergency situations such as a drain collapse. This combination of pricing options will enable the contractor to better manage risk and provide competitive prices through economies of scale, optimising business processes, the introduction of new technologies and techniques and maximising resources.
Contract Duration and Value - It is proposed that the contract duration will be for 7 years, which is the optimum period for return on the investment required by the contractor and will therefore ensure value for money. The estimated annual value of the contract is £43.5m (based on the current value of those services proposed for inclusion in the contract with prices inflated to 2016 prices). However, the actual annual contract value will be determined through the RPPR process.
Contractor Selection - A three stage bidder selection process (section 1.22 Appendix A) of pre-qualification questionnaire, invitation to tender (submission and evaluation) and validation and selection will be used to select the right contractor for the contract. This process will assess the proposed use of the local supply chain by the tenderers to provide services to ensure this is maximised.
Local Communities - Engagement with local parishes and councils will continue with opportunities for parishes and councils to provide appropriate local highway services and the ability to access services provided by the contract (topping up grass cutting for example).
2.3.2 It is anticipated that the new contract will provide revenue savings that will deliver the required savings identified in the current MTFP and beyond of £1.1m. The actual level of savings will be determined by the services finally included in the contract and the prices at the time of tender, but future financial settlements leading up to 2020 are anticipated to reduce.
3. Conclusion and reasons for recommendations 3.1 Section 1.26 of Appendix A describes the conclusions and recommendations from the DBC and section 1.27 sets out what will be different about the service in the future if this new contract model is adopted. It will mean a better service for the public and Members with greater access to ‘real time’ information for example, driven by clear objectives, clear outcomes and performance measures with the ability to ‘penalise’ the contractor for poor performance, but also incentivise the contractor to provide innovative solutions and deliver continuous efficiencies.
3.2 Re-investing those efficiencies would provide the opportunity to further improve network asset condition and begin to deliver the required outcomes of the project supporting the Council’s priorities in particular ‘Driving Economic Growth through improving the infrastructure in the county and improving the condition of highways to create the conditions for growth and enterprise’. However, it is recognised that in the future the funding challenges faced by the authority present challenges to achieving the outcomes of the project and the success of the new contract. These challenges will have to be assessed during the procurement process and any impact on the expected service and financial outcomes managed to best achieve the outcomes required.
3.3 Setting out our requirements and long term investment plans at the tender stage will give the market confidence to provide the best prices and get the best prices from their supply chain throughout the duration of the contract. This would offer the highest level of efficiencies and savings to the authority and provide choices to take them as base savings or re-invest them into the network to meet the outcomes required.
3.4 Cabinet is therefore asked to note the findings of the Detailed Business Case (DBC) for the Highway Contract Re-procurement Project and endorse the recommendations of the DBC and the amendments to the business case outcomes set out at the beginning of this report.
RUPERT CLUBB Director of Communities, Economy and Transport Contact Officer: Dale Poore Tel. No. 01273 481916 Email: [email protected]
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BACKGROUND DOCUMENTS
Department for Transport Local authority highways maintenance funding: 2015/16 - 2020/21
November 2014
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DETAILED BUSINESS CASE
FOR
EAST SUSSEX COUNTY COUNCIL
HIGHWAYS CONTRACT RE-PROCUREMENT PROJECT
(HCRP)
12th November 2014
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Document Control Author(s) Dale Poore Project Manager Paul Smart Senior Contract/Project Improvement Engineer Robin Hayler Procurement Lead Phil McCorry Procurement Support Samantha Neame Project Support Phil Johnson Senior Contract/Project Improvement Engineer Shaun Reddin RedRay Consultant Ed Rumsey RedRay Consultant Document Summary This document is the Detailed Business Case (DBC) for the East Sussex County Council Highways Contract Re-procurement Project (HCRP) Document History Version Date Status
1 1st July 2014 First draft Structure, Format & Content
2 7th August 2014 First working draft
3 11th September 2014 Updated draft for review
4 18th September 2014 Revised final draft
5 22nd October 2014 Updated final draft for review
6 12th November 2014 Final
Reference Documents
• Appendices Distribution Issue No. Issued to Date of issue
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2
3
4
5
6
7
8
9
10
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Document Quality Assurance Step Step Description Undertaken by Date Remarks
01 Quality Review Shaun Reddin
02 Project Manager Review Dale Poore
03 Executive Review Karl Taylor
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Table of Contents 1. EXECUTIVE SUMMARY ................................................................................................ 1
1.1 Introduction .............................................................................................................. 1
1.2 Background to the project ........................................................................................ 2
1.3 The Re-procurement Process .................................................................................. 3
1.4 Project Programme .................................................................................................. 3
1.5 The Outline Business Case...................................................................................... 3
1.6 The Detailed Business Case Approach .................................................................... 5
1.7 Service Assessments ............................................................................................... 5
1.8 Site Visits (Other Highway Authorities and their Contractors) ................................... 6
1.9 Policy and Service Level Review ............................................................................. 7
1.10 Local Community Initiatives ..................................................................................... 8
1.11 Collaboration ........................................................................................................... 8
1.12 Asset Management Plan (AMP) ............................................................................... 8
1.13 The Detailed Business Case (DBC) Planning .......................................................... 9
1.14 Future Client Shape and Service Delivery Operating Model ................................... 11
1.15 Performance Management, Incentivisation and Governance ................................. 15
1.16 Affordability ............................................................................................................ 21
1.17 Analysis of current costs and Forecast Cost .......................................................... 21
1.18 Potential Savings ................................................................................................... 22
1.19 Summary of Service Cost Savings ......................................................................... 22
1.20 Contract Form, Payment Options and Duration...................................................... 23
1.21 Procurement Route & Bidder Selection .................................................................. 23
1.22 Bidder Selection ..................................................................................................... 24
1.23 Tender Stages ....................................................................................................... 24
1.24 Options Appraisal .................................................................................................. 26
1.25 Options Evaluation ................................................................................................. 30
1.26 Conclusions, the Future & Recommendations ....................................................... 31
1.27 The Future - So what will be different about highway maintenance in the future? .. 32
1.28 Recommendations ................................................................................................. 33
1.29 Next Steps ............................................................................................................. 33
2. INTRODUCTION .......................................................................................................... 34
2.1 Introduction to the DBC .......................................................................................... 34
2.2 Background to the Highways Contract Re-procurement Project (HCRP) ............... 35
2.3 Performance of the current service arrangements ................................................. 35
2.4 Consultation outcomes .......................................................................................... 37
2.5 Current service arrangements - lessons learnt ....................................................... 37
2.6 Highways Transformation Project .......................................................................... 38
2.7 The Highways Contract Re-Procurement Project (HCRP) ..................................... 38
2.8 Drivers for Change ................................................................................................. 39
2.9 Critical Success Factors ........................................................................................ 40
2.10 The Strategic Commissioning Approach ................................................................ 40
2.11 The Outline Business Case (OBC) findings, outcomes & recommendations .......... 41
2.12 Structure of this document ..................................................................................... 42
2.13 The Scope & Requirements of the Detailed Business Case (DBC) ........................ 42
3. STRATEGY AND VISION ............................................................................................. 43
3.1 East Sussex’s Corporate Plan ............................................................................... 43
3.2 East Sussex Highway’s Future Service Outcomes ................................................. 44
4. HIGHWAYS SERVICES ASSESSMENTS ................................................................... 45
4.2 Service Assessments ............................................................................................. 45
4.3 Soft Market Testing (Capability & Capacity) ........................................................... 46
4.4 Market and Client Maturity ..................................................................................... 51
4.5 Organisational Change Requirements ................................................................... 54
4.6 Communications Plan & Stakeholder engagement ................................................ 56
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4.7 Policy and Service Level Review ........................................................................... 58
4.8 Asset Management Plan (AMP) ............................................................................. 59
4.9 Technology Systems Review & Requirements ....................................................... 61
4.10 Local Community Initiatives ................................................................................... 64
4.11 Collaboration ......................................................................................................... 65
5. HIGHWAY PLANNING ................................................................................................. 67
5.1 Service Design....................................................................................................... 67
5.2 Future Client Shape & Service Delivery Operating Model ...................................... 68
5.3 Service Delivery Governance ................................................................................. 77
5.4 Performance Management..................................................................................... 78
5.5 Contract Form, Payment Options and Duration...................................................... 83
5.6 Step Out Procedure ............................................................................................... 86
6. AFFORDABILITY & INVESTMENT .............................................................................. 88
6.1 General .................................................................................................................. 88
6.2 Analysis of current costs ........................................................................................ 88
6.3 Staff Costs Analysis ............................................................................................... 89
6.4 Forecast Cost ........................................................................................................ 90
6.5 Cost Savings ......................................................................................................... 90
6.6 Asset Knowledge Risk Transfer ............................................................................. 91
6.7 Asset Management Investment Strategy................................................................ 92
6.8 Funding Strategy ................................................................................................... 93
7. NON – FINANCIAL BENEFITS .................................................................................... 95
7.1 General .................................................................................................................. 95
8. PROCUREMENT STRATEGY...................................................................................... 99
8.1 Procurement Route ................................................................................................ 99
8.2 Bidder Selection ................................................................................................... 100
8.3 Tender Stages ..................................................................................................... 101
8.4 Decommissioning Plan for existing services ........................................................ 103
9. OPTIONS APPRAISAL / EVALUATION .................................................................... 105
9.1 Options Appraisal ................................................................................................ 105
9.2 Options Evaluation ............................................................................................... 110
10. CONCLUSIONS ......................................................................................................... 112
11. RECOMMENDATIONS............................................................................................... 114
12. NEXT STEPS ............................................................................................................. 115
13. APPENDICES ............................................................................................................ 116
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1. EXECUTIVE SUMMARY
1.1 Introduction 1.1.1 This Detailed Business Case (DBC) for the Highways Contract Re-procurement Project
(HCRP) has been developed following approval by Cabinet in April 2014 to proceed with the recommendations of the Outline Business Case (OBC) using the East Sussex County Council strategic commissioning approach.
1.1.2 This DBC completes the ‘Analysis’ stage of the East Sussex Highways commissioning model (see Figure 1) and has developed the ‘Plan’ stage in sufficient detail to enable the project to progress to the Procurement ‘Do’ stage. The DBC sets out how highway services should be delivered in the future to meet the outcomes required and approved in the OBC. Figure 1 – East Sussex Highways Commissioning Model:
1.1.3 This report should be read in conjunction with the OBC as presented to Cabinet in April
2014 (see Appendix 1). Where appropriate, information contained in the OBC is set out again in this document to provide clarity and continuity.
1.1.4 This business case has been developed to consider the three options recommended in the
OBC and approved by Cabinet on 22nd April 2014, namely: • Option C Executive Client led Contract (about 20-40 client staff) – Potentially
retains strategy and policy plus contract, commercial and performance management plus strategic asset management and liaison functions but with savings and efficiency opportunities on both the client and works costs;
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• Option D Strategic Client led Contract (about 6-12 client staff) – Retains, strategy and policy with small very ‘intelligent’ and capable contract, commercial and performance client function. This is possible but carries a higher degree of risk due to the current level of client maturity in respect to capability and competencies and
• Option E Staged Executive/Strategic Client led Contract – This would allow for a
well-managed and staged process that would deliver the maximum benefits to East Sussex. The process could be managed such that progression to a Strategic client would be dependent on milestones being achieved in particular around client capability and competencies. Further opportunities could be developed along the way so this option would enable ESCC the degree of flexibility to take advantage of market developments at each stage.
1.1.5 The other options presented in the OBC have not been considered further in this business
case. 1.1.6 These options were developed from an assessment of the market and the County Council’s
(client) capability to deliver future highways services. The Authority’s current competency and capability level is represented in the client maturity model presented in the OBC and shown in Figure 3. The options explored in this report will take the Authority beyond a Managed Client to an Executive or Strategic organisation.
Figure 3 – Client Maturity Model:
Key (Contract References):
PFI – Private Finance Initiative MAC – Managing Agent Contract
MA/TMC – Managing Agent/Term Maintenance Contract TMC+ - Enhanced Term Maintenance Contract
TMC – Term Maintenance Contract DLO – Direct Labour Organisation
1.2 Background to the project 1.2.1 The full background to the HCRP project is set out in Section 2 of the OBC (Appendix 1).
This details the current service delivery arrangements, the Highways Transformation
????
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Project (that set the scene for this re-procurement and delivered early efficiency savings), the drivers for change and the review methodology and approach of the OBC.
1.2.2 The HCRP project commenced in 2012 to re-procure a new contract for highway
maintenance services. The current contract started in 2005, was extended in 2012 to enable the completion of the Highways Transformation Project, and is due to expire in August 2015. However, the contract is to be further extended to April 2016, to enable the completion of the re-procurement process. The new contract will commence on the 1st May 2016. The demobilisation of the current contract will be planned and executed during the preceding period.
1.2.3 The Highways Transformation Project undertaken in 2011/12 restructured the service
delivery around asset management, stewardship, a control hub to manage daily works and new business processes and technology.
1.2.4 Separate contracts currently exist for street lighting, traffic signals, fleet management and
special structures (maintenance of the Newhaven Swing Bridge and Cuilfail Tunnel at Lewes). These services have also been considered in the development of the DBC.
1.3 The Re-procurement Process 1.3.1 The re-procurement process has been broken down into the following 6 work streams:
1. Review & Development of an Outline Business case (Commercial Model); 2. Preparation of the Detailed Business Case and Procurement Strategy; 3. Delivery of the Procurement Strategy; 4. Transformational Change; 5. Mobilisation Support, and 6. Performance and Contract Management Support.
1.4 Project Programme 1.4.1 The sequence of key events is illustrated in Figure 2.
Figure 2 - Procurement Delivery Timeline:
1.5 The Outline Business Case 1.5.1 The OBC summarised the findings from both a broad and detailed analysis of key areas of
highway related service delivery including individual service area assessments, outline analysis of current costs, market research and maturity, contract options, risks, outline affordability and client maturity modelling. From this analysis a number of project outcomes
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were developed and agreed by the Scrutiny Members Reference Group (see Section 4.12 of the OBC) summarised as:
• Improve customer satisfaction; • Improve network asset condition; • Reduce level of third party claims; • Provide 98% of network for use at any time; • Value for money; • Promote local engagement, and • Promote economic growth.
1.5.2 As the DBC has been developed through further engagement with Members1 and reviewing
the latest Council priorities the project outcomes have been updated and prioritised. This recognises that many of the outcomes are interlinked and by delivering the principal requirement of improving the condition of the highway network asset the project will deliver the other outcomes. Delivery of the outcomes will also be monitored and managed through a service performance management framework as described in Section 1.15, which will be developed in further detail during the procurement ‘Do’ stage of the project. 1 Scrutiny Member Reference Group (SMRG)
1.5.3 The seven developed future service outcomes are as follows:
• Improved Network Condition (principal requirement) to; o Improve asset condition; o Promote economic growth; o Reduce the level of third party claims; o Provide value for money; o Promote local engagement, and o Improve customer satisfaction and communication
1.5.4 From the evidence gathered potential service models were developed to deliver these
outcomes (see Section 4.16 of the OBC). The models were assessed against five Critical Success Factors2 (CSF) of Strategic, Economic, Management, Commercial and Financial resulting in three future service options (see Section 5 of the OBC) being recommended and approved by Cabinet to be developed further in the Detailed Business Case (DBC).
1.5.5 The three future service options are:
• Option C Executive Client led Contract (about 20-40 client staff) – Potentially retains strategy and policy plus contract, commercial and performance management plus strategic asset management and liaison functions but with savings and efficiency opportunities on both the client and works costs;
• Option D Strategic Client led Contract (about 6-12 client staff) – Retains, strategy
and policy with small very ‘intelligent’ and capable contract, commercial and performance client function. This is possible but carries a higher degree of risk due to the current level of client maturity in respect to capability and competencies and
• Option E Staged Executive/Strategic Client led Contract – This would allow for a
well-managed and staged process that would deliver the maximum benefits to East Sussex. The process could be managed such that progression to a Strategic client would be dependent on milestones being achieved in particular around client capability and competencies. Further opportunities could be developed along the way so this option would enable ESCC the degree of flexibility to take advantage of market developments at each stage.
2Based on HM Treasury’s recommended five case business analysis model.
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1.6 The Detailed Business Case Approach 1.6.1 In developing the DBC, similar work to that undertaken for the OBC has been carried out
but with further exploration, analysis and research undertaken to develop the three future service options. In addition, planning and design work has been undertaken in sufficient detail to determine which of the three options presents the best opportunity to deliver the outcomes required, and move the project onto the next phase, the Procurement ‘Do’ stage.
1.6.2 This work has included:
• Completion of a more detailed service assessment to determine the package of
services for inclusion in the new contact; • Further market engagement and site visits to other Authorities to test thinking and
learn lessons from recent procurements; • Determining the current and projected costs of the service accounting for inflation
over the period of the new contract; • Determining the functions, shape and cost for the new client organisation to manage
the new service arrangements considering the risks and affordability of the models; • Determining the impact on current funding levels on the condition of our principal
assets over the period of the new contract; • Modelling the level of funding required to remain at a steady state over the new
contract period; • Developing an investment model to deliver the principle outcome of improving the
asset condition; • Developing a performance and incentivisation mechanism for inclusion in the
contract that will generate year on year efficiencies to ‘generate’ the investment and offset the effects of inflation;
• Determining the type and duration of the new contract, and • Determining the ‘tests’ to be an Executive or a Strategic Authority.
1.7 Service Assessments 1.7.1 A more detailed assessment has been undertaken of the service areas assessed in the
OBC with additional highway related services included in the DBC for assessment. This is set out in detail in Section 4.2. The process involved the initial completion of a self-assessment questionnaire by service area managers using three scenarios of:
i. stay the same (internal delivery);
ii. the service to be provided externally by the main contractor, and
iii. the service being provided by another external party. The questionnaire was
completed by the service area manager with questions focused on the five Critical Success Factors (CSFs) determined in the OBC (as shown in Table 1).
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Table 1 – Critical Success Factors (CSF):
1.7.2 Following completion of the questionnaires, one-to-one sessions were held with the service
area managers to further understand their responses, and if necessary a level of moderation was applied. The assessments were then reviewed by the Head of Service - Highways and the Assistant Director for Transport and Operations. The range of services assessed included the current highway related ESCC client (internal) and the works delivery (external) functions as shown in Table 2.
Table 2 – Current service areas:
Key CSF’s Broad Description
Strategic
fit & business needs
How well the option:
• Meets the investment objectives, related business needs and service requirements
• Provides holistic fits and synergy with other strategies, programmes and projects
Economic
Potential Value for Money (VfM)
How well the option:
• Maximises the return on the required investment (benefits optimisation) in terms of economy, efficiency and effectiveness
• Minimises associated risks
Management
Potential achievability
How well the option:
• Is likely to be delivered in view of the organisation’s ability to assimilate, adapt and respond to the required level of change
• Matches the level of available skills which are required for successful delivery
Commercial
Supply-side capacity & Capability
How well the option:
• Matches the ability of the service providers to deliver the required level of services and business functionality
• Appeals to the supply side
Financial
Potential Affordability
How well the option:
• Meets the sourcing policy of the organisation and likely availability of funding
• Matches other funding constraints
ESCC Client Function s (‘Internal Service Delivery’ by officers of the County Council)
Works (‘External Service Delivery ’ by Contractors)
Highway Maintenance Highway Maintenance (Reactive/Planned) Winter Maintenance Street Lighting Street Lighting Traffic Signals Traffic Signals Local Safety and Improvement Schemes Infrastructure Design and Delivery Structures Maintenance Structures Traffic & Safety Traffic & Safety Asset Management Network Management Contact Centre & Highways Liaison Team Contract Management Development Control Strategic Economic Infrastructure Highway Claims Highway Stewards Inspection & Enforcement
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1.8 Site Visits (Other Highway Authorities and their Contractors)
1.8.1 In addition to the site visits undertaken with the Scrutiny Member Reference Group (SMRG)
in the early part of the process, additional officer visits were undertaken to:
• Engage with suppliers and explore service delivery areas identified as of interest from the soft market testing, and
• Meet with client organisations to understand how aspects of their service are delivered, identify lessons learnt from recent procurements or test our model against their experience.
1.8.2 Table 3 in Section 4.3 summarises all the site visits undertaken throughout the HCRP
project with the key findings summarised below:
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1.9 Policy and Service Level Review 1.9.1 In compiling the DBC the current policies, service levels and procedures have been
reviewed to ensure that they are relevant, and sufficient to enable future services to be delivered and flexible enough to respond to service requirements such as seasonal events e.g. grass cutting in wetter growing seasons. Policies and service levels will continue to be determined by Members and procedures will be determined by both the Authority and the Contractor. A framework for this arrangement is illustrated in Section 4.7 and this will be fully developed during the procurement stage.
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1.10 Local Community Initiatives 1.10.1 ESCC is looking to improve the way that services are delivered within the local community.
East Sussex Highways has developed a set of initiatives to help local communities take responsibility and accountability for some services and community enhancement schemes.
1.10.2 Community Investment 1.10.3 A mechanism will be created within the new contract to enable investment in the
community. The Contractor will be required to re-invest a percentage of their incentive share into East Sussex community benefit schemes to provide new community facilities and local enhancements.
1.11 Collaboration 1.11.1 The future contract will be designed to enable service delivery for other Local Authorities,
District and Parish Councils. But local community involvement in highway maintenance will have to be balanced against the value for money derived from the new highways service contract. In addition we will continue to develop contracts and services in conjunction with our neighbouring local authorities where appropriate.
1.12 Asset Management Plan (AMP)
1.12.1 The total value of the ESCC highway network asset has been calculated at £3.7bn in
accordance with the Chartered Institute of Public Finance and Accountancy (CIPFA) code of practice, and is by far the most valuable asset owned by the County Council.
1.12.2 Recognising the value and effect of poor network condition, it is estimated that for every £1
reduction in highway maintenance spending there is a resultant cost of £1.50 to the wider economy3. Significant progress has been made as part of the Highways Transformation Project to put asset management at the centre of our approach to highway maintenance by moving priorities away from short term reactive delivery to longer term planned maintenance. Further progress can be made to refine this approach with the ongoing development of our understanding and Asset Management Plans for all our key assets. This will be at the heart of the new contract model enabling flexibility and innovation to our approach to maintenance. Our strategy for asset management and our plan to develop our knowledge is further explained in Appendix 8.
3 The Transport Scotland report Economic, Environmental and Social Impact of Changes in Maintenance Spend on Roads in Scotland
1.12.3 The focus of the Highways Transformation Project has been the condition of carriageways
as a political priority, with the development of an Asset Management Plan and supporting asset inventory. However, it is understood that there is a significant gap in our knowledge and understanding of most of the other highway assets, such as drainage pipes and ditches, lines and signs, traffic signals, street lights, bridges and structures etc. Of the 41 different asset types, quantitative data has been collected for approximately 60% of all highway assets, whilst strategic investment and maintenance plans (15 year asset management plan(s)) have only been developed for carriageways.
1.12.4 Whilst significant progress has been made in the development of an Asset Management
Plan (AMP) for carriageways, similar plans are now beginning to be developed for other key assets such drainage, footways, structures etc. In considering a basket of key assets (see Section 4.8.8), early modelling work has identified that based on the current levels of expenditure the network condition of these key assets will continue to deteriorate in the future.
1.12.5 In order to stem deterioration, potentially improve the network condition and maximise
economic return the adoption of longer term, larger programmes of work will need to be
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considered in the future. The government has indicated that longer term investment plans based on sound asset management planning will be key to future government consideration of funding for highways maintenance. The new contract model has been designed to put this principal at the centre of highway maintenance but this will need to be balanced with other County Council priorities and affordability.
1.12.1 The “total network asset” management approach being adopted by the East Sussex
Highways will enable us to consider network wide maintenance concerns and to prepare intervention and improvement plans on a prioritised basis, giving due consideration to;
• the condition of the asset; (identified from detailed inspection and survey) • the importance (hierarchy) of the asset; • the predicted rate of deterioration; (based upon historic actual, best practice advice) • the benefits of early intervention and preventative maintenance (whole life cost),
and • County Council affordability.
1.12.2 Expanding this approach to other assets and securing early agreement for the use of the
efficiencies delivered by the new contract could help provide a substantial level of the investment potentially required to deliver an improved asset condition, provide a safe network, improve customer satisfaction and deliver value for money. However, at the present time we do not know enough about our asset stock, particularly its condition, to develop long-term asset plans and investment strategies (beyond immediate annual or bi-annual needs). These plans and strategies will be developed over the next 1-2 years as we determine the condition of our key assets. The requirements and indicative timeframes for this are set out in Appendix 8.
1.12.3 The new contract will assist with this process through the introduction of new techniques
and technology as part of the service delivery. This will enable greater and more comprehensive data collection that will help us develop our asset plans. The procurement process itself will help us develop investment models using up to date tender prices to present a range of investment scenarios and funding choices for the authority.
1.13 The Detailed Business Case (DBC) Planning
1.13.1 Service Design 1.13.2 In considering the three service delivery options of Executive, Strategic and Staged
Executive to Strategic client led contracts and taking into account the evidence gathered, service risks, capability of the market and the outcomes required the following service areas shown in Figure 11 are proposed for inclusion in the new contract.
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Figure 11 – Current and Proposed Service Areas:
Current Functions
Contractor Functions
Works
Highway Maintenance
Winter Maintenance
Street Lighting
Traffic Signals
Traffic & Safety Infrastructure
Design & Delivery
Specialist & Routine Structures Maintenance
ESCC Functions
Contract Management
Third Party Claims
Policy and Strategy
Audit and Performance
Budget and Risk
Procurement
Service
Service Management
Asset Management
Highway Maintenance Management
Winter Maintenance Operations
Street Lighting
Traffic & Safety
Infrastructure Design & Delivery
Structures Management
Network Management
Contact Centre & HLT
Inspection & Enforcement
Highway Stewards Service
Development Control
Future Functions
Contractor Functions (Service Delivery)
Services
Highway Maintenance Management
Winter Maintenance Operations
Street Lighting
Traffic & Safety – (part of)
Infrastructure Design & Delivery
Structures Management
Network Management
Contact Centre & HLT
Inspection & Enforcement
Highway Stewards Service
Development Control – (part of)
Third Party Claims
Works
Highway Maintenance
Winter Maintenance
Street Lighting
Traffic Signals
Traffic & Safety Infrastructure
Design & Delivery
Specialist & Routine Structures Maintenance
ESCC Functions
Contract Management
Policy and Strategy
Audit and Performance
Budget and Risk
Procurement
Asset Management
1.13.3 Text Removed County Council staff currently providing the highways services included in
the blue ‘current functions’ box on the left in Figure 6 will be eligible for transfer to the new contractor (illustrated in the orange ‘future functions’ box on the right). This transfer will be governed by the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations.
1.13.4 The principle for including these services in the new contract is to enable the Authority to
focus on policy, strategy and service levels. Moving these services to the Contractor enables the Contractor to control and optimise the end-to-end processes of identification, planning and undertaking maintenance activities, introducing lean processes, providing single systems and integrated technology to deliver efficiencies linked to targeted and defined performance criteria.
1.13.5 The arrangement in Figure 6 represents an Executive client led contract model. A Strategic
client led contract model would be similar but with additional services such as asset management being transferred to the contractor. Executive and Strategic client models are discussed further in the next section, ‘Future Client Shape and Service Delivery Operating Model’, of this executive summary.
1.13.6 Text Removed
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1.14 Future Client Shape and Service Delivery Operating Model 1.14.1 Both the OBC and the work undertaken for the DBC have identified that a strong contract
management capability is important and there is good evidence that a lack of this capability has led to problems with contracts in other authorities and in some cases of functions being brought back in-house for the Authority to manage. Whichever option is chosen a strong contract management and commercial function will be required.
1.14.2 Executive client led contract - The client shape, competencies, capabilities and
knowledge to manage the new contract is an essential consideration to ensure the success of the project. The client led contract functions required to manage an Executive client led contract model are illustrated in Figure 12 and a potential client group arrangement is illustrated in Figure 13. Essentially contract, commercial and performance management are pre-requisites to manage the new contract and the other functions will be important to plan our desired approach, management, build our asset knowledge, community and Member relationships and communications. This option also enables the authority to retain control of key functions such as asset management to enable us to develop our asset knowledge and investment plans. Around 30 Council staff would be required to perform these functions.
Figure 12 - Executive client led contract functions:
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Figure 13 - Executive client led contract functions:
1.14.3 The maturity assessment undertaken in the OBC shows the progress of the Authority
through the levels of management development over time. This has mirrored the ability and maturity of the market to deliver a wider range of services to meet the Authority’s highway maintenance requirements.
1.14.4 The assessment of the Authority’s current ability also shows that it is now ready, subject to
the transfer of services to the provider and setting up a new client group, to move on in organisational development to at least an Executive client led contract as a minimum step to manage the new contract.
1.14.5 Set out in Section 6, Affordability, are the financial benefits of moving to this model with
well-developed services transferred to the market providing efficiencies in service and improved value for money. This will be combined with other benefits of new systems and technology that will be required to be introduced by the Contractor. This will provide greater access to better information for Members and the public and enable further streamlining of business processes. This arrangement will involve the transfer of Text Removed Council staff with an associated reduction in direct salary costs, one off reduction in the cost of services by Text Removed and year-on-year efficiency ‘savings’ generated by the incentivisation and performance model set out in Section 5.4.
1.14.6 Market testing shows that the proposed package of works and services that will be included
in the contract under this arrangement will be an attractive offering to the market as it fits well with their capabilities and provides the right balance of opportunity and risk for the contracting organisation.
1.14.7 Strategic client led contract - Adopting a Strategic led contract model has the potential to
provide further benefits to the Authority beyond those of an Executive model. The transfer of additional services compared to an Executive arrangement for a Strategic arrangement would mean including the functions of asset management and technical audit in the new contract for the Contractor to provide. This would mean an additional staff transfer of Text
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Removed posts with an associated direct salary reduction to the Authority of Text Removed (although most of these services would subsequently be bought back from the Contractor).
1.14.8 A Strategic led arrangement is detailed in Figure 14. Around 12 Council staff would be
required to perform the client organisation functions illustrated. The exact shape and function of the strategic group will depend on how the group relates to the rest of the Council’s organisation, with some functions potentially managed across the Authority. Figure 15 shows one option for Strategic client led organisation. Figure 14 - Strategic Client led contract functions:
Strate
gyPerform
ance
Figure 15 - Strategic client led contract structure:
1.14.9 In addition, a Strategic client arrangement could also provide further efficiencies in service delivery (leaning of business processes and minimising hand-offs) that could be captured by the Authority through the incentivisation and performance mechanism included the contract.
1.14.10 Ultimately the biggest ‘prize’ in moving to a Strategic client arrangement is that the
Authority, assuming it has a sufficiently developed asset plan and the appropriate
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capability and knowledge, is then able to determine the strategy and outcomes for its network that are achievable, affordable and that can be delivered by the Contractor. The Contractor (and his wider supply chain) would be able to plan, program and manage maintenance activities using the latest techniques and innovations with complete flexibility to deliver the Authority’s required outcomes. In this arrangement the Contractor’s performance can be directly linked to the project outcomes and performance targets and rewarded or ‘penalised’ appropriately. Again, these efficiencies could be captured by the incentivisation and performance mechanism in the contract.
1.14.11 Clearly the maturity assessment shows a wider gap in ability from where the Authority is
assessed to be currently to where it may want to be to become a Strategic organisation. There are a number of tests that need to be satisfied to do this. These are set out in Table 7, Section 5. However, the absolute key to adopting a Strategic client led contract is to have a sufficiently developed asset management plan and investment strategy with an understanding of how that could be applied to the service. Crucially the significant ‘unknowns’ around asset condition and liabilities would need to be sufficiently reduced so that the service can be managed by the Contractor without him adding additional (risk) cost to the service. If a Strategic arrangement is adopted without a sufficiently developed asset plan and this service is passed to the Contractor, they will, as a commercial organisation, consider the associated risk and price it into their tender offer. This presents a significant risk to adopting a Strategic client model too early.
1.14.12 Section 1.12 Asset Management Plan of the Executive Summary sets out our current
asset management approach and the level of knowledge and maturity of the Asset Management Plan. At this stage, the plan is not sufficiently developed, other than carriageways, to determine the level of risk they present and investment required to manage these assets to mitigate any risk their condition and maintenance needs may pose. This knowledge can be gained and investment plans developed but this requires investment and time however, this work cannot be completed within the timeframe of the re-procurement. This is set out in Appendix 8.
1.14.13 Critically if a developed asset management plan and investment model is not in place and
a Strategic client arrangement is adopted there is significant risk around asset performance that would be required to be managed by the Contractor. This would be reflected in the cost of the service essentially ‘wiping out’ any benefits potentially making the service ‘unaffordable’ and resulting in further deterioration in the asset condition over the period of the contract. This is set out in more detail in Section 1.28 Options Appraisal.
1.14.14 Staged Executive to Strategic client led contract – The staged option would start with
an Executive client led contract and move to a Strategic arrangement during the life of the new contract. This presents the opportunity to benefit from both the Executive and Strategic options over time giving flexibility over the ‘static’ options of either an Executive or Strategic led client contracts.
1.14.15 This approach would initially transfer readily manageable services to the Contractor
(Executive model) while leaving the client to continue to develop its capability, knowledge and skills to manage the new arrangements and asset approach. When these capabilities, knowledge and skills have developed sufficiently (specific tests are set out in Section 5.2.15 and Table 7), the contract is performing well and the Authority is ready to make the move, further client services can be transferred to the Contractor. The ‘additional’ benefits of a Strategic client organisation and further efficiencies in service delivery can then be realised. Should the Authority decide that it was not ready to move to a Strategic model, the contract would allow an Executive client to remain for the duration of the contract term.
1.14.16 There are number of requirements that would need to be included in the procurement
process to enable this approach:
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• OJEU Notice - The option to transfer additional services during the contract period would be set out in the OJEU notice to notify the market and the EU Commission of the Authority’s intention;
• PQQ & ITT - The staged intention of additional transfer of services would need to be
set out in the information provided to potential bidders at pre-qualification questionnaire (PQQ) and invitation to tender (ITT) stages as part of the Authority’s strategic service objectives, and
• Contract Documents - The contract documents will be required to include an
appropriate mechanism to enable this to happen. The form of contract proposed for this procurement is NEC3. NEC3 are a family of contracts, based on sound project management principles and clear risk transfer that demand close cooperation and active management from both the Authority and the Contractor. These forms of contract include standard mechanisms to change service requirements by reduction, increase or the introduction of alternative services. The contract data includes a standard approach to identify the cost of any changes (a ‘Compensation Event’) based on similar services priced at the bidding stage or subsequently agreed during the contract period. These prices are made up of items and prices for labour, plant and materials coupled with resource levels, productivity measure and method statements. This provides a tested framework a basis for agreeing prices for changes or new services.
1.14.17 It is difficult to put a definitive timeframe on when a move to a Strategic arrangement from
an Executive arrangement could be made given the limited knowledge of our key assets condition other than our carriageways and it is not clear at this stage how long it would take and what investment is required to attain this knowledge. It is therefore not possible to determine now if moving from an Executive to a Strategic client led arrangement within the next contract period is actually possible. Adopting a Staged approach at this stage may also send the wrong message to the potential tenderers as ‘Staged’ suggests it is our intention to do this during the life of the contract when in fact this may not be possible.
1.15 Performance Management, Incentivisation and Governance 1.15.1 Performance management will play a vital role in establishing the successful management
and delivery of the service. The quest for continuous improvement, benchmarking of costs in line with the Chartered Institute of Public Finance & Accountancy (CIPFA) new code of practice and setting of new and improved standards will define future efficiencies and improved methods of working.
1.15.2 In the future, performance may initially be measured at two levels, service performance and
contract performance. An indicative Service Performance Management Framework (see Figure 18) has been developed in recognition of the fact that the future service outcomes (detailed in Section 1.5.3) are ultimately interlinked with both the overall performance of the service and that of the Contractor. By delivering the principal requirement of improving the condition of network, the project will also deliver the remaining outcomes, driven by setting and achieving the appropriate vision, strategy, planning and investment levels. This framework will be further developed during the procurement ‘Do’ stage of the project.
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Figure 18 – Service Performance Management Framework:
Visio
nStrategy
Pla
nning
1.15.3 Service performance against the project outcomes will be measured and reported year-on-
year for trend analysis, but the results would not initially be linked directly to the incentivisation and ‘penalty’ mechanisms set out in the contract. Contractor’s performance against the outcomes can only be directly linked to the incentivisation and ‘penalty’ mechanism when the Contractor is fully responsible for delivery of the asset management plan (The Strategic client led contract model).
1.15.4 If a Strategic client led contract model is adopted and the control of the asset is transferred
to the Contractor it would be reasonable to directly link the service outcomes to the incentivisation and penalties mechanism in the contract.
1.15.5 The Contractor’s performance will be measured against the targets and measures set out in
the contract and linked to a performance incentivisation mechanism (see Figure 20). A number of these are similar to the service outcome measures e.g. handling of third party claims and customer management services but the contract will include specific key performance measures that will measure the Contractor’s performance for the services they manage, such as third party claims and safety of the network. The key performance areas that will be directly measured by the contract are shown in Figure 19.
1.15.6 The contract model with services being provided by the Contractor, investment provided by
the Authority, and appropriate mechanisms to maximise the application of that investment, will focus the Contractor on delivery while providing over-time the desired project outcomes.
1.15.7 Measurement of Service Performance 1.15.8 The service outcomes shown will be measured and reported annually as follows:
• Improve asset condition – e.g. carriageway & footway condition indicators, drainage performance (% of asset operational & free running), safety barrier maintenance & inspections;
• Improve customer satisfaction – annual NHT survey, citizen panel surveys, level of complaints;
• Reduce third party claims – level of claims by value and volume;
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• Local engagement and service delivery – number of local employees working on the contract, number of local SME’s and value of work supporting the contract, services bought by third parties (parishes, districts etc.);
• Promote economic growth – measure of network availability, number/net value of network improvements, and
• Provide value for money – fixed costs per km of network, schemes within budget etc.
1.15.9 Measurement of the Contractor’s Performance 1.15.10 The Contractor’s performance will be measured using the framework shown in Figure 19.
This will specifically target performance over the following 5 key areas (the delivery of which will be monitored and managed through a range of Key Performance Indicators (KPIs) that will be developed in detail during the Procurement ‘Do’ stage:
• Operational Delivery - to ensure the right people, business processes and systems
are in place, the contract is compliant, managed effectively and the service/schemes are delivered to plan;
• Asset - to ensure information is available in a timely manner to support effective decision making, the long term integrity of the asset is maintained and the appropriate levels of the network are available for use during severe weather events;
• Safety - to ensure a safe network is provided, safely maintained and that safety incidents on the network are reduced;
• Customer - to ensure customers are satisfied, disruption to road users is minimised and community engagement is embedded within the highways service, and
• Sustainability - to ensure resources are used efficiently with due consideration to the environment, carbon emissions are reduced and the local economy is promoted and utilised as appropriate.
Figure 19 – Contract Performance Management Framework:
* Indicative weightings only ** Contractor’s Overall Performance score for the whole service
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1.15.11 Some examples of the Contractor’s performance measures are included in Table 8 to illustrate how the model will work.
Table 8 – Contractor’s Key Performance Indicators:
KPI No.
Performance Area Description* Criteria*
Frequency of
Measurement*
Target Performance*
Weighting (a)*
Actual Performance
(b)*
Weighted KPI Performance*
(c) = (a)*(b)
Performance Area
Weighting* (d)
Performance Area score* (e) = (c)*(d)
1 Operational
Delivery *** *** *** % *** % %
0.2
%
2 Operational Delivery
*** *** *** % *** % % %
3 Operational
Delivery *** *** *** % *** % % %
4 Sustainability
*** *** *** % *** % %
0.2
%
5 Sustainability
*** *** *** % *** % % %
6 Sustainability
*** *** *** % *** % % %
7 Safety
Make safe or correct Category 1a defect
Make safe the hazard or correct the defect within 2 hours of being recorded
Monthly 100% 0.5 90% 45%
0.2
9%
8 Safety
Correct Category 1b defect
Correct the defect within 5 days of being recorded Monthly 95% 0.25 97% 24% 5%
9 Safety
Correct Category 2 defect
Correct the defect within 28 days of being recorded
Monthly 90% 0.25 80% 20% 4%
10 Asset *** *** *** % *** % %
0.2
%
11 Asset
*** *** *** % *** % % %
12 Asset *** *** *** % *** % % %
13 Customer
*** *** *** % *** % %
0.2
%
14 Customer
*** *** *** % *** % % %
15 Customer
*** *** *** % *** % % %
* information is indicative (for illustration purposes only), all information is subject to change ** figure is for illustration purposes only (used in the example calculation shown in Table 9)
Contractor’s Overall Performance 95%**
Overall ‘Good’ Performance range 100-110%
Overall ‘Acceptable’ Performance range 90-100%
Overall ‘Poor’ Performance range 80-90%
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1.15.12 The individual measures of the 5 key performance areas will be targeted and weighted to
add up to a single score for each area. These are equally weighted (to ensure the Contractor applies equal effort to each) and aggregated to provide the Contractor’s overall performance score. This will be used to assess the ‘reward’ or ‘penalties’ to be applied.
1.15.13 The performance framework set out below shows how the contract incentivises year on
year efficiencies from the Contractor but ensures ‘penalties’ can be applied if the Contractor performs below the acceptable level set out in the contract.
1.15.14 The Contractor’s overall performance delivery will be focused using an incentivisation
mechanism as detailed in Figure 20.
Figure 20 – Performance Incentivisation Mechanism:
1.15.15 In order to demonstrate how the Contract Performance Framework is linked to the Performance Incentivisation Mechanism, a worked example is shown in Table 9.
Table 9 - Example of Performance Incentivisation Mechanism calculation (Acceptable Performance):
Example 1 Example 2 Overall Contracts Performance Score for Year 1 of the Contract
95% - from Table 8 92%
Target Cost for Total Service Delivery for year 1 £35 million £35 million
Actual Cost of Services provided by the Contractor (Actual)
£34 million 34 million
Difference between target and actual, known as “Share Pot”
£1million £1 million
Contractor’s Maximum share from share pot (50%) £500,000
Actual Amount
Paid £250,000 £500,000
Actual Amount
Paid £100,000
Authority’s Minimum share, from share pot, to be reinvested into the service (50%)
£500,000 Actual
Amount Retained
£750,000 £500,000 Actual
Amount Retained
£900,000
Total Payment to Contractor £34,250,000 £34,100,000
Con
trac
tor’s
Ove
rall
Per
form
ance
%
Upper Performance Level
Lower Performance Level
%Payment deduction
% Bonus Payment
%
Payment made for Services provided to date
Maximum Bonus
Maximum Charge
Goo
d P
erfo
rman
ce
100%
-11
0%
Acc
epta
ble
Per
form
ance
90
% -
100
%
Poo
r P
erfo
rman
ce
80%
- 9
0%
Bonus payment made dependent on level of ‘good’ performance, capped at the calculation of the Contractor’s declared profit or share of savings (if achieved)
Payment represents Price for Services Provided to Date taking
into account Contractor’s share, but dependent on level of ‘acceptable’
performance
Contractor’s share of savings (if due) not paid, and deductions also
made to Contractor’s declared profit dependent on level of ‘poor’
performance
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1.15.16 When looking at the example in Table 9, should the Contractor achieve an overall
performance score for Year 1 of 95% but exceeded the agreed target cost this would result in no savings being generated, therefore no payment would be made to the Contractor from the share pot and no money would be available for the Authority to reinvest into the Service.
1.15.17 A Poor performance score (80%-90%) will mean no entitlement to any portion of the
Contractor’s share of savings (if generated) along with a reduction in the proportion of declared profit set out in the contract (normally paid as part of the payment for services provided by the Contractor).
1.15.18 The maximum cost of the service cannot exceed the available budget if robust knowledge
and processes are applied to agree the target cost. 1.15.19 Any of the Authority’s ‘share’ of the savings from the share pot would be ‘reinvested’ to
support the long-term ambition to continue to improve network condition. It is estimated that the incentivisation model will generate Text Removed efficiencies each year of the contract.
1.15.20 The Performance Management Framework will be underpinned by an audit regime that
will include the review of the KPIs using evidence-based processes. 1.15.21 The Governance arrangements to oversee, monitor and manage performance is
illustrated in Figure 17, and further described in Section 5.3 of the main body of the DBC.
Figure 17 – Governance arrangements:
Scr
utiny
Mem
ber
Ref
eren
ce G
roup
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1.16 Affordability 1.16.1 The affordability modelling is based on an Executive client led contract arrangement. 1.16.2 The affordability model has been developed from the base service cost, derived from the
2013/14 outturn expenditure, inflated to May 2016. (Inflation based upon actual inflation over the term of the existing contract). Table 11 illustrates that when inflated, compared to current costs of £39.5m the same service in 2016/17 would cost £43.5m.
1.17 Analysis of current costs and Forecast Cost 1.17.1 The cost of current service delivery for 2013/14 along with forecasted expenditure for
2016/17 is summarised in Table 11.
Table 11 - Service Cost:
Spend Category Expenditure 2013/2014
Forecasted price
increase 2014-16
Forecast Expenditure
May 2016
Authority Staff Cost* XXXXX XXXXX XXXXX Works Cost Revenue** XXXXX XXXXX XXXXX Works Cost – Capital** XXXXX XXXXX XXXXX Total Charges (Energy/Contributions) XXXXX XXXXX XXXXX Total Other Service Costs (Systems/Communication Equip) XXXXX XXXXX XXXXX Total Corporate Overhead Charge XXXXX XXXXX XXXXX Total Service Cost £ 39,524,510 £ 43,512,019
*Authority staff associated with the service delivery activities included within the DBC
** Works delivery cost – expenditure with contractors
1.17.2 Table 12 summarises the forecasted Service Costs for the new contract.
Table 12 – Forecasted Modelled Service Costs:
Service Year
A. ‘Do Nothing’ Service Cost
B. Forecast Service Cost
C. Investment (Steady State)
1 XXXXX XXXXX XXXXX 2 XXXXX XXXXX XXXXX 3 XXXXX XXXXX XXXXX 4 XXXXX XXXXX XXXXX 5 XXXXX XXXXX XXXXX 6 XXXXX XXXXX XXXXX 7 XXXXX XXXXX XXXXX
Total Service Cost XXXXX XXXXX XXXXX Saving % XXXXX XXXXX XXXXX
*Value derived as total Forecast Expenditure (May 2016) minus the value of the retained Authority staffing costs.
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1.17.3 Table 12 shows three scenarios of costs for the new contract period from 2016/17:
• Column A shows the cost of the contracted services inflated year on year if current rates and service costs were applied;
• Column B shows the contracted service costs if efficiencies (tender savings and
year on year efficiencies) are achieved through the new contract and these are returned to the corporate centre (not re-invested), and
• Column C shows the cost of the contracted services if an estimated level of
investment is applied over the contract period to maintain a steady state network condition. This is an estimated level of investment based on current rates and prices and limited knowledge of our investment requirements. This would be more accurately re-modelled when tender prices are known and refined over time as our asset knowledge improves.
1.18 Potential Savings 1.18.1 Based upon the service costs derived above, Table 14 illustrates the initial potential saving
to be derived from the procurement (tendering) process. The potential level of saving has been validated from the SMT and knowledge of the market rates in comparison to current charge rates incurred from the existing contract arrangements in place. This is averaged at Text Removed although evidence suggests this is between Text Removed and Text Removed depending on service i.e. revenue or capital services. This shows a potential reduction compared to current costs of Text Removed.
Table 14 – Pre/Post Tender Service Cost:
Spend Category Pre Tender * Tender Savings Post Tender
Staff (Executive Client) XXXXX XXXXX XXXXX Staff (Transferred) XXXXX XXXXX XXXXX Work Cost (Revenue) XXXXX XXXXX XXXXX Work Cost (Capital) XXXXX XXXXX XXXXX Charges (Energy/Contributions) XXXXX XXXXX XXXXX Other Service Cost XXXXX XXXXX XXXXX Corporate Overhead XXXXX XXXXX XXXXX Total Service XXXXX XXXXX Immediate savings from tender process
XXXXX
* 2013/14 expenditure inflated to 2016/17
1.19 Summary of Service Cost Savings 1.19.1 There are a number of potential ‘savings’ that could be realised as a result of the
procurement strategy and service delivery model. These are summarised in Table 16.
Table 16 – Cost Savings: Saving Category Savings Comment
Transfer of staff (from Table 13)
XXXXX Transferred staff would result in a direct salary reduction to the Authority, however we would still have to buy this service from the contractor at similar cost
Tender Savings (from Table 14)
XXXXX Saving generated as part of changing the commercial approach to service delivery and
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commercial tension generated through the tendering process (Note, these are one-off savings available only at award of contract)
Efficiency savings Estimated at XXXXX per annum from incentivisation model
XXXXX Year-on-year efficiency savings generated by the Contractor from target cost/capital works services only
1.20 Contract Form, Payment Options and Duration 1.20.1 Contract Form - The new contract will be based on NEC3 standard form of contract
compiled using industry standard toolkits and standard forms modelled to reflect East Sussex service priorities.
1.20.2 Payment Options - The new contract will include a number of payment options appropriate
to, and dependent on, the risks and complexity associated with each work or service type. The three standard NEC payment options that will be used are options A Priced works, C Target Cost and E Cost Reimbursable. These options enable risk apportionment to be applied appropriately for various works or service types.
• Priced Works – typically used for annual or cyclic works such as winter
maintenance, grass cutting, gully emptying and emergency response. These are generally ‘fixed’ costs for the duration of the contract but can be changed.
• Target Cost Works – typically capital funded works such as road re-surfacing,
surface dressing and new construction. These are priced separately or as programmes of work and subject to agreement. There is usually a ‘pain/gain’ mechanism associated with such works and the over or under difference of actual cost to target cost is shared.
• Cost reimbursable – typically for emergency situations where the risk is unknown
and speed may be required e.g. sudden road subsidence. 1.20.3 The contract duration will be fixed at 7 years which is the ideal duration for the return on the
investment the Contractor has to make in fleet etc. This will offer the optimum business model for the Contractor and the best prices for the Authority. No extensions will be included in the contract. This allows the Contractor to manage the service risks over a fixed period of time with no need to model the management of this over extended timescales. The pros and cons of the contract duration are set out Section 5.5.12 and Table 10.
1.21 Procurement Route & Bidder Selection 1.21.1 In compiling the OBC and the DBC a considerable amount of analysis, research, market
testing and intelligence has been undertaken, that has provided sufficient definition of the outcomes and the services required, and will enable the development of detailed contract documents before the service is tendered. The restricted route will therefore be used to procure the new contract. This is also more attractive to the market as it reduces their tendering costs and also the Authority’s’ procurement related costs.
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1.22 Bidder Selection 1.22.1 Selecting the right contractor is equally as important as getting the contract and the client
organisation right. A well tested and rigorous tender process will therefore be followed. 1.22.2 The procurement lifecycle will consist of three principal stages (see Figure 23):
• Stage 1: Pre-Qualification Questionnaire (PQQ); • Stage 2: Invitation To Tender (ITT) - submission and evaluation, and • Stage 3: Validation and Selection
1.22.3 The procurement process is designed to ensure that the Authority awards the Contract to a
provider that is best placed to meet the requirements as set out in the tender and contract documentation.
Figure 23 – Principal Procurement Stages:
1.23 Tender Stages 1.23.1 Stage 1: Pre-Qualification Questionnaire (PQQ): The PQQ will set out the information
that is required by the Authority in order to determine the suitability of a potential provider in terms of:
• Financial stability; • Business and Professional Standing; • Commitment to Health and Safety; • Equal Opportunity and Diversity policies and capability; • Environmental Management policies and capability; • Quality Management policies and capability; • Technical knowledge and experience, and • Overall capability and capacity to meet the requirements of the service.
1.23.2 The bidders’ responses will be evaluated against a pre-determined scoring matrix, utilising
both pass/fail criteria and weighted scoring mechanisms. 1.23.3 Stage 2: Invitation To Tender (ITT) - submission and evaluation: This stage defines the
service requirements that tenders must meet and is used to identify the best placed Tenderer to provide a quality and efficient service to the Authority.
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1.23.4 Following issue of the tender documentation, Tenderers will be given the opportunity to
meet members of the Authority at a tender presentation meeting which will be held to explain, discuss and answer questions on the tender process. This will specifically help to identify and explain any service related issues, set out the tender process and timetable, clarify risk allocation and the tender return requirements, and also explain the proposed tender marking system.
1.23.5 A suite of predetermined quality related questions and pricing models will be provided in the
ITT, based upon which the Tenderer is required to demonstrate how he will meet the service requirements and objectives, and also provide specific evidence of previous experience of delivering similar services.
1.23.6 Tenderers’ submissions will initially be assessed by the Authority in three key stages as
follows:
(i) Compliance check; (ii) Marking of Quality Submission - independent Quality Evaluation Panel, and (iii) Scoring of Financial Information - independent Financial Assessment Panel.
1.23.7 The quality and financial scores will then be combined, and the tender with the highest total
overall score will be validated as detailed below in Stage 3. In the event of more than one Tenderer having the same total score, these tenders will also be validated.
1.23.8 Stage 3: Validation and Selection: This concluding stage will enable the Authority to
satisfy itself that the tender submission can be validated in terms of both quality and price. 1.23.9 In validating the quality statement, the Quality Evaluation Panel will use any practical
means, and may directly approach any person or organisation named in the Quality Submission. The validation may also include meetings with the Tenderer, reference site visits (to see the offer being delivered), interviews with key staff identified in the tender. The key staff would be required to demonstrate their understanding of the service requirements and show how their skills and experiences have been applied to successful outcomes on previous relevant projects.
1.23.10 The findings from the validation of quality will be used to moderate the initial scores
allocated during the quality evaluation process. 1.23.11 The Financial Assessment Panel will validate the tender prices to check that the costs
included are representative of the likely costs to be incurred. The Panel will also validate the tenderer’s overhead and fee calculations to demonstrate that the figures stated are representative of the likely costs to be incurred.
1.23.12 Following completion of validation, if the Tenderer’s score remains the highest, then that
Tenderer becomes the Preferred Bidder. 1.23.13 Further clarifications may at this stage be sought from the Preferred Bidder to enable a
better understanding of the submission.
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1.24 Options Appraisal
1.24.1 Options Appraisal: This section considers the three options of Executive, Strategic or a Staged approach and the benefits and risks associated with each.
1.24.2 To determine which of the option presents the best opportunity to deliver the required
outcomes for the Authority the following key areas have been considered:
• Evidence from recent soft market testing (lessons learnt and market ability); • The requirements to adopt each model; • The main benefits (both financial and other), and • The main risks of adopting each arrangement.
1.24.3 Finally the suitability of each option has been re-assessed against the HM Treasury’s five
case business model of critical success factors (originally used in the OBC) to determine which option presents the best opportunity to the Authority given the considerations above.
1.24.4 Soft Market Testing - The main findings from the recent site visits and market
engagement are set out in Section 4.3 these can be summarised as:
• Text Removed • Text Removed • Text Removed
• Text Removed
• Text Removed
• Text Removed
• Text Removed
• Text Removed
• Text Removed
1.24.5 Executive client led contract: On the basis that ‘do nothing’ is not an option and an Executive client arrangement is the ‘minimum’ position that the Authority would want to adopt, this option is considered first.
The key requirements for this option are:
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• The transfer of ‘traditional’ client services like design and maintenance management services to combine with works as a larger package of services to be provided by the Contractor. This enables leaning of end-to-end business processes and the introduction of new technology;
• Re shaping the client organisation to manage the new contract with key functions
such as, commercial, financial, contract administration, audit, performance and including development of functions like asset and relationship management, and
• A new contract form that includes appropriate payment mechanisms for different
services moving operational risk for service delivery to the contractor. This will be linked to robust performance requirements but with reward for good performance and ‘penalties’ for poor performance. This is coupled with an incentivisation mechanism that, given the right levels of investment, will deliver the improvements in the network condition required for the project.
The main benefits of this approach are:
• It provides a reduction to the Authority in direct staff salary costs of around Text
Removed per annum; • Potentially it presents greater opportunities for the staff transferring in terms of skills
and career development within a broader, commercial organisation;
• The Contractor has the opportunity to ‘control’ the end to end processes in an efficient and effective way without day to day hand off and instruction from client officers. This enables them to streamline business processes, use the latest technology to support this and to maximise the effectiveness of the service they can provide. This is reflected in the prices they can offer;
• The mixture of lump sum and target cost services provides a good balance of
routine work with ‘fixed’ regular income to cover costs and overheads combined with opportunities for innovation in programming, packaging and delivery of target priced works and the potential for additional gain share;
• Potential service efficiency and reduction in costs of around Text Removed equating
to Text Removed compared to current service costs; • Further year-on-year efficiencies averaging Text Removed per annum equating to
Text Removed over the period of the contract; • There is potential to re-invest the efficiencies gained over the contract period to
improve the network performance; • It moves the client organisation to the next level of maturity that would provide the
foundation for a highly skilled contract/commercial management resource that could be utilised across other services over time;
• It provides the opportunity to obtain sufficient asset condition data to develop management plans and long term funding requirements;
• An opportunity to develop knowledge and understand risks of managing our asset with the Contractor so both parties can manage and develop the services over time, and
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• This option is readily achievable within the timeframe of the procurement, is attractive to the market and will enable the Authority to achieve genuine service savings over time while presenting the least risk to do so.
The key risks of this approach are:
• Not establishing the right client organisation; • Selecting the wrong contractor; • Developing the wrong culture, and • Insufficient investment.
However, all the evidence considered in preparing both the OBC and the DBC suggests that both the Authority and the market can readily undertake this move.
1.24.6 Strategic client led contract: The key requirements to move to a Strategic client led
contract are similar to those set out above for an Executive arrangement. However, there are additional requirements that could provide additional benefits but there are also potentially greater risks associated with adopting this option too early.
The key requirements to move to this arrangement are:
• The transfer of additional services (beyond those services included for and
Executive client) to the Contractor including the functions of asset management, risk management, and technical/performance audit for the Contractor’s organisation to provide;
• A high level of asset data knowledge particularly condition data to reduce the areas
of ‘unknowns’ sufficiently so that the risk around maintaining the asset can be appropriately managed, and
• A sufficiently developed asset management plan and investment strategy with a
proven approach and understanding of how that could be applied over the next 15-20 year for our key assets.
The main benefits of this approach are:
• A further reduction in direct staff salary costs to the Authority of Text Removed per annum, in addition to the Text Removed identified for the Executive client led model;
• Additional efficiencies in service delivery are achievable by further integration and
leaning of process as asset management would be managed by the Contractor. This would enable the Contractor to fully integrate asset maintenance plans with long term delivery programmes to maximise resources, ‘strengthen’ the supply chain to reduce costs further and use the latest techniques and technology to deliver the Authority’s strategies and outcomes. These efficiencies would be captured through the incentivisation mechanism in the contract thus further benefiting the client organisation. This is the real ‘prize’ for the Authority, and
• The Contractor would be responsible for managing the network and all the functions
to manage it; therefore the project outcomes could be directly linked to the Contractor’s performance and the ‘pain gain’ mechanism in the contract. The client organisation would only concern itself with setting the strategy and outcomes with targets for the service, and the commercial management of the contract.
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The key risks of this approach are: • If a Strategic arrangement option is adopted too early without a sufficiently
developed asset plan and knowledge, the Contractor, as a commercial organisation, will consider the associated risk of the weakness in the asset data and cost it into their price offer accordingly. This means there is potential for the cost of the service to be unaffordable and this would ‘wipe out’ any potential investment generated by the incentivisation model .This could result in further deterioration in the condition of the asset over the period of the contract;
• The data and ‘knowledge’ needed to manage and maintain our key assets cannot
be sufficiently completed within the timeframe of the re-procurement and therefore the above risk cannot be mitigated at this stage, and
• There is considerable reputational risk to the Authority (and the Contractor) of
service failure due to realisation of the unknown risks during the contract period.
The risks highlighted above present significant risk to the Authority in adopting this option on day one of the contract. A separate Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis has been completed for this option to illustrate the balance of opportunities and threats this option presents (see Section 9.1.7 & Table 22).
1.24.7 Staged approach (Executive to Strategic): This combines the key requirements for both Executive and Strategic, providing greatest flexibility, starting with the key requirements for an Executive client led contract and during the life of the contract, when the requirements for a Strategic client arrangement are in place, transferring additional functions (and staff) to the Contractor.
The main benefits of this approach are:
• This option provides the opportunity to achieve the benefits of both Executive and Strategic models by adopting an Executive organisation on day one that delivers significant savings and transfers readily manageable services to the Contractor while leaving the Authority to continue to develop its ability, knowledge and skills to manage the new arrangements and asset approach;
• When the ability, knowledge and skills have developed sufficiently, the contract is
performing well and the Authority wants to make the move, further client services can be moved to the Contractor. The benefits of a Strategic client organisation as set out above can then be realised and the Authority can then benefit from further efficiencies in service delivery;
• This approach has advantages over the other options as it manages the risk to the
client organisation and the Contractor; it is not ‘static’ and can provide the benefits of both the other approaches;
• Market testing shows that this approach is attractive to the market as it offers the
opportunity to develop understanding of the asset jointly and there is potential to take on additional services if performance is proven, and
• It is a genuine opportunity for contractors to develop their ‘offer’ to other client
organisations.
Ultimately this option presents a choice to the Authority that it does not have to take up. Even when the service is ready the Authority does not have to make the change if, for whatever reason it does not wish to do so.
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The key risks with this approach are:
• Making the move from Executive to Strategic client arrangement too early providing opportunities for the contractor to ‘claim’ costs in the future against transferred but unknown liabilities
• It is not clear at this stage whether a move to a Strategic arrangement can be
achieved within the contract period and setting out an intention to do this by specifically adopting a ‘Staged’ approach at the tender stage may raise expectations and mislead the market to present widely varying tenders.
1.25 Options Evaluation 1.25.1 In the OBC we used the HM Treasury Five Case Business model to evaluate the six
options initially being considered and the three options considered here were evaluated as presenting the best opportunity to deliver the required outcomes of the project.
1.25.2 Using the same model we have re-evaluated the three options taking all of the information
considered during the development of the DBC. This evaluation is set out in Table 24.
Table 24 - Procurement Options Assessment Summary:
Key CSF’s Option C Executive
Client Contract
Option D Strategic Client
Contract
Option E Staged C & D
Strategic 21 22 23 Economic 8 8 9 Management 14 9 15 Commercial 21 16 24 Financial 13 9 14
TOTAL 77 64 85
PERCENTAGE 86% 71% 94% 1.25.3 The score for Option C, an Executive client led contract, has reduced from the 91% in the
OBC assessment reflecting a better understanding of the ‘limitations’ of the benefits achievable by adopting an Executive arrangement.
1.25.4 The total score for Option D, Strategic Client led contract has reduced from the 80% in the
OBC assessment reflecting the detailed understanding of requirements to manage such an arrangement with the significant risk to the Authority of adopting this option on day one without a sufficiently developed asset management plan.
1.25.5 The score for Option E, a Staged approach, has also decreased from the 99% in the OBC
assessment again reflecting a better understanding of how this can be achieved but also reflecting the ‘uncertainty’ (at this point in the process) of whether this can be undertaken specifically within the next contract period. .
1.25.6 However, the re-evaluation completed following the extensive work undertaken in this
Detailed Business Case shows that moving to a Strategic organisation at some point does ultimately present the best opportunity to deliver the outcomes required over time. When to do this will only become clearer when the procurement is completed, the new contract started and our asset knowledge has increased. It would be fairer and clearer to the market
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to state our ultimate aim (ambition) is to become a Strategic led client organisation but it may not be achievable within the contract period. However, an option will be included in the procurement process and the contract documents to enable this to happen if the Authority and the Contractor are confident it can be achieved (the criteria to be a Strategic client are met etc.) and they want to do it within the contract period.
1.26 Conclusions, the Future & Recommendations 1.26.1 The completion of the Detailed Business Case has taken the re-procurement project
through the commissioning process sufficient to plan and design the new service arrangements and to move the project onto the next stage of procurement (the ‘Do’ stage).
1.26.2 The detailed understanding obtained during the completion of the DBC and the analysis
and modelling required to design the new service models has both confirmed and refined the work completed in the OBC and enabled us to thoroughly measure and define the benefits and risks of all the options proposed. This has been an important exercise to ensure that the Authority is appropriately informed and makes the right choice for the new service and one that presents the best opportunity it can to deliver the outcomes required for the benefit of all its customers.
1.26.3 The key conclusions from the DBC stage are:
• Opportunities - The new contract model provides an opportunity to move the highway maintenance service in East Sussex to a new way of working that reflects the modern market conditions and the development and maturity of our Authority. It will enable the introduction of new technology, new leaner processes and innovative maintenance techniques. As public services continue to be put under pressure to reduce costs we can have confidence that the new contract will deliver reduced costs from day one. There is also the opportunity through investment to reduce genuine operating costs over time as the network condition improves. In addition, the transfer of staff to the Contractor can be seen as a negative thing for those involved but it can also present opportunity to gain new skills and work within a wider organisation. This opportunity should not be under estimated particularly when budgets and opportunities within our own Authority continue to reduce;
• Learning Organisation – By initially moving to an Executive organisation, as a
highway authority East Sussex will be more able to focus on strategy and developing the client organisation’s contract, commercial, performance ability and developing a robust asset management plan. The Authority will be able to set clear outcomes and goals, monitor progress and ultimately benefit from genuine reductions in long term operating costs;
• Risk Transfer and Performance - Transferring service provision to the
responsibility of the provider will mean less direct management of day-to-day activities and more reliance on measuring performance against the set outcomes. Activities to manage safety and condition of the network will be managed by the Contractor not the Authority but the transfer of the risks in managing these services will be reasonable and manageable by the Contractor. Transferring services does not mean lower performance. The performance mechanisms included in the new contract will ensure performance is maintained or improved with financial assessment linked to the level of performance achieved;
• Funding - Key to the future service delivery and the success of the new contract will
be appropriate levels of funding for services and recognition that genuine asset improvement can only come with appropriate levels of investment for all our key assets. Choices for funding can be better determined when the contract has been tendered and prices are known and the condition of our asset is better understood;
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• Executive, Strategic or Staged? - The work completed in preparing this DBC shows that the potential maximum benefits can be achieved by adopting a Strategic client led contract but there are significant risks with this approach if it is adopted too early. It also demonstrates that at this stage we are probably not ready to adopt a Strategic client led contract because of the significant risks around the limitations of our knowledge of our assets. We need more time to develop this knowledge and prepare as an organisation for longer term investment planning however, at this stage we cannot determine the exact amount of time required to do this. The staged approach presents the opportunity to move over time from an Executive to a Strategic approach but it also suggests to potential tenderers that there is a firm commitment by the Authority to do so during the period of the new contract however, in reality this may not be possible. This will only become clearer over time but if it is our ambition it makes sense to set out this out to the market at this stage and include an optional mechanism within the contract to do so. It is therefore suggested that rather than adopt a staged approach we should adopt an Executive led contract but include within the contract sufficient flexibility to be able to do so. , and
• Market attraction – Market engagement during the process has clearly
demonstrated that the package of services that will be offered to the market even under an Executive client led contract arrangement will be very attractive in a highly competitive market place.
1.26.4 In considering all of the information, analysis, modelling and contract development for the
DBC we have designed a contract model (whether Executive or Strategic client led) that will deliver a better service and enable the Authority to move on and focus on contract, commercial and performance management while determining long term improvement plans for its asset stock.
1.27 The Future - So what will be different about highway maintenance in the future?
• By focusing on improving our asset by delivering services in line with long term investment plans for our key assets we will improve public satisfaction, provide value for money, reduce claims and benefit the local economy. We will do this by:
• Using a new contract with a single contractor to provide a range of services including
some services that are currently provided by council staff (Text Removed staff will transfer to the contractor). By packaging work together in this way it will provide the best value to the authority through economies of scale and streamlining business processes.
• Form a new smaller but specialist client organisation (around 30 people) to manage the
new contract.
• Introduce new systems and technologies to enable better public and Member access to information and services in real-time.
• We will promote the use of local companies in the supply chain to provide services.
• Incentivise the contractor to be efficient but ‘fine’ the contractor if his performance does
not meet our standards using well defined performance criteria.
• Have more payment options available to help define costs, manage budgets and deliver better value for money
• We will prepare and consider long term investment plans giving funding choices for highway maintenance while generating efficiency savings to add more potential value to improve the condition of our network.
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1.28 Recommendations
The following are recommended for approval for development in the next stage of the re-procurement project (the ‘Do’ tender stage): 1. Option C of an Executive client led contract is taken forward and developed for
tender because it presents the best opportunity and the least risk to the Authority to achieve the outcomes required at this time. However, it is also recommended that we should set out to the market at tender stage our ambition to become a Strategic client organisation when the time is right but this may not be achievable within the new contract period and therefore an option will be included in the contract to enable this to happen if the organisation becomes ready to do so and wants to do so;
2. An Executive client organisation is created to manage the new contract including
appropriate contract, commercial, performance and asset management resources and skills.
3. The services proposed for transfer to the external market are included in the new highway maintenance contract and the Council staff currently providing those services are transferred to the new Contractor under the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations;
4. A contract is developed and prepared for tendering based on an NEC3 form of Term Service Contract that reflects the Authority’s requirements, and clearly defines the service requirements and Contractor’s responsibilities, and
5. The Authority continues to develop its asset knowledge and long term investment options for future consideration to optimise the efficiency and incentivisation mechanisms in the contract.
1.29 Next Steps 1.29.1 The next steps are to develop the contract documents for tendering. An OJEU notice will be
issued in December 2014 that will flag our intention to engage the market for tender and start the formal procurement process.
1.29.2 At the same time we will continue to develop the performance criteria for inclusion in the
contract, refine the contract mechanisms, determine the service levels required, develop the organisational change plan and develop the asset management plan.
1.29.3 The following is a summary of the key activities and tasks to be completed during the ‘Do’
stage of the commissioning process:
• Develop and implement client change programme; • Prepare the tender documents & evaluation (PQQ and ITT); • Procure the services; • Mobilise the new arrangements; • Demobilise the existing arrangements; • Implement staff training and development; • Test the performance management regime, and • Operate the model and deliver the service.
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2. INTRODUCTION
2.1 Introduction to the DBC 2.1.1 This Detailed Business Case (DBC) for the Highways Contract Re-procurement Project
(HCRP) has been developed following approval by Cabinet in April 2014 to proceed with the recommendations of the Outline Business Case (OBC) using the East Sussex County Council strategic commissioning approach.
2.1.2 This DBC completes the ‘Analysis’ stage of the East Sussex Highways commissioning model (see Figure 1) and has developed the ‘Plan’ stage in sufficient detail to enable the project to progress to the Procurement ‘Do’ stage. The DBC sets out how highway services should be delivered in the future to meet the outcomes required and approved in the OBC. Figure 1 – East Sussex Highways Commissioning Model:
2.1.3 This document should be read in conjunction with the OBC as presented to Cabinet in April
2014 (see Appendix 1). Where appropriate, information contained in the OBC is set out again in this document to provide clarity and continuity.
2.1.4 This business case has been developed to consider the three options recommended in the
OBC and approved by Cabinet on 22nd April 2014, namely:
• Option C – Executive Client led Contract; • Option D – Strategic Client led Contract, and • Option E – Staged Executive to Strategic Client led Contract.
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2.1.5 The other options presented in the OBC have not been considered further in this business case.
2.1.6 The three options have been further developed from a reassessment of the market and the
Authority’s capability to deliver future highways services. These will take the Authority beyond a managing client to an Executive or Strategic organisation (as set out in Section 4.4 and the client maturity model detailed in Figure 3).
2.2 Background to the Highways Contract Re-procurement Project (HCRP) 2.2.1 ESCC awarded the current Highway Works Contract to May Gurney (now Kier Highways
Services) in 2005 for an initial term of 7 years with options to extend this by a further 3 years, this option has now been exercised and the current arrangements will expire by September 2015. However, the contract is to be further extended to April 2016, to enable the completion of the re-procurement process. The Fleet Maintenance and Special Structures contract term and extension mirrors the highway maintenance contract and was awarded to Colas Ltd in 2005. The current arrangements will also expire by September 2015. The Public and Amenity Lighting contract was awarded to Colas Ltd in 2010 for an initial period of 2 years and 5 months with provision for four additional one year extensions resulting in a maximum contract term of 6 years and 5 months. The traffic signals maintenance contract was awarded to Siemens Ltd in 2005 for 7 years with provision for one year extensions up to a maximum contract term of 10 years. These contracts have all been extended within their provisions to compliment the Highway Works Contract replacement.
2.3 Performance of the current service arrangements 2.3.1 Highway Works Contract 2.3.2 The current Highway Works Contract includes the following services:
• Repairs to footways and carriageways including patching, surfacing, surface dressing and re-construction;
• Signs, lines and studs; • Road markings; • Drainage repairs; • Small scheme works (new works); • Grass cutting (urban & rural); • Gully emptying and jetting; • Ditching; • Weed control; • Winter maintenance; • Emergency response, and • Minor structure repairs.
2.3.3 The typical annual value of the contract is between £30-£35m per annum which represents
about 60% of the highway budget expenditure. Highways works and services are funded by an annually approved budget of revenue and capital monies. Whist a performance management framework is in place, the mechanism does not include additional payments or reward for achieving performance targets, nor any financial ‘penalties’ for poor performance. Failure to perform obligations under the contract are dealt with through the issuing of remedial or improvement notices, Text Removed. It is important to note that there are no financial incentives for the contractor to ‘out-perform’ the requirements of the contract.
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2.3.4 Text Removed 2.3.5 Text Removed
• Text Removed • Text Removed
• Text Removed
2.3.6 Public and Amenity Lighting Maintenance Contract 2.3.7 The current contract includes the following services:
• Inspection, Maintenance and repair of street lighting and illuminated signs and bollards, and
• Installation of new lighting, illuminated signs and bollards. 2.3.8 Public & amenity lighting maintenance is undertaken through a joint contract with Brighton
& Hove City Council. The approximate annual value of the contract for East Sussex County Council is £2.15m, which represents about 4.5% of the highway budget. The contract mechanism includes the facility for additional payments to be made for achieving performance targets and ‘penalties’ to be applied for poor performance’. Text Removed
2.3.9 Text Removed 2.3.10 Installation and Maintenance of Traffic Signals and Associated Equipment Contract 2.3.11 The current contract consists of the supply, installation and maintenance of Brighton &
Hove City Council and East Sussex County Council traffic signals and other ITS associated control equipment including traffic signal, pelican, puffin and toucan crossings; variable message signs such as car park information signs, traffic and travel information signs, speed warning signs, Wig-Wags; and other ITS equipment.
2.3.12 The approximate annual value of the contract for East Sussex is £750k which represents
about 1.5% of the highway budget. The contract mechanism includes the facility for additional payments to be made for achieving performance targets and ‘penalties’ to be applied for poor performance’. Text Removed
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2.3.13 Fleet Maintenance & Special Structures Contract 2.3.14 The current contract includes the following services:
• Routine and reactive maintenance of the Authority’s Core Fleet of vehicles including emergency standby cover and recovery and the management of replacement vehicles, and
• Provision of reactive maintenance and emergency call out service for the Authority’s Special Structures comprising the A259 Newhaven Swing Bridge and A26 Cuilfail Tunnel at Lewes.
2.3.15 The service is delivered through a joint contract with Brighton & Hove CC. The
approximate annual value of the contract for East Sussex is £320k which represents about 0.6% of the highway budget. The contract mechanism does not include additional payments for achieving performance targets, but does have ‘penalties’ for poor performance. Text Removed
2.4 Consultation outcomes 2.4.1 Various forms of consultation and analysis have been undertaken with both internal and
external stakeholders to establish an understanding of the current contract performance arrangements and to help inform decisions around the future contract model and client shape. Consultation has included:
• HCRP Transformation Project – (see Section 2.6) – The Transformation Project was
undertaken in order to prepare the service for a more evolved market place;
• Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis – This was completed with staff to gain their opinions on what was working well within the current contract arrangements and what areas they felt could be improved;
• Service Area Assessments – This included analysis of the current delivery
arrangements and one to one meetings with team managers, and
• External and Internal Audits of Contract – Audits of the current contract have been undertaken to understand current contract performance.
2.5 Current service arrangements - lessons learnt 2.5.1 Based upon the extensive research, knowledge of the service and audits undertaken by
both internal and external auditors, it is clear that there are a number of lessons that can be learnt and embedded into both the new contract and the Authority’s operating model. The top 10 lessons to be addressed are summarised below;
1. Text Removed 2. Text Removed 3. Text Removed 4. Text Removed 5. Text Removed 6. Text Removed 7. Text Removed 8. Text Removed
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9. Text Removed 10. Text Removed
2.5.2 The new operating model and contract form is designed to address the issues summarised
in Section 2.5.1 and will set out clear governance and reporting lines both within the corporate influence and contract compliance (see Section 5.3 - Figure 17). A clearly defined and incentive linked performance management regime will be introduced to drive efficiency and innovation.
2.5.3 A number of client functions will be transferred to the supplier, thus transferring an element
of the Authority’s risk to the Contractor, an example being insurance claims management. 2.5.4 The correct level of skills, knowledge and business acumen will be established as part of
the required organisational change process. This will address 1,2,3,4,5,8,9 and 10 identified in Section 2.5.1.
2.5.5 The Contractor, by having greater control over his resources, works planning and delivery
through the management of end to end processes, will allow for efficient and effective service delivery. This will address 2, 4, 5, 6, 7 and 10 identified in Section 2.5.1.
2.6 Highways Transformation Project 2.6.1 In 2010 it was recognised that the way highway maintenance services are managed would
need to be changed before a new procurement was undertaken in order to prepare the service for a more mature market place and to better meet the County Council’s funding and service objectives for the future. Specifically the highways business needed to develop a thorough understanding of the network asset condition, the impact of future funding levels on it, customer expectations of the network and service and future funding requirements before re-procurement commenced.
The Highways Transformation Project commenced in 2010 and focused on four key areas:
• Highway Stewardship to manage inspections, identify work and provide community
liaison; • Development of a control hub to programme, manage and schedule works more
efficiently; • Establishing a specific asset management team to develop an asset management
approach to maintenance, and • Introducing business processes and technology to document and manage service
processes. 2.6.2 As a result of the Highways Transformation Project the Authority has improved its asset
inventory knowledge, developed an Asset Management Plan, a more effective and informed management of routine and minor works, and well documented business processes delivering better performance information (many of which now run as fully automated applications). The introduction of the Highway Stewards has seen an improvement in community liaison, and a more consistent approach to inspections. Text Removed
2.7 The Highways Contract Re-Procurement Project (HCRP) 2.7.1 The HCRP commenced in 2012 following completion of the Highways Transformation
Project and formal 3-year extension of the current Highway Works Contract to September 2015. The HCRP will deliver new contract arrangements to replace the existing contract
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arrangements. Details of the HCRP project arrangements and governance are set out in Section 2.5 of the OBC (See Appendix 1).
2.7.2 The re-procurement process has been broken down into the following 6 work streams:
1. Review & Development of an Outline Business case (Commercial Model); 2. Preparation of the Detailed Business Case and Procurement Strategy; 3. Delivery of the Procurement Strategy; 4. Transformational Change; 5. Mobilisation Support, and 6. Performance and Contract Management Support.
2.7.3 The DBC represents work stream 2 of this process. 2.7.4 The programme of key events for delivery of the project is set out in Figure 2 and has been
developed to ensure that the current contractual arrangements and the future provider align; ensuring that risk to the Authority is removed.
Figure 2 – Procurement Delivery Timeline:
2.8 Drivers for Change 2.8.1 Details of the drivers for change are set out in Section 2.6 of the OBC, but can be
summarised as follows:
• The current service arrangements end in August 2015 (but will need to continue until May 2016);
• Customer Satisfaction with highway services remain low and this is combined with increasing customer expectations;
• To maximise ESCC investment to maintain and improve network condition; • Opportunity to modernise our service in line with marketplace developments
and introduce new techniques and technologies; • Continued financial challenges to all local services and the need to maximise
investment opportunities, and • Government encouragement to seek efficiencies through collaboration.
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2.9 Critical Success Factors 2.9.1 In order to deliver the outcomes and priorities the following Critical Success Factors (CSF)
were developed to provide the criteria to assess the procurement options (see Table 1). These CSF’s have been developed using the best practice model published by HM Treasury’s 5 case model for developing business cases. The outcomes and CSF’s have been used to evaluate the procurement options considered in this document.
Table 1 – Critical Success Factors (CSF):
2.10 The Strategic Commissioning Approach
2.10.1 This DBC has been developed using the East Sussex County Council Strategic
Commissioning Model approach. The work undertaken completes the ‘Analysis’ stage and has progressed the ‘Plan’ stage in sufficient detail to enable the project to move forward into the next part of the model, the Procurement ‘Do’ stage (see Figure 1).
2.10.2 In applying the Council’s Strategic Commissioning approach to this project (see Figure 1) we have set out to understand the long term need and the best approaches and methods for meeting that need. We have gathered and analysed evidence to understand the evolving needs of our customers, and we have identified future priorities and desired outcomes by analysing:
• Obligations Review (Statutory duties, standards, guidance and local priorities); • Service Assessments; • Existing services costs and risks; • Customer Engagement & Satisfaction;
Key CSF’s Broad Description
Strategic fit & business needs
How well the option: • Meets the investment objectives, related business needs and
service requirements • Provides holistic fits and synergy with other strategies,
programmes and projects
Economic Potential Value for Money (VfM)
How well the option: • Maximises the return on the required investment (benefits
optimisation) in terms of economy, efficiency and effectiveness • Minimises associated risks
Management Potential achievability
How well the option: • Is likely to be delivered in view of the organisation’s ability to
assimilate, adapt and respond to the required level of change • Matches the level of available skills which are required for
successful delivery
Commercial Supply-side capacity & Capability
How well the option: • Matches the ability of the service providers to deliver the
required level of services and business functionality • Appeals to the supply side
Financial Potential Affordability
How well the option: • Meets the sourcing policy of the organisation and likely
availability of funding • Matches other funding constraints
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• Staff Consultation; • Scrutiny Committee Research Visits (including other service models options); • Soft Market Testing (SMT) and Market Intelligence; • Asset Assessment; • Performance & Compliance Audits; • Opportunities & Collaboration; • Client Organisation & Maturity; • Risk Balance; • Localism; • Organisational Transformation; • Contractual Mechanisms; • Business Models (e.g. Teckal), and
• Technology Review.
2.10.3 In undertaking this analysis consideration was also given to the capabilities (the maturity) of the market and the Authority to deliver the procurement options that are developed in this DBC.
2.11 The Outline Business Case (OBC) findings, outcomes & recommendations 2.11.1 Conclusions and Recommendations 2.11.2 In undertaking the extensive analysis completed for the OBC and in identifying the options
to better meet our future service needs it was clear that significant change is required to the way we deliver our highway services. The OBC determined clear outcomes for the future highways service and a number of options that could achieve these. Three of these options were recommended to be further developed in the DBC and in April 2014 Cabinet approved the following options:
• Option C Executive Client led Contract (about 20-40 client staff) – Potentially
retains strategy and policy plus contract, commercial and performance management plus strategic asset management and liaison functions but with savings and efficiency opportunities on both the client and works costs;
• Option D Strategic Client led Contract (about 6-12 client staff) – Retains, strategy
and policy with small very ‘intelligent’ and capable contract, commercial and performance client. This is possible but carries a higher degree of risk due to the current level of client maturity in respect to capability and competencies, and
• Option E Staged Executive/Strategic Client led Contract – This would allow for a
well-managed and staged process that would deliver the greater benefits to East Sussex. The process could be managed such that progress would be dependent on milestones being achieved in particular around client capability and competencies and further opportunities could be developed along the way so this option would enable ESCC the degree of flexibility to take advantage of market developments at each stage.
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2.12 Structure of this document 2.12.1 The DBC is the final strategic document that sets out the approach to the commissioning
and procurement processes for the next highways service model that will deliver services after existing arrangements have ended. It completes the ‘Analysis’ stage of the commissioning approach and clarifies as part of the ‘Plan’ stage what the future client should look like, as strategically this has been identified as critical for the success of any future service. It also shows where the service is at present, what is needed to enable the future strategy to be implemented successfully, and how it could subsequently operate.
2.12.2 The review and analysis undertaken to date have provided key reference points and areas
to be prioritised in the future arrangements. Consideration is given to how services might be provided including options for a new highways contract model based on past experience and lessons learnt both in East Sussex and from other Local Authorities visited by the procurement team and the Scrutiny Member Reference Group (SMRG). It also considers how to deliver services that are best provided by other mechanisms such as SME’s and local parishes.
2.12.3 A future operating model has been developed to meet the stakeholder requirements and
the County Council’s priorities and objectives. This has been developed based on the market capability and allows for ongoing future developments to meet the continuous improvements and service demands.
2.12.4 Affordability, efficiencies and investment requirements and risk are explored in detail in this
document to provide an indication of the future operating costs, what efficiencies can be generated and what investment is required to meet the project objectives.
2.13 The Scope & Requirements of the Detailed Business Case (DBC) 2.13.1 The following is a summary of the key activities and tasks which have been undertaken
during the development of the DBC to complete the ‘Plan’ stage of the commissioning approach:
• Design the Future Client Shape & Operating Model; • Design the Transformation Change requirements and programme*; • Review the technology options and determine the technology requirements; • Conclude the SMT phase 2; • Complete the gap analysis; • Affordability, Benefits & Efficiencies; • Prepare the decommissioning plans for the existing contracts; • Finalise the service assessments to determine who is best placed to deliver; • Design the future contract and payment options**; • Prepare the PQQ & ITT documents including evaluation criteria and assessment
panels**; • Prepare a detailed risk register and mitigation measures; • Determine the future contract budgets and test affordability and scalability*; • Assess future demand on the network**; • Complete the statutory review and amend policies to suit*; • Better understand customer satisfaction expectations; • Develop the future contract performance management regime*; • Develop the localism agenda and needs*, and • Assess and publish the full benefits to be realised in the future service delivery
model. *Sufficiently completed to enable the publication of the DBC **Will be undertaken in the Procurement ‘Do’ stage as not needed for DBC purposes
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3. STRATEGY AND VISION 3.1 East Sussex’s Corporate Plan 3.1.1 Section 4.11 of the OBC sets out East Sussex County Council’s vision and priorities for
services, the four key priorities are as follows: • Driving economic growth; • Keeping vulnerable people safe from harm; • Building resilience for individuals and families to live independently, and • Making best use of resources. 3.1.2 During the development of the DBC, the Communities, Economy and Transport (CET)
department of the County Council published its third portfolio plan. The Portfolio Plan expands the County Council’s vision by setting out the high level Operating Principles as follows:
• Strategic Commissioning
o Using an evidence-based approach to assess and meet the needs of local people in the most effective way. We will specify and deliver appropriate services to secure the best outcomes and value for money for residents.
• One Council
o Working as a single organisation both through the processes we use, and how we work. We will work in a well-connected way across Council teams so we harness our energy and resources towards achieving our priorities and remove duplication. We will judge our success against outcomes for the whole population and the organisation (and whole local public sector) not against the interests of a particular group, team or department.
• Strong Partnerships
o Recognising we are one part of a wider system, we will work effectively with
partners across East Sussex, the South East 7 and the South East Local Enterprise Partnership and the wider public sector as appropriate to ensure we learn from others, secure best value for money and maximise impact for our residents.
3.1.3 The above will be used to measure the suitability of the future client shape, operating
models and used where appropriate in the evaluation criteria for the tendering process. 3.1.4 The HCRP team have been mindful of the “Strategic Commissioning”, “One Council” and
“Strong Partnerships” principles in developing the DBC and have engaged with other council services, e.g. Property and estates teams, Finance, Legal and HR in the determination of how the future services will be delivered effectively and efficiently for all. Similarly, District and Parish Councils have been engaged to help identify the future shape of the highways service delivery. Mechanisms are also under development to enable other Local Authorities, (for example the SE7 group of Local Authorities), District, Borough and Parish Councils to commission services through the future contract where efficiencies and savings can be realised. A similar mechanism has been developed by Transport for London (TfL) which offers the London Boroughs the opportunity to commission services through the new TfL London Highways Alliance Contracts (LOHAC).
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3.2 East Sussex Highway’s Future Service Outcomes 3.2.1 Through development of the DBC, further engagement with the Scrutiny Members
Reference Group (SMRG) and reviewing the latest Council priorities, the future service outcomes have been updated and prioritised. This recognises that many of the outcomes are interlinked and by delivering the principal requirement of improving the highway network condition the future service will deliver improvements in the other outcomes, which will be driven by setting and achieving the appropriate vision, strategy, planning and investment levels. Delivery of the service outcomes will also be monitored and managed through a performance management framework as described in Section 5.4 that will be developed in detail during the procurement ‘Do’ stage of the project.
3.2.2 The seven developed future service outcomes are as follows:
• Improved Network Condition (principal requirement); • Improve asset condition; • Promote economic growth; • Reduce the level of third party claims; • Provide value for money; • Promote local engagement, and • Improve customer satisfaction.
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4. HIGHWAYS SERVICES ASSESSMENTS 4.1.1 Similar work to that undertaken in developing the OBC has been carried out with further
exploration, analysis and research to develop and test three future service delivery model options to; identify the potential package of services for inclusion in the new contact; determine the shape; function and future capabilities of the client group to manage the contract; and consider the risks and affordability of the models.
4.2 Service Assessments 4.2.1 Further to the service assessments undertaken during the development of the OBC, more
detailed assessments have now been undertaken, with further consideration given to additional highway related services.
4.2.2 For each of the current service areas (see Table 2) the current ESCC service area
managers completed a self-assessment questionnaire of their service against the five critical success factors for the project.
Table 2 – Current service areas:
4.2.3 Against each CSF the service area managers were asked to score their perception of the
service when considering the following future delivery models:
• Model 1 – Internal Delivery (current state); • Model 2 – External Delivery by single term service provider (main contract), and • Model 3 – External Delivery by more than one service provider (e.g. supplementary
‘stand-alone’ consultancy / contracting services). 4.2.4 The scoring was carried out using a predefined matrix to ensure a consistent methodology
was applied across the full service assessments. 4.2.5 Upon completion of the self-assessments, each ESCC service area manager attended a
one-to-one review with members of the HCRP team, the purpose being to ensure that their views and perceptions were comprehensively understood and captured. Service area
ESCC Client Function s (‘Internal Service Delivery’ by officers of the County Council)
Works (‘External Service Delivery’ by Contractors)
Highway Maintenance Highway Maintenance (Reactive/Planned) Winter Maintenance Street Lighting Street Lighting Traffic Signals Traffic Signals Local Safety and Improvement Schemes Infrastructure Design and Delivery Structures Maintenance Structures Traffic & Safety Traffic & Safety Asset Management Network Management Contact Centre & Highways Liaison Team Contract Management Development Control Strategic Economic Infrastructure Highway Claims Highway Stewards Inspection & Enforcement
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managers were also invited to subsequently moderate their assessment as appropriate, after the one-to-one reviews.
4.2.6 The findings from the assessments were further reviewed by the HCRP team and then
presented to the Head of Service - Highways and the Assistant Director for Transport and Operations for further review (see Appendix 2).
4.3 Soft Market Testing (Capability & Capacity) 4.3.1 A three-phase Soft Market Testing (SMT) exercise has been undertaken, consisting of a
series of questionnaires, one-to-one meetings and a number of visits to both contractor and client organisations. An outline of each phase and a summary of the findings are set out below, with a detailed copy of SMT2 and SMT3 located in Appendices 3 and 4 respectively. A fundamental part of the DBC development is an assessment of the market, and the supply and packaging of existing services, whether currently provided by the market or the client organisations.
4.3.2 Objectives of Soft Market Testing 4.3.3 The overall objectives of the SMT were to:
• Gauge market interest in the provision of services on behalf of the County Council; • Gain the market’s view on the most appropriate procurement option; • Seek market views in respect of how potential service providers/partners might
approach the delivery of the service taking into account local circumstances, national performance indicators, relevant legislation and the Authority’s aims;
• Identify external influences and constraints on the market; • Identify optimum operational processes/working practices; • Identify new technologies/innovative working practices; • Highlight potential improvements in cost, programming, dependability, flexibility and
quality of service delivery; • Help establish indicative cost opportunities that could be realised, in respect of further
service efficiencies and innovation; • Identify the trends in specific contractual areas to inform continual improvement of
operational practices and the commissioning of the next highway services contract; • Allow contractors an opportunity to provide a showcase visit, highlighting different
aspects of their operations in practice, and • Identify areas of practice and lessons learned from other Local Authority (LA) contracts.
4.3.4 Methodology 4.3.5 The SMT consisted of three phases, namely:
SMT1 • A questionnaire consultation, to which nineteen responses were received from
private sector service providers, and • A series of one-to-one discussions with representatives of ten private sector service
providers. These discussions were kept as informal as possible, to stimulate the exchange of frank and open views, but were based on a pre-determined set of questions to try and ensure that key issues were discussed.
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All service providers that expressed an interest in SMT1 were sent the second SMT questionnaire. Nineteen submissions were received, consisting of nine new submissions from service providers that did not take part in SMT1, followed by ten one-to-one discussions. The one-to-one discussions focused on gaining a greater understanding from the key themes that came out of the questionnaire results.
SMT2
• A questionnaire consultation, to which nineteen responses were received from private sector service providers, and
• A series of one-to-one discussions with representatives of ten private sector service providers
Large amounts of information were gathered via SMT1 and SMT2, once this was analysed it was acknowledged that the third phase of the SMT should be a series of contractor and client visits to validate thinking and conclusions made from phases 1 & 2. It was an opportunity for contractors to showcase in practice different aspects of service delivery that they had made reference to within SMT1 and SMT2.
SMT3
• Five visits were carried out to selected highway maintenance service providers; • A series of visits to highways representatives at four Local Authorities, followed by
visit to the Highways Agency in Birmingham, and • Follow-on telephone conversations to further explore and challenge service options.
4.3.6 Table 3 is a summary of the SMT undertaken:
Table 3 - Summary of SMT Phases: Phase Dates How Response
SMT 1 27.11.12 to 20.03.13
Questionnaire consultation & 1-2-1 discussions
19 questionnaires received, 10 1-2-1 meetings held.
SMT 2 2.12.13 to 10.02.14
Questionnaire consultation & 1-2-1 discussions
19 questionnaires received, 10 1-2-1 meetings held.
SMT 3 2.5.14 to 01.07.14
Showcase visits to contractors & client 1-2-1 discussions
5 contractor visits, 4 client visits, 1 visit to the Highways Agency
4.3.7 Summary of Findings 4.3.8 The key findings from each of the three SMT phases are detailed below. Table 4 also
provides a summary of the sites visited (both Highway Authorities and contractors):
SMT 1: • Text Removed • Text Removed • Text Removed • Text Removed
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• Text Removed SMT 2: • Text Removed • Text Removed • Text Removed • Text Removed • Text Removed • Text Removed • Text Removed SMT 3: • Text Removed • Text Removed • Text Removed • Text Removed • Text Removed
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Contract Model / Type
Local Authority / Contractor
Date visited
Comments
Private Finance Initiative (PFI)
Portsmouth City Council
May 2010
Text Removed
Managing Agent Contract (MAC)
Bedfordshire County Council
Jan 2011 Text Removed
Integrated Highways Contract
Northamptonshire County Council
Jun 2011 Text Removed
Alliance Contract
Hertfordshire County Council
Aug 2012
Text Removed
Multiple Term Partnering Contracts
Surrey County Council
Oct 2012 Text Removed
Managing Agent Contract (MAC)
Southampton City Council
Dec 2013
Text Removed
Depot visit – Recycling and tarmac plant
FM Conway Mar 2013
Text Removed
Term Maintenance Contract (TMC)
Kent County Council
May 2014
Text Removed
TMC+ (+ can include extra services)
LoHac Contracts May – July 2014
Text Removed
Table 4 - Summary of Sites Visited (Other highway authorities and their contractors):
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TMC
Worcestershire County Council
May 2014
Text Removed
MAC
Central Bedfordshire
Jun 2014 Text Removed
TMC
Suffolk County Council
Jun 2014 Text Removed
MAC and Asset Support Contracts (ASC)
Highways Agency Jul 2014 Text Removed
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4.4 Market and Client Maturity 4.4.1 Market Maturity 4.4.2 The highway services market has developed and matured over the last 15-20 years. In
particular, over the last 10 years it has consolidated considerably with the total number of providers now consisting of approximately 10-12, who have in the main combined through merger and acquisition activity. In fact, a number of the more well-known and larger UK based providers have themselves been taken over by larger global organisations (e.g. Ringway is now owed by Vinci, Amey is owed by Ferrovial, and Colas is now owed by Bouygues).
4.4.3 Recent acquisitions within the UK market has seen many providers add more specialist
works and design services to their businesses, so they can now offer a one-stop-shop service. There have been a few new market supplier entries in the last 10 years but these have tended to come from existing suppliers forming Joint Ventures (e.g. Conway/Aecom) or Alliances (e.g. Colas, Volkers and URS). A number of the main market players now understand the benefits of collaboration and building long-term partnerships with the local supply chain, and this has seen improvements in both levels of service and value for money.
4.4.4 The market has also been busy developing more efficient IT solutions, the use of new
products, and innovations in both plant and equipment, which provide a better choice for clients when they look to procure services. The market has also gained a much greater understanding of the client’s asset base, operating environment and realising the opportunity of localising their service provision (appreciating each client’s differing needs and requirements).
4.4.5 The consolidation and development of the market enables clients to be more inquisitive
during the procurement process to ensure they identify the most appropriate providers and design tender submission documents that best meets their needs. The reduced number of providers also allows clients to gain a fuller understanding of what is available through soft market testing (n.b. it has been noted that since the completion of SMT2 the company URS have been taken over by Aecom).
4.4.6 Client Maturity 4.4.7 In the past, UK clients have often neglected the design and organisation of their structure to
successfully manage their highway contracts. In particular, the areas of asset, contract and performance management have been lacking due to clients maintaining their organisational structures in a very traditional form, focussing on the engineering and design functions, rather than on asset and contract management. However, it is now widely recognised that asset, contract and performance management are core functions for an intelligent and informed client, necessary to derive the optimum benefits from their highways contracts. Consequently, many clients now recognise the importance of these capabilities and functions and are implementing and developing them accordingly.
4.4.8 East Sussex has undertaken an assessment of their client capabilities and competencies
using the European Foundation for Quality Management (EFQM) Business Excellence Maturity Model, illustrated in Figure 3. This assessment was reported in the OBC and has been reviewed in the DBC. The EFQM model is an evidence based assessment that illustrates the client’s current maturity and what needs to be done to move towards an executive and/or strategic client in the future. The red line in Figure 3 below shows where East Sussex Highways is at present, following completion of the maturity assessment (see Table 5 – Maturity Assessment). The assessment review has enabled the HCRP team to
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develop a proposed client organisation and structure (see Section 5.2) to deliver the new highway services contract effectively and efficiently.
4.4.9 The EFQM model seeks to illustrate 5 levels of an organisation’s maturity, and shows the
journey ESCC have travelled to get to their current position of a Managed Service Client (Level 3) with their current Term Maintenance Contract (TMC). Given the implementation of new service arrangements, the Authority can continue this journey towards Level 5 through developing intelligent client skills, knowledge and capability. This could be achieved at either the next procurement opportunity, or by constructing a position during this procurement cycle to ‘step-up’ once certain milestones have been achieved and capability has been proven.
4.4.10 The timeline on the left of the pyramid illustrates the progress over previous contracts,
highlighting where East Sussex Highways are now and illustrates maturity model levels as ‘stepping-stones’ to that of a Strategic Client. The Strategic Client is a ‘thin’ client organisation primarily responsible for defining strategy, policy and contractual compliance with all other services being managed by a single or combined supplier organisation. To achieve this, a staged approach (Executive to Strategic) is included within the options appraisal/evaluation section of the report (See Section 9 of the DBC).
Figure 3 - Client Maturity Model:
Key (Contract References):
PFI – Private Finance Initiative MAC – Managing Agent Contract
MA/TMC – Managing Agent/Term Maintenance Contract TMC+ - Enhanced Term Maintenance Contract
TMC – Term Maintenance Contract DLO – Direct Labour Organisation
4.4.11 The maturity model assessment has enabled the preparation of a detailed improvement plan that will help shape the organisational change process needed for the new contract arrangements. This will ensure ESCC is well prepared and equipped to deliver the new contract outcomes and realise continuous improvement.
????
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Table 5 – Maturity Assessment:
Client Maturity
Customer Satisfaction
Asset Management
Performance & Contract
Management
Service Delivery
Economic Growth
Technology & Processes
People & Resources
Level 5
Strategic (Transforming)
Market Creating Perpetually Reforming
Long Term AMP with secured investment
Market and Culture Influencing
Innovative & Performance Linked Market Shaping
Forward Thinking Market based Intelligence
Opportunity Driven Highly Knowledgeable & Efficient
Industry Leading Strategic Team & Resource Efficient
Level 4 Executive (Learning)
Sector Based Continuous Improvement
Whole Life AMP Approach
Efficiency & Performance Intelligence Driven
Improvement Driven Adaptive to Needs
Business Based Intelligence
Efficiency and Performance Driven
Highly Skilled & Best Value Approach
Level 3 Managed
(Understanding)
Business Based, Survey Driven
Business Case Approach
Business Focussed Efficiency Driven
Business Focussed Standardised Approach
Cross Sector Integrated Opportunity Seeking
Compliance and Controls Linked to Performance
Integrated & Embedded Disciplines & VfM Approach
Level 2 Controlled
(Compliant)
Project Based Statutory Approach
Project Driven Project Focussed
Routine Focussed
Development Control
Project Focussed
Silo Approach Change Resistance
Level 1 Bureaucratic
(Reactive) Reactive Compliance
Driven
Local Practices & Bureaucratic
Task Order Driven
Statutory Requirements
Single User Lacks Integration
Job Demarcation
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4.5 Organisational Change Requirements 4.5.1 The key to organisational change, through both its transitional and delivery phases, is
creating, developing and maintaining the right culture. This should reflect the aspiration to create the right conditions for effective and efficient delivery of highway services, enabling financial savings, efficiencies, collaborative working and customer focused service delivery targets to be collectively met.
4.5.2 The key components of cultural change delivery are interrelated and build on each other as
illustrated in Figure 4.
Figure 4 - Creating the Culture to Deliver:
4.5.3 The six key cultural components that the Authority will look to further develop and manage
can be described as follows:
i. Shared Vision – A high level statement of intent to provide direction, common understanding, a reference for decision making and a shared sense of purpose. Consideration will also be given to stakeholder ‘buy-in’ and support to deliver this vision.
ii. Communication and Engagement – Good communication informs, educates,
motivates and provides a call to action and is critical when preparing people for change. When change is planned, engagement allows people to be involved, understand its rationale and be clear on ‘what’s in it for me?’ The HCRP Communications and Stakeholder Engagement Strategy (as detailed in Section 4.6) outlines the overall approach and methodology for communicating with identified stakeholders throughout the life of the project to secure their support and ongoing commitment to the change process.
Culture to
Deliver
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iii. Roles and Expectations – Establishing clear roles and expectations provides
transparency and accountability, allowing progress to be tracked and challenges to be identified. The key will be knowing ‘who’s doing what?’ and where accountabilities are set, to support the change process and subsequently adapting to new ways of working. The Authority’s ‘Managing Change Suite of Policies’ will form the basis of how change will be conducted in full consultation with staff and trade unions, ensuring that the principles of equality, diversity and fairness are maintained throughout. The impact of the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations will be considered in detail for employees of the Authority and current service providers whose service area or function is ultimately proposed to be transferred to an external organisation.
iv. Behaviours – Positive and constructive behaviours will be key to achieving cultural
change and the extent to which people feel able to trust one another, be open and honest and feel able to challenge the status quo is important. It is recognised that past history, behaviours and receptiveness to change are influenced by individuals’ perceptions about current and future events (both positive and negative) and therefore can directly impact on how they are ultimately delivered/implemented. This is recognised as a key risk and is one that will continue to be closely managed through the application of the various methods of engagement detailed within the HCRP Communications and Stakeholder Engagement Strategy (as detailed in Section 4.6).
v. Capability and Skills – It will be important to have an appropriate mix of both
technical and interpersonal skills within the new service to achieve the right balance and culture, in order to deliver the shared vision and desired service outcomes over time. This component of cultural change will need to consider in detail the assessment of current Client and Market maturity (see Section 4.4) and the proposed future operating model and Authority staffing structure (see Section 5.2) giving due consideration to a skills gap assessment, subsequent recruitment and future training requirements. The ‘ADDIE’ model is a useful structured approach for identifying and developing capability and skills when seeking to bring about change, which will be applied to the project, as shown in Figure 5.
Figure 5 - The ADDIE model of developing skills and capability:
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vi. Planning, Preparation and Readiness for Change – For effective cultural change it is essential that people are ready, willing and also able and given the tools to change. Therefore, a change plan will be identified covering the drivers, benefits and required actions for delivery, taking into account all of the risks and issues outlined around cultural change. By fully understanding the impact and implications of changing our ‘ways of working’ this will enable the Authority to ‘iron out’ any potential difficulties before they occur and to fine tune the change plan accordingly. Also, it will be of equal importance to manage change through all phases (pre-transition, during the transition and after the transition to the new service arrangements) until such time as they are fully embedded. This will then ensure that the benefits are both realised and self-sustaining.
4.6 Communications Plan & Stakeholder engagement 4.6.1 The HCRP Communications and Stakeholder Engagement Strategy (See Appendix 5)
outlines the overall approach and methods for communicating with stakeholders.
Table 6 - Identified Internal and External Stakeholders:
Internal Stakeholders External Stakeholder s
ESCC Staff (directly impacted and those wider teams)
KIER Staff
Members Contractor staff from other ESCC contracts Unions Wider market contractors (potential bidders) CMT Tier 2 contractors – SME’s, Sub-contractors Directors Consultants Assistant Directors District, Borough and Parish Councils Audit SE7 / SE5 / SE4 Cabinet General Public Lead Member Customer focus groups Legal Local Businesses Head of Procurement Highways Agency Finance Emergency Services Heads of Services Public Transport Operators Communications Team Utility Companies HR Media Property Local MP’s ICT Scrutiny Reference Group HCRP Project Board Project Team
4.6.2 Stakeholder analysis was undertaken by the HCRP team and a wide group of internal and
external stakeholders were identified as shown in Table 6. A further mapping exercise was then undertaken and stakeholders were categorised under the following four areas:
• Manage Closely – These are stakeholders that require regular updates, have high
interest and decision making responsibilities for the project;
• Keep Satisfied – These are stakeholders of high importance to the project but have a low interest and do not need frequent updates;
• Keep Informed – These are stakeholders who have a high interest in the project, who
will provide input into the development of the HCRP and need to be kept updated, and
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• Monitor – These are stakeholders that have low interest in the project and low power.
4.6.3 Figures 6 and 7 show the stakeholder prioritisation grids for both internal and external
stakeholders.
Figure 6 - Internal Stakeholder Prioritisation Grid:
Figure 7 - External Stakeholder Prioritisation Grid:
4.6.4 Communications and Stakeholder Engagement Strategy 4.6.5 The aim of the Communications and Stakeholder Engagement Strategy is to ensure that
both internal and external stakeholders are aware of the objectives of the HCRP, that key messages are delivered in an appropriate and timely manner, and to ensure stakeholders remain engaged throughout the process. The key messages being delivered to stakeholders are project’s objectives and outcomes, the drivers for change, regular progress updates and overall delivery timescales (highlighting key project milestones).
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4.6.6 A variety of engagement methods have been identified to communicate with stakeholders to ensure they are kept informed and fully engaged in the project from start to finish. Different engagement methods are being used depending on the nature of the update, and whether the stakeholder is directly or indirectly affected by the project. Methods include:
• Staff events; • Newsletter and email updates; • Media / press releases; • ESCC website; • Your County magazine; • Email correspondence; • Meetings; • Briefing documentation; • Market engagement; • Procurement portal / external publications and websites; • Surveys; • ESCC Intranet, and • Reports.
4.7 Policy and Service Level Review 4.7.1 In compiling the DBC our Statutory obligations, current policies, service levels and
procedures have been reviewed to ensure that they are relevant, and sufficient to enable future services to be delivered within a flexible framework, enabling the Authority to respond to changes in service requirements in a timely and efficient manner. This enables a simple yet efficient and effective approach to meeting our obligations, with the flexibility to react to changes, and a framework detailing this has been developed, as illustrated in Figure 8. Figure 8 - Framework for policy, service level and procedure management:
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4.7.2 Within the framework, key accountabilities and responsibilities are clearly identified as:
• Service Standards and Highway Polices These are the corporate standards agreed by Cabinet for highways delivery. There are seven overarching service standards which detail the Authority’s key responsibilities and objectives and ensure compliance with legislation;
• Levels of Service, Highway Asset Strategies
The levels of service are designed by the Authority to meet the service standards set by Cabinet. The levels of service and strategies will be determined utilising the asset management life cycle planning and will set out how highway infrastructure is to be delivered for the Authority to meet its long term corporate goals and objectives. The strategies set a clear direction for implementation of asset management;
• Operational Working Procedures and Guidance
The Operational Working Procedures and Guidance will be designed by the Contractor and will detail how a specific operational activity is to be delivered in line with the required level of service, and
• Service Delivery and Performance
The service delivery and performance will be managed by the Contractor and monitored by the Authority. The organisation will produce an annual report for members showing performance.
4.7.3 The details of the individual policies are currently being finalised, with the process going
through its own governance for final sign off and agreement to implement. The service levels will be defined within the new contract specification (levels of service), with the tenderers setting out how these requirements will be met as part of their tender submission.
4.7.4 The above approach, to the setting of Service standards delivered through contract
obligations and methodologies, will ensure that a quality, efficient and effective service will be delivered, whilst maintaining the flexibility to meet changing service standards, should the need arise.
4.8 Asset Management Plan (AMP)
4.8.1 The total value of the ESCC highway network asset has been calculated at £3.7bn in
accordance with the Chartered Institute of Public Finance and Accountancy (CIPFA) code of practice. This represents a gross replacement cost, excluding structures, lighting, traffic management (traffic signals etc.) and land and is undoubtedly our most valuable asset.
4.8.2 Recognising the value and effect of poor condition, it is estimated that for every £1
reduction in highway maintenance spending there is a resultant cost of £1.50 to the wider economy3. Significant progress has been made as part of the Highways Transformation Project to put asset management has been placed at the centre of our highway maintenance strategy by moving priorities away from short term reactive delivery to longer term planned maintenance. Further progress can be made to refine this approach with the development of our AMP for all our key assets. This will be at the heart of the new contract model enabling flexibility and innovation in our approach to highway maintenance. Our strategy to asset management and our plan to develop our knowledge further is based on current best practice and industry guidance and is explained further in Appendix 8. 3The Transport Scotland report Economic, Environmental and Social Impact of Changes in Maintenance Spend on Roads in Scotland
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4.8.3 The focus of the Highways Transformation Project has been the condition of carriageways as a political priority, with the development of an Asset Management Plan and supporting asset inventory. However, it is understood that there are significant gaps in our knowledge and understanding of most of the other highway assets, such as drainage pipes and ditches, lines and signs, traffic signals, street lights, bridges and structures etc. Of the 41 different asset types, quantitative data has been collected for approximately 60% of all highway assets, whilst strategic investment and maintenance plans (15 year asset management plan(s) have only been developed for carriageways.
4.8.4 The introduction of an asset management strategy has enabled the early consideration of
long term maintenance strategies aimed at:
• improving the condition of the public highway; • reinstating the structural integrity of roads and reduce the risk of deterioration; • improving highway drainage (and keep water off roads); • improving the ride quality and appearance of roads; • supporting economic growth in the county by improving our transport network and
reputation for quality of roads; • improving safety, and • continuing the drive away from the historical reactive service towards a long term
planned and efficient service. 4.8.5 The “total network asset” management approach being adopted by the East Sussex
Highways will enable us to consider network wide maintenance concerns and to prepare intervention and improvement plans on a prioritised basis, giving due consideration to;
• the condition of the asset; (identified from detailed inspection and survey) • the importance (hierarchy) of the asset; • the predicted rate of deterioration; (based upon historic actual, best practice advice) • the benefits of early intervention and preventative maintenance (whole life cost),
and • County Council affordability.
4.8.6 This work has enabled some initial modelling to consider the relationship between current
levels of funding and asset condition. 4.8.7 Figure 9 shows the level of funding, assumed to be, available for the current medium to
long term asset management plan, and the projected network condition (showing continued deterioration) over the same period applying asset modelling techniques using the criteria identified in 4.8.6 above.
Figure 9 – Service and Investment Graph:
* The greater the performance percentage, the greater the amount of network in need of repair
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4.8.8 The current level of (all) asset performance has been assessed at 27.69% (2014) but is forecast to deteriorate a further 22% over the next 15 years to around 50% (2028) assuming the current levels of investment in highway maintenance are maintained over this period.
4.8.9 Recent additional funding granted to the Authority’s highway service area has primarily
been invested in the carriageway asset. In the future, to maximise economic return, the adoption of longer term, broader programmes of work, targeting a wider set of network asset improvements needs to be utilised to include the following key assets:
Carriageways Street lighting Drainage Structures Footways and Cycleway Traffic Signals Traffic Signs and Road Markings Grass, weeds, trees etc. Safety barriers Street Furniture
4.8.10 These plans and programmes will enable us to drive greater value for money from our
delivery partners and supply chain resulting from greater certainty and visibility of forward work whilst improving asset condition and giving more resilience to the network.
4.8.11 Fundamentally, the development of the long term asset plans will enable the Authority to be
informed of the implications of changes in legislation, budgetary allocation or increasing/reducing service levels.
4.8.12 The new contract model is designed to promote a more holistic way to managing our
assets. Securing early agreement for the use of the efficiencies delivered by the new contract will provide a good deal of the investment required for the Authority to continue to deliver this approach and provide a safe network, improved customer satisfaction and deliver value for money.
4.8.13 The recently considered 10-year carriageway asset management plan sets out options for
funding levels to improve and maintain our carriageway asset. Similar plans are now being developed for all our principal assets that will present clear options for determining service levels and funding requirements for the new contract.
4.8.14 Despite the recent work, funding and asset condition surveys we do not know enough about
our entire asset stock, particularly its condition, to develop longer-term asset plans and investment strategies (beyond immediate annual needs). Further plans and strategies will be developed over the next 1-2 years as we determine the condition of our key assets (see Appendix 8). The new contract will assist with this process by the introduction of new techniques and technology as part of the service delivery, which will enable greater and more comprehensive data collection (e.g. the use of GPS technology to map grass and drainage assets).
4.9 Technology Systems Review & Requirements 4.9.1 Reporting Background 4.9.2 A number of information technology (IT) systems are used for the delivery of the two current
Term Maintenance Contracts (TMC) with Kier and Colas. The systems were reported in Section 4.10.1 of the Outline Business Case (OBC) and a summary of their key usages for service delivery use was included in Appendix 012 of the report.
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4.9.3 Content of the DBC report 4.9.4 The use and current issues of the TMC-reliant technology systems have been further
investigated for this report. Proposals based on the expected outsourcing of services have been made for the future opportunities and risks that the technology systems will bring to the new TMC.
4.9.5 Current technology systems – investigation and review 4.9.6 The delivery of the current two TMCs is highly dependent on a number of diverse and
business critical technology systems, most of which are proprietary sourced. Broadly speaking, the systems can be defined as database systems, (such as CRM, Symphony, Horizons, Mayrise and WDM) and process and management systems, (such as Barium, Exor and Symology.) The proprietary systems have been purchased from a number of different suppliers, generally over the duration of the current TMC, and are well established in a mature, but constantly evolving IT market.
4.9.7 The technology systems can also be designated according to whether they are held on
ESCC servers or are held on cloud servers provided by the system suppliers over the internet. The future use of cloud systems and cloud data storage is a key issue for the technology systems under the new TMC and is discussed further in the report.
4.9.8 Most technology systems are the day-to-day the responsibility of the current ESCC Team
Managers. Those that are not, such as CRM, the customer enquiry system, are managed corporately by the ICT Department.
4.9.9 The current technology systems investigated for this report are summarised in Appendix 6 -
Table 1. 4.9.10 Proposals and considerations for re-procurement 4.9.11 Led by the outsourcing proposals the interfacing and coordination of technology systems
will present one of the biggest challenges in the new TMC contract, the key issues for which will be:-
1. Mobilisation and establishment of Contractor’s systems and ESCC interfaces; 2. Timely collection and communication of data and information; i.e. client reporting; 3. Security of data; 4. Reliability and connectivity of systems; 5. Transparency and visibility of data and processes; 6. Data availability to the Authority; 7. Verification and audit of systems and data; 8. Managing technology systems developments, updates and obsolescence, and 9. Managing hand back/handover at the end or termination of the contract.
4.9.12 Overall, the investigations for the DBC report found that although there are some issues to
be addressed, the current IT systems should not present significant difficulties under the outsourcing proposals. Therefore, some IT systems could be transferred as appropriate, and made the responsibility of the Contractor, whilst other systems could remain the responsibility of the Authority, as illustrated in Figure 10.
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Figure 10 – The East Sussex Portal Diagram:
4.9.13 Figure 10 is based on a proposed internet-based ‘Portal’ through which the IT systems will be accessed by both the Authority’s and Contractor’s staff. The Portal will also provide a database for core contract documentation and will permit the sharing of certain IT systems, further encouraging a collaborative ethos between the parties.
4.9.14 Future Technology Requirements 4.9.15 Notably, ownership of Horizons, the asset management IT system, will be retained by the
Authority to support the strategic planning of the works programme. An investment is also proposed for a contract management IT system to support the administration of the contract.
4.9.16 For the most part it is expected that the Contractor will elect to use the transferred IT
systems in the first instance but they will have the option of proposing alternative IT systems to promote efficiencies and to suit the Contractor’s management and operating strategies. However, alternative systems will be rigorously tested to ensure that the Authority’s defined outcomes are not compromised and that the IT systems are compatible with those retained by ESCC. An audit regime will also be implemented by the Authority’s managing staff to verify system compliance with data security and resilience requirements.
4.9.17 Support from ESCC ICT Department will be needed throughout the entire procurement
process to ensure that corporate IT interests are fully protected at all times. 4.9.18 Key issues to be addressed 4.9.19 There are a number of current issues that will need to be addressed in the procurement
process based upon the expected obligations and/or opportunities given to the incoming contractor. These are briefly described below.
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Exor Systems – The Exor Maintenance Manager system is still the core system for most of the TMC works ordering and processing. However, some of the associated Exor systems are now effectively obsolete, having been superseded by systems such as Horizons and Symology. Furthermore, Exor system updates have not been purchased from the supplier Bentley for some years and it would cost an estimated £100,000 to update the latest Exor versions. Taking all these factors into consideration, it is possible that an incoming TMC contractor would see benefits in moving away from Exor and choose an alternative system in its place.
Public Enquiry Management Systems – Highway public enquiries are principally managed through the corporately controlled Microsoft CRM system. However, it is necessary linkage to the Exor PEM system has resulted in the need for a software ‘patch’, which is unreliable and necessarily results in a high level of duplication of data in the two systems. Fundamentally, however, CRM being a corporate IT system, is also used for public enquiry management across non-highway departments, posing a possible confidentially and security threat to data of a more sensitive nature than that invariably gathered in response to highway related issues.
Furthermore, not all highways related enquiry data is held in CRM; data related to street lighting is also held in Mayrise. Taking all factors into consideration, it is proposed that the Contractor will be required to furnish a new public enquiry system for the contract, but one that will permit the transfer of the current highways related enquiry data at the commencement of the contract from CRM, and possibly also the Mayrise system.
Mobile (hand held) technology systems - Limited evidence from the investigations carried out for the report suggests that the use of the Exor Mobile system has not being fully utilised due to technological and connectivity issues. Consequently, there is still a heavy reliance on manual practices to record and transfer data. Evidence from soft market testing suggests that contractors in the highways maintenance market are making extensive use of mobile technology, and in some cases are developing their own software in order to maximise the benefits of real time on-site data access. Therefore, recognising the current use of mobile technology in the market, the new TMC will seek to encourage a greater use of mobile systems in all aspects of inspection and works delivery. Cloud systems - Reflecting the current industry/supplier trends in the IT market, many of the technology systems used under the current TMC are cloud-based. Significantly, cloud based systems negate any direct storage on the Authority’s own servers. With IT Departments doing little more than providing access to the cloud via a web browser, cost efficiencies can be made. Therefore, the increasing use of cloud systems in the delivery of the new TMC will bring a number of advantages and further, will support the move to a strategic/executive centred organisation.
Technology System Licences - The current technology systems are mainly supported by licence agreements with the suppliers. The agreements have various durations and hence expire at different times over the next two years up to the expected start date of the new TMC contract in May 2016. As the licences come up for renewal over the next two years, agreements will be negotiated with suppliers to limit ESCC liability beyond May 2016 and to effect transfer of the systems to the incoming contractor.
4.10 Local Community Initiatives
4.10.1 ESCC is looking to change the way that services are delivered within the local community
and have developed a Community Highways initiative. This is a suite of four products that will empower local communities take responsibility and accountability for some services and community enhancement schemes, whilst in-turn tailoring the service to meet their
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needs. These products are all designed to increase community self-serve and manage expectations at a time of constricting budgets.
4.10.2 The four products are:
• Community Extras; • Community Match; • Pay-as-you-go Extras, and • Local Delivery Company
4.10.3 The Community Highways initiative is not compulsory for Parishes to sign up to, and ESCC
will still continue to provide the core services it currently delivers. However the initiative provides Parishes with the option to top up current services and products, apply for match funding for highway improvement schemes and even deliver some of their own works.
4.10.4 The objectives of the Community Highways initiative are to:
• Give local communities a greater say in the services they receive and provide a way
for them to adapt to and reflect local circumstances; • Develop a new relationship with local communities and organisations, working
together to tackle issues, provide services and strengthen communities; • Provide value for money to local tax payers and communities, and • Ensure our highway assets continue to be maintained to a safe, usable standard
that meets our legal obligations for highway service provision. 4.10.5 At the time of producing the DBC the four community products are still being developed and
operating on a trial basis. An engagement event has been held with local parishes to explain and gain feedback on the Community Highways initiative, and expressions of interest for the four products are currently being received from Parishes.
4.10.6 ESCC have researched and explored other authorities’ localism schemes and we are
currently working with WSCC sharing ideas and best practices around community offerings. The Community Highways initiative will continue to be developed and reviewed, the outcomes of which will be assessed and reviewed for incorporation within the new delivery model.
4.10.7 We are also proposing to create a mechanism within the new contract to enable investment
in the community. The Contractor will be required to invest directly into East Sussex community benefit schemes, e.g. new community facilities, i.e. public space enhancement or anything that improves the quality of life for residents.
4.11 Collaboration 4.11.1 The future contract will be designed to enable service delivery for other Local Authorities,
District and Parish Councils. In addition we will continue to develop contracts and services in conjunction with our neighbours where appropriate.
4.11.2 SE7 4.11.3 The SE7 group of authorities continue to work together to develop strategies that will help
to achieve savings, improve services to residents and increase organisational capability through a mixture of detailed benchmarking and comparison, collaborative procurement, joint workforce development, sharing of best practices, services and resources.
4.11.4 The key objectives for any collaborative procurement will be to:
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• Reduce costs by removing waste and inefficiencies from supply chain and • Protect the local economy by supporting small local companies.
4.11.5 In order to meet these objectives ESCC will need to work with its future suppliers to identify
opportunities to reduce costs through supply chain alliances and re-engineering. This will be achieved by ESCC entering into an agreement with their first tier contractor to:
• Share information; • Enter into joint supply chain agreements; • Consistently improve prices; • Add value through improved warranties, reduced emissions, reduce waste, and • Adopt fair payments policies and other initiatives to support the small, local
companies they employ. 4.11.6 Two Framework Agreements have been developed by Hampshire County Council on behalf
of the SE7 to deliver highway projects across the region. The frameworks cover small to larger scale projects, including structures and bridges, utilising local and regional contractors.
4.11.7 These frameworks have been used successfully by ESCC and provide an effective top up
service where there is limited capacity within the existing contractual arrangements, give flexibility to market test and maintain commercial tension with our term provider, and represents a means of procuring major projects in a timely manner with reduced procurement costs.
4.11.8 Whilst it is envisaged that the majority of the highway related services will be delivered
through the new contract we will continue to work in a collaborative manner with neighbouring authorities and agencies to ensure flexibility for delivery of services is maintained. The new contract arrangements will ensure that the Authority maintain the right to step outside its provisions for the delivery of works and services that are deemed to be highly complex or specialist in nature, are not part of an agreed annual service plan and/or generate a significant reputational risk to the Authority. The SE7 frameworks will be one of the options available for delivering these works or services.
4.11.9 Brighton & Hove City Council (B&HCC) 4.11.10 ESCC and B&HCC have successfully managed independently joint contracts for both
Public and Amenity Lighting maintenance and Traffic Signal maintenance, with a single provider for each contract.
4.11.11 Text Removed 4.11.12 Text Removed
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5. HIGHWAY PLANNING
5.1 Service Design 5.1.1 In considering the three service delivery options of executive, strategic and staged
executive to strategic client led contracts and based on the evidence gathered, service risk analysis, the capability of the market and the outcomes required, the service areas shown in Figure 6 are proposed for inclusion in the new contract. The Council staff currently providing these highways services will be eligible for transfer to the new contractor, under the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations. In total, this will involve Text Removed Council staff.
Figure 11 – Current and Proposed Service Areas:
Current Functions
Contractor Functions
Works
Highway Maintenance
Winter Maintenance
Street Lighting
Traffic Signals
Traffic & Safety Infrastructure
Design & Delivery
Specialist & Routine Structures Maintenance
ESCC Functions
Contract Management
Third Party Claims
Policy and Strategy
Audit and Performance
Budget and Risk
Procurement
Service
Service Management
Asset Management
Highway Maintenance Management
Winter Maintenance Operations
Street Lighting
Traffic & Safety
Infrastructure Design & Delivery
Structures Management
Network Management
Contact Centre & HLT
Inspection & Enforcement
Highway Stewards Service
Development Control
Future Functions
Contractor Functions (Service Delivery)
Services
Highway Maintenance Management
Winter Maintenance Operations
Street Lighting
Traffic & Safety – (part of)
Infrastructure Design & Delivery
Structures Management
Network Management
Contact Centre & HLT
Inspection & Enforcement
Highway Stewards Service
Development Control – (part of)
Third Party Claims
Works
Highway Maintenance
Winter Maintenance
Street Lighting
Traffic Signals
Traffic & Safety Infrastructure
Design & Delivery
Specialist & Routine Structures Maintenance
ESCC Functions
Contract Management
Policy and Strategy
Audit and Performance
Budget and Risk
Procurement
Asset Management
5.1.2 Moving these services to the new contract will enable the Authority to focus on policy,
strategy and service level requirements, while the Contractor controls and optimises the end-to-end service delivery and business processes of identification, planning and implementation of maintenance activities. This will allow the Contractor to introduce leaner processes and provide integrated technology to deliver efficiencies linked to targeted and defined performance standards.
5.1.3 Where the evidence shows that the market is capable of managing a broader and more
integrated range of services and delivering efficiencies, these services will be transferred to the new contractor. This will result in appropriate risk allocation to the party best placed to manage it.
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5.1.4 Text Removed 5.1.5 In addition, the Authority’s delivery of Public Rights of Way maintenance works has been
considered for inclusion within the new highways contract, but discounted as they are more suited to direct delivery by the local supply chain.
5.2 Future Client Shape & Service Delivery Operating Model 5.2.1 Both the OBC and the work undertaken for the DBC have identified that a strong contract
management and commercial capability is important. There is good evidence that a lack of this capability has led to problems with contracts in other authorities and in some cases of functions being brought back in-house for the Authority to manage.
5.2.2 Executive client led contract - The client shape, competencies, capabilities and
knowledge to manage the new contract is an essential consideration to ensure the success of the project. The Executive client led contract functions are illustrated in Figure 12 and a potential client group arrangement is illustrated in Figure 13. These identify the functions required to manage an Executive led contract model. Essentially contract, commercial and performance management are pre-requisites to manage the new contract and the other functions will be important to plan our desired approach, management, build our asset knowledge, community and Member relationships and communications. Around 30 Council staff would be required to perform these functions.
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Figure 12 - Executive client led contract functions:
Figure 13 - Executive client led contract structure:
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5.2.3 The maturity assessment undertaken in the OBC illustrates how the Authority has progressed through the levels of management over time. This has mirrored the ability and maturity of the market to deliver a wider range of services to meet Authority’s highway maintenance requirements.
5.2.4 The assessment of the Authority’s current ability shows that it is now ready, subject to the
transfer of services to a new provider and the setting up a new client group, to lead the service, to move on in organisational development to at least an Executive client led contract, as a minimum step in maturity to manage the new contract arrangements.
5.2.5 Set out in Section 6, Affordability and Investment, are the financial benefits of moving to this
model with additional, well developed services transferred to the market, which will provide efficiencies in service and better value for money. This would also include other benefits such as new processes, systems and technology that would be required to be introduced by the Contractor and in turn will provide greater access to information for Members and the public, enabling further streamlining of business processes. The move to an Executive client led contract would involve the transfer of Text Removed Council staff to the new contractor with an associated reduction in direct salary costs, one off reduction in the cost of services by Text Removed and year-on-year efficiency ‘savings’.
5.2.6 Market testing shows that the proposed package of works and services that would be
moved to the provider under an Executive arrangement will be commercially attractive to the market, fit well with their capabilities and provide a quantifiable risk profile for their organisation.
5.2.7 Strategic client led contract - Adopting a Strategic led contract model has the potential to
provide further benefits to the Authority beyond those of an Executive model. The transfer of additional services compared to an Executive arrangement for a Strategic arrangement would mean including the functions of asset management and technical audit in the new contract for the Contractor to provide. This would mean an additional staff transfer of Text Removed posts with an associated direct salary reduction to the Authority of Text Removed (although most of these services would subsequently be bought back from the Contractor).
5.2.8 A Strategic led arrangement is detailed in Figure 14. Around 12 Council staff would be
required to perform the client organisation functions illustrated. The exact shape and function of the strategic group will depend on how the group relates to the rest of the Council’s organisation, with some functions potentially managed across the Authority. Figure 15 shows one option for Strategic client led organisation.
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5.2.9 Figure 14 - Strategic client led contract functions:
Strate
gyPerform
ance
Figure 15 - Strategic client led contract structure:
5.2.10 In addition, the Strategic client led model could also provide further efficiencies in service
delivery (leaning of business processes and minimising hand-offs) that could be captured by the Authority through the incentivisation and performance mechanism to be included in the contract (See Section 5.4).
5.2.11 The biggest ‘prize’ in moving to a Strategic client led model is that the Authority, assuming it
has a sufficiently developed AMP and the appropriate capability and knowledge, is able to determine the strategy and outcomes for its network that are both achievable and affordable and that can be delivered by the Contractor. The Contractor (and his wider supply chain), in taking on a transferred asset management service and its developed plan, would be able to streamline processes using the asset management skills transferred and can therefore plan, program and manage maintenance activities using the latest techniques and innovations with complete flexibility to deliver the Authority’s required outcomes. By
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setting targets for the project outcomes and offering complete flexibility to the Contractor to deliver these against the performance standards, the Contractor will be directly rewarded or ‘penalised’ accordingly using the model set out in Section 5.4.5. Again, efficiencies would be captured by the incentivisation and performance mechanisms in the contract.
5.2.12 Clearly the maturity assessment shows a wider gap in ability from where the Authority is
assessed to be currently to where it may want to be to become a Strategic organisation. There are a number of tests that need to be satisfied to do this. These are set out in Table 7, Section 5. However, the absolute key to adopting a Strategic client led contract is to have a sufficiently developed asset management plan and investment strategy with an understanding of how that could be applied to the service. Crucially the significant ‘unknowns’ around asset condition and liabilities would need to be sufficiently reduced so that the service can be managed by the Contractor without him adding additional (risk) cost to the service. If a Strategic arrangement is adopted without a sufficiently developed asset plan and this service is passed to the Contractor, they will, as a commercial organisation, consider the associated risk and price it into their tender offer. This presents a significant risk to adopting a Strategic client model too early.
5.2.13 Section 4.8 sets out our current asset management strategy and the level of knowledge and
maturity of the AMP. At this stage the plan and our knowledge of our key assets and their condition is not sufficiently developed, other than for carriageways, to determine the level of risk they present and the investment required to manage these assets to adequately mitigate any risk their condition and the maintenance needs that they may pose. This knowledge can be gained and investment plans developed but this requires the right investment both in terms of time and money. This is set out in more detail in Appendix 8. Crucially, it has been determined that this work cannot be completed within the timeframe of the re-procurement, prior to the start of the new contract. This is set out in Appendix 8.
5.2.14 To adopt a Strategic client led model a developed Asset Management Plan (AMP) is
essential, but there are other requirements that need to be put into place and ideally proven before a Strategic approach can be adopted. These are set out in Section 5.2.15 and Table 7. Critically if a developed AMP and investment model does not exist and a Strategic client led model is adopted there is significant risk to asset performance management by the Contractor. This would be reflected in the cost of the service and would essentially eradicate the investment model resulting in further deterioration in the condition of the asset over the period of the contract. This is set out in detail in Section 9 Options Appraisal / Evaluation.
5.2.15 Staged Executive to Strategic client led contract – The staged option would start with an
Executive client led contract and move to a Strategic arrangement during the life of the new contract. This presents the opportunity to benefit from both the Executive and Strategic options over time giving flexibility over the ‘static’ options of either an Executive or Strategic led client contracts.
5.2.16 This approach would initially transfer readily manageable services to the Contractor
(Executive model) while leaving the client to continue to develop its capability, knowledge and skills to manage the new arrangements and asset approach. When these capabilities, knowledge and skills have developed sufficiently (specific tests are set out in Section 5.2.15 and Table 7), the contract is performing well and the Authority is ready to make the move, further client services can be transferred to the Contractor. The ‘additional’ benefits of a Strategic client organisation and further efficiencies in service delivery can then be realised. Should the Authority decide that it was not ready to move to a Strategic model, the contract would allow an Executive client to remain for the duration of the contract term.
5.2.17 There are number of requirements that would need to be included in the procurement
process to enable this approach:
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• OJEU Notice - The option to transfer additional services during the contract period
would be set out in the OJEU notice to notify the market and the EU Commission of the Authority’s intention;
• PQQ & ITT - The staged intention of additional transfer of services would need to be
set out in the information provided to potential bidders at pre-qualification questionnaire (PQQ) and invitation to tender (ITT) stages as part of the Authority’s strategic service objectives, and
• Contract Documents - The contract documents will be required to include an
appropriate mechanism to enable this to happen. The form of contract proposed for this procurement is NEC3. NEC3 are a family of contracts, based on sound project management principles and clear risk transfer that demand close cooperation and active management from both the Authority and the Contractor. These forms of contract include standard mechanisms to change service requirements by reduction, increase or the introduction of alternative services. The contract data includes a standard approach to identify the cost of any changes (a ‘Compensation Event’) based on similar services priced at the bidding stage or subsequently agreed during the contract period. These prices are made up of items and prices for labour, plant and materials coupled with resource levels, productivity measure and method statements. This provides a tested framework a basis for agreeing prices for changes or new services.
5.2.18 Further analysis of the options is included in Section 9 - Options Appraisal / Evaluation. 5.2.19 The requirements set out in the maturity model to operate as a Strategic client must be in
place. These are summarised in Table 7.
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Table 7 - Summary of operational requirements for both Executive and Strategic client led organisations: What we need to do to
move to an Executive Client
What we need to do to move to a Strategic client
Risks Possible mitigation
Customer Satisfaction
Text Removed Text Removed Text Removed Text Removed
Asset Management
Text Removed Text Removed Text Removed Text Removed
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What we need to do to move to an Executive
Client
What we need to do to move to a Strategic client
Risks Possible mitigation
Performance and Contract Management
Text Removed Text Removed Text Removed Text Removed
Service Delivery
Text Removed Text Removed Text Removed Text Removed
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What we need to do to move to an Executive
Client
What we need to do to move to a Strategic client
Risks Possible mitigation
Economic Growth
Text Removed Text Removed Text Removed Text Removed
Technology and Processes
Text Removed Text Removed Text Removed Text Removed
People and Resources
Text Removed Text Removed Text Removed Text Removed
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5.2.20 It is difficult to put a definitive timeframe on when a move to a Strategic arrangement from an Executive arrangement could be made given the limited knowledge of our key assets condition other than our carriageways and it is not clear at this stage how long it would take and what investment is required to attain this knowledge. It is therefore not possible to determine now if moving from an Executive to a Strategic client led arrangement within the next contract period is actually possible. Adopting a Staged approach at this stage may also send the wrong message to the potential tenderers as ‘Staged’ suggests it is our intention to do this during the life of the contract when in fact this may not be possible.
5.3 Service Delivery Governance 5.3.1 It is proposed that the new contract, service outcomes, performance management
and objectives will be managed by Strategic and Operations Boards. Figure 17 illustrates the governance structure for the contract with a clear process for monitoring and reporting throughout the organisation. Member engagement in this process will be an important part of service management, trust and reputation.
Figure 17 – Future Governance Arrangements:
Scr
utiny
Mem
ber
Ref
eren
ce G
roup
5.3.2 Invitations will be made to the successful bidder to appoint representatives to the
Strategic Board) at the mobilisation stage, for the duration of the contract. 5.3.3 Service delivery will be overseen and reported by an Operations Board consisting of
senior operational and delivery management staff from both the Authority and the Contractor.
5.3.4 Continuity and communication between the Strategic and Operations Boards will be
through common membership where appropriate. Progress meetings will be held on a regular basis with the minutes and actions distributed to all concerned.
5.3.5 The Strategic and Operations Boards are intended to operate consensually.
However, where agreement cannot be made then the chair (to be an Authority representative) will make the final decision.
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5.3.6 The role of the Operations Board will continue for the term of the contract to provide operational management in the delivery of the contracted services, mindful of budgetary, performance, innovation and collaboration, providing progress reports to the Strategic Board as directed.
5.4 Performance Management
5.4.1 Performance management will play a vital role in establishing the successful
management and delivery of the service. The quest for continuous improvement, benchmarking of costs in line with Chartered Institute of Public Finance & Accountancy (CIPFA) new code of practice and setting of new and improved standards will define future efficiencies and improved methods of working.
5.4.2 In the future, performance may initially be measured at two levels, service
performance and contract performance. An indicative Service Performance Management Framework (see Figure 18) has been developed in recognition of the fact that the future service outcomes (detailed in Section 1.5.3) are ultimately interlinked with both the overall performance of the service and that of the Contractor. By delivering the principal requirement of improving the condition of network, the project will also deliver the remaining outcomes, driven by setting and achieving the appropriate vision, strategy, planning and investment levels. This framework will be further developed during the procurement ‘Do’ stage of the project.
Figure 18 – Service Performance Management Framework:
Visio
nStrategy
Pla
nning
5.4.3 Service performance against the project outcomes will be measured and reported
year-on-year for trend analysis, but the results would not initially be linked directly to the incentivisation and ‘penalty’ mechanisms set out in the contract. Contractor’s performance against the outcomes can only be directly linked to the incentivisation and ‘penalty’ mechanism when the Contractor is fully responsible for delivery of the asset management plan (The Strategic client led contract model).
5.4.4 If a Strategic client led contract model is adopted and the control of the asset is
transferred to the Contractor it would be reasonable to directly link the service outcomes to the incentivisation and penalties mechanism in the contract.
5.4.5 The Contractor’s performance will be measured against the targets and measures set
out in the contract and linked to a performance incentivisation mechanism (see
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Figure 20). A number of these are similar to the service outcome measures e.g. handling of third party claims and customer management services but the contract will include specific key performance measures that will measure the Contractor’s performance for the services they manage, such as third party claims and safety of the network. The key performance areas that will be directly measured by the contract are shown in Figure 19.
5.4.6 The contract model with services being provided by the Contractor, investment
provided by the Authority, and appropriate mechanisms to maximise the application of that investment, will focus the Contractor on delivery while providing over-time the desired project outcomes.
5.4.7 Measurement of Service Performance 5.4.8 The service outcomes shown will be measured and reported annually as follows:
• Improve asset condition – e.g. carriageway & footway condition indicators, drainage performance (% of asset operational & free running), safety barrier maintenance & inspections;
• Improve customer satisfaction – annual NHT survey, citizen panel surveys, level of complaints;
• Reduce third party claims – level of claims by value and volume; • Local engagement and service delivery – number of local employees working
on the contract, number of local SME’s and value of work supporting the contract, services bought by third parties (parishes, districts etc.);
• Promote economic growth – measure of network availability, number/net value of network improvements, and
• Provide value for money – fixed costs per km of network, schemes within budget etc.
5.4.9 The Contractor’s performance will be measured using the framework shown in Figure
19. This will specifically target performance over the following 5 key areas (the delivery of which will be monitored and managed through a range of Key Performance Indicators (KPIs) that will be developed in detail during the Procurement ‘Do’ stage):
• Operational Delivery - to ensure the right people, business processes and
systems are in place, the contract is compliant, managed effectively and the service/schemes are delivered to plan;
• Asset - to ensure information is available in a timely manner to support effective decision making, the long term integrity of the asset is maintained and the appropriate levels of the network are available for use during severe weather events;
• Safety - to ensure a safe network is provided, safely maintained and that safety incidents on the network are reduced; Customer - to ensure customers are satisfied, disruption to road users is minimised and community engagement is embedded within the highways service, and
• Sustainability - to ensure resources are used efficiently with due consideration to the environment, carbon emissions are reduced and the local economy is promoted and utilised as appropriate.
5.4.10 The individual measures of the 5 key performance areas will be targeted and
weighted to add up to a single score for each area. These are equally weighted (to ensure the Contractor applies equal effort to each) and aggregated to provide the Contractor’s overall performance score. This will be used to assess the ‘reward’ or ‘penalties’ to be applied.
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5.4.11 The performance framework set out below shows how the contract incentivises year on year efficiencies from the Contractor but ensures ‘penalties’ can be applied if the Contractor performs below the acceptable level set out in the contract.
Figure 19 – Contract Performance Management Framework:
Contractor’s
Overall
Performance
%**
Customer
20%*
Sustainability
20%*
Safety
20%*Asset
20%*
Operational
Delivery
20%*
Specific KPIs (Asset) to be
developed (and weighted):
e.g.
- Asset data submission
(as-built drawings)
- Appropriate scheme identification
- Winter service resilience
- Highway inspections
- Routine structure inspections
Specific KPIs (Customer) to be
developed (and weighted):
e.g.
- Customer/stakeholder
engagement
- Localism / Community initiatives
- Enquiry management
- Complaint handling
- Fault reporting
Specific KPIs (Sustainability) to
be developed (and weighted):
e.g.
- Reduction in carbon emissions
- Use of recycled products and
processes
- Waste Management Plans
- Local supply chain (SMEs)
Specific KPIs (Safety) to be
developed (and weighted):
e.g.
- Emergency Response
- Correction of Defects
- Environmental Amenity (e.g.
vegetation control, sign cleaning)
- Delivery of Road Safety Audits
- Accident frequency
Specific KPIs (Service Delivery)
to be developed (and weighted):
e.g.
- Quality Management
- Delivery to time & budget
- Prompt payment
- Handling of 3rd party claims
- Network availability
* Indicative weightings only ** Contractor’s Overall Performance score for the whole service
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5.4.12 An example of how the Contractor’s performance will be measured and monitored is detailed in Table 8.
Table 8 – Contractor’s Key Performance Indicators:
KPI No.
Performance Area Description* Criteria*
Frequency of
Measurement*
Target Performance*
Weighting (a)*
Actual Performance
(b)*
Weighted KPI Performance*
(c) = (a)*(b)
Performance Area
Weighting* (d)
Performance Area score* (e) = (c)*(d)
1 Operational
Delivery *** *** *** % *** % %
0.2
%
2 Operational Delivery
*** *** *** % *** % % %
3 Operational
Delivery *** *** *** % *** % % %
4 Sustainability
*** *** *** % *** % %
0.2
%
5 Sustainability
*** *** *** % *** % % %
6 Sustainability
*** *** *** % *** % % %
7 Safety
Make safe or correct Category 1a defect
Make safe the hazard or correct the defect within 2 hours of being recorded
Monthly 100% 0.5 90% 45%
0.2
9%
8 Safety
Correct Category 1b defect
Correct the defect within 5 days of being recorded Monthly 95% 0.25 97% 24% 5%
9 Safety
Correct Category 2 defect
Correct the defect within 28 days of being recorded
Monthly 90% 0.25 80% 20% 4%
10 Asset *** *** *** % *** % %
0.2
%
11 Asset
*** *** *** % *** % % %
12 Asset *** *** *** % *** % % %
13 Customer
*** *** *** % *** % %
0.2
%
14 Customer
*** *** *** % *** % % %
15 Customer
*** *** *** % *** % % %
* information is indicative (for illustration purposes only), all information is subject to change ** figure is for illustration purposes only (used in the example calculation shown in Table 9)
Contractor’s Overall Performance 95%**
Overall ‘Good’ Performance range 100-110%
Overall ‘Acceptable’ Performance range 90-100%
Overall ‘Poor’ Performance range 80-90%
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5.4.13 The Contractor’s overall performance delivery will be focused using an incentivisation mechanism as detailed in Figure 20.
Figure 20 – Performance Incentivisation Mechanism:
5.4.14 In order to demonstrate how the Contract Performance Framework is linked to the Performance Incentivisation Mechanism, a worked example is shown in Table 9.
Table 9 - Example of Performance Incentivisation Mechanism calculation (Acceptable Performance):
Example 1 Example 2 Overall Contracts Performance Score for Year 1 of the Contract
95% - from Table 8 92%
Target Cost for Total Service Delivery for year 1 £35 million £35 million
Actual Cost of Services provided by the Contractor (Actual)
£34 million 34 million
Difference between target and actual, known as “Share Pot”
£1million £1 million
Contractors Maximum share from share pot (50%) £500,000
Actual Amount
Paid £250,000 £500,000
Actual Amount
Paid £100,000
Authority's Minimum share, from share pot, to be reinvested into the service (50%)
£500,000 Actual
Amount Retained
£750,000 £500,000 Actual
Amount Retained
£900,000
Total Payme nt to Contractor £34,250,000 £34,100,000
5.4.15 When looking at the example in Table 9, should the Contractor achieve an overall
performance score for Year 1 of 95% but exceeded the agreed target cost this would result in no savings being generated, therefore no payment would be made to the Contractor from the share pot and no money would be available for the Authority to reinvest into the Service.
5.4.16 A poor performance score (80%-90%) will mean no entitlement to any portion of the
Contractor’s share of savings (if generated) along with a reduction in the proportion of declared profit set out in the contract (normally paid as part of the payment for services provided by the Contractor).
Con
trac
tor’s
Ove
rall
Per
form
ance
%
Upper Performance Level
Lower Performance Level
%Payment deduction
% Bonus Payment
%
Payment made for Services provided to date
Maximum Bonus
Maximum Charge
Goo
d P
erfo
rman
ce
100%
-11
0%
Acc
epta
ble
Per
form
ance
90
% -
100
%
Poo
r P
erfo
rman
ce
80%
- 9
0%
Bonus payment made dependent on level of ‘good’ performance, capped at the calculation of the Contractor’s declared profit or share of savings (if achieved)
Payment represents Price for Services Provided to Date taking
into account Contractor’s share, but dependent on level of ‘acceptable’
performance
Contractor’s share of savings (if due) not paid, and deductions also
made to Contractor’s declared profit dependent on level of ‘poor’
performance
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5.4.17 The maximum cost of the service cannot exceed the available budget if robust knowledge
and processes are applied to agree the target cost. 5.4.18 Any of the Authority’s ‘share’ of the savings could be ‘reinvested’ to support the long-term
strategy to improve network condition. It is estimated that the incentivisation model will generate Text Removed efficiencies each year of the contract.
5.4.19 The organisations’ performance will also be measured by Business Performance Indicators
(BPIs). These will include detailed measures associated with the service priorities such as specific network asset condition indicators e.g. carriageway, footway, drainage, structures etc. and delivery of budget and programme requirements to ensure timely definition of annual service requirements.
5.4.20 The Strategic Board will oversee the performance management regime and will agree
priorities and targets for year-on-year improvements. The Performance Management process will operate at two levels:
• Quarterly reporting to the Strategic Board, and
• Monthly reporting to the Operations Board. The Contractor will agree during the Mobilisation Period a Service Improvement Plan for each Budgetary Year of the contract, which will be updated on an annual basis.
5.4.21 The Contractor will monitor his performance and keep such records as are necessary to
measure and report on his performance in accordance with the contract. 5.4.22 The Performance Management Framework will be underpinned by an audit regime that will
include the review of the KPIs using evidence-based processes. 5.4.23 The Governance arrangements to oversee, monitor and manage performance is illustrated
in Figure 17, and further described in Section 5.3 of the main body of the DBC.
5.5 Contract Form, Payment Options and Duration 5.5.1 Contract Form - The Authority’s current form of contract for delivering its maintenance
services is a heavily modified New Engineering and Construction (NEC) Contract 2nd Edition, Option B (Priced Contract with schedule of rates).
5.5.2 During the current term maintenance contract a revised edition of the NEC has been
published, known as NEC3. The new contract will be based upon the latest published NEC3 forms.
5.5.3 Like NEC 2, NEC3 is a family of model contracts, based on sound project management
principles and clear risk transfer that demand close cooperation and active management from both the Authority and the Contractor and are thus ideal for term contracts. It is proposed that the NEC3 Term Service Contract (TSC) is used for the new highways maintenance contract.
5.5.4 The NEC3 suite of contracts has the unique distinction of a full endorsement from the UK
Office of Government Commerce, which recommends NEC3 for use on all public sector construction projects as it satisfies the principles of Achieving Excellence in Construction (AEC). AEC is a central government initiative to commit clients to continuous improvement, efficiency, effectiveness and value for money in the procurement of new works, maintenance and refurbishment.
5.5.5 The Highways Maintenance Efficiency Programme (HMEP) is a sector led, transformation
initiative, commissioned by the Department for Transport in 2011 that aims to standardise
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highway maintenance to promote efficiency in delivery whilst maximising return in investment. HMEP have developed a number of standard toolkits and a standard form of contract, based upon the NEC3 TSC, drawing on industry best practice. The use of the HMEP standard approach will be adopted where possible during the development of the Authority’s new contract.
5.5.6 The TSC is the most appropriate contract from the NEC3 suite of standard forms, but, to
achieve the flexibility required, it will be amended to incorporate best practice, local requirements and the new proposed new operating model.
5.5.7 Payment options - The new contract will include a number of payment options appropriate
to, and dependent on, the risks and complexity associated with each work or service type. The various payment options will ensure that both the Authority and the Contractor have the flexibility to drive and delivery efficiencies and continuous improvement whilst maintaining a level of return for the Contractor.
5.5.8 The three standard NEC payment options that will be used are options A, C and E. These
options enable risk apportionment to be applied appropriately for various works or service types as detailed in Figure 21. Figure 21 – NEC Payment Options:
5.5.9 The standard contract payment options are briefly described as follows:
• Option A - Priced works:
Either:
(i) Lump sum elements of work that is fixed and defined at tender stage. These work elements consist of annual and/or cyclic work that is not subject to significant variability, where the risk within them is largely dependent on a contractor’s ability to programme, plan and manage their work. Typical work elements in this category include the winter maintenance facility, gully emptying, grass cutting and emergency response. Tenderers will be required to price these lump sums at tender stage disclosing their estimated costs, overheads, profit, productivity and risk.
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or
(ii) Priced works: In essence lump sum works that are ordered on an ad hoc or annualised basis throughout the duration of the contract. Unlike the lump sums element above, the work quantity is not known at tender however, throughout the currency of the contract, maintenance needs arise that consist of works where, as above, the risk therein lies largely with the Contractor’s productivity.
• Option C - Target cost works:
Works with a target cost developed from the tendered price schedule works ordered under this mechanism will be grouped into two types. The first will be those that have the potential for value engineering savings such as an annualised programme of surface dressing. The second is those where there is deemed to be risk that is best shared between Contractor and the Authority. In such circumstances the target cost and ‘pain/gain’ share mechanism incentivises the Contractor to be as efficient as possible in the delivery of their works, such as carriageway surfacing or safety schemes. This option is typically used for capital funded works such as road re-surfacing, surface dressing and new construction
• Option E - Cost reimbursable:
This option is provided to give the Authority complete choice in the procurement of ordered work and is to provide a means of ordering works in emergency situations, or for work where the Contractor and/or the Authority is unable to assess the risk, or are unable to effectively plan or programme the works with certainty. This option is used typically for emergency situations where the risk is unknown and speed may be required e.g. sudden road subsidence. Duration - The contract duration will be 7 years which is the ideal duration for the return on the investment the Contractor has to make in fleet etc. Seven years will offer the optimum business model for Contractor and the best prices for the Authority. The will be no option for extension included in the contract. This allows the Contractor to manage the service risks over a fixed period of time with no need to model the management of this over extended timescales. The advantages of this are shown against other options in Table 10.
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Table 10 - Contract Duration Options:
Contract Duration Options
Advantages Disadvantages
Fixed 5 years
Creates a level playing field for tender pricing. Removes the linkage to and complications for the performance regime which causes poor behaviour.
Re-procurement costs and process restarting within 3 years. Higher prices as less opportunity to average conditions and investment.
Fixed 7 years
Creates a level playing field for tender pricing. Offers the optimum investment period for plant & equipment. Removes the linkage to and complications for the performance regime which causes poor behaviour.
Reduces the Authority’s flexibility.
Initial term (e.g. 5/7 years) plus 1 year extensions
Provides the Authority with flexibility. Can provide incentives for improving performance.
Heavy admin role in determining performance. Poor provider behaviour, if performance measures/attainment cannot be agreed. Mixed & Strategic pricing offerings at tender stage.
10 years with reductions
Provides surety of work for the provider so pricing should be fair.
Heavy admin role in determining performance. Poor provider behaviour, if performance measures/attainment cannot be agreed. Exceeds the natural lifecycle for plant & equipment.
5.6 Step Out Procedure
5.6.1 The new contract will be designed to deliver the total highway infrastructure works
(contractor) and professional service (design/consultant) requirements. 5.6.2 It is anticipated that all works and services will be delivered by the new Contractor;
however, the Authority will maintain the right to place works or services with other providers.
5.6.3 To ensure that a robust justification can be demonstrated, a Step Out procedure is being
developed and will form part of the contract. 5.6.4 The Step Out procedure will relate to projects that are deemed to be highly complex or
specialist in nature, are not part of the initial agreed annual service delivery plan and/or generate a significant reputational risk to the Authority.
5.6.5 In the event that the defined ‘step out’ conditions are met, the determination of provider will
be undertaken by the application of a service impact assessment which will consider, cost, complexity, capability, risk and capacity as follows:
• Cost – The anticipated cost of procurement of the work/services, considering the
individual EU threshold and total impact on the highway maintenance contract; • Complexity – are the works/service required within the scope of the highway
maintenance contract; • Capability – Does the highway maintenance contractor have the necessary skills to
undertake the works; • Risk – Is the delivery likely to expose the Authority to a reputational risk, e.g.
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o Timescales o Stakeholder expectation o Funding constraints
• Capacity – Does the highway maintenance contractor have the capacity to undertake the works in addition to the agreed annual service delivery plan?
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6. AFFORDABILITY & INVESTMENT
6.1 General 6.1.1 In order to generate the affordability and investment models, the current service costs,
future asset management plan and asset knowledge risk transfer have been analysed. 6.1.2 An affordability model has been developed from a base service cost, derived from the
2013/14 outturn expenditure, inflated to May 2016. (Inflation based upon extrapolation of the actual inflation over the term of the existing contract).
6.1.3 The asset knowledge risk transfer has been modelled, based upon the asset valuation of
£3.7bn as derived in accordance with the Chartered Institute of Public Finance and Accountancy (CIPFA) code of practice and represents a gross replacement cost, excluding structures, lighting, traffic management (traffic signals etc.) and land.
6.1.4 The investment model has been derived based upon a “Steady State” network condition,
developed within the life cycle planning of the long term asset management plan.
6.2 Analysis of current costs
6.2.1 Table 11 summarises current service delivery cost for 2013/14 along with forecasted expenditure for 2016/17. Table 12 details the forecasted Modelled Service Costs.
Table 11 - Service Cost:
Spend Category Expenditure 2013/2014
Forecasted price
increase 2014-16
Forecast Expenditure
May 2016
Authority Staff Cost* XXXXX XXXXX XXXXX Works Cost Revenue** XXXXX XXXXX XXXXX Works Cost – Capital** XXXXX XXXXX XXXXX Total Charges (Energy/Contributions) XXXXX XXXXX XXXXX Total Other Service Costs (Systems/Communication Equip) XXXXX XXXXX XXXXX Total Corporate Overhead Charge XXXXX XXXXX XXXXX Total Service Cost £ 39,524,510 £ 43,512,019
*Authority staff associated with the service delivery activities included within the DBC
**Works delivery cost – expenditure with contractors Table 12 – Forecasted Modelled Service Costs:
Service Year
A. ‘Do Nothing’ Service Cost
B. Forecast Service Cost
C. Investment (Steady State)
1 XXXXX XXXXX XXXXX 2 XXXXX XXXXX XXXXX 3 XXXXX XXXXX XXXXX 4 XXXXX XXXXX XXXXX 5 XXXXX XXXXX XXXXX 6 XXXXX XXXXX XXXXX 7 XXXXX XXXXX XXXXX
Total Service Cost XXXXX XXXXX XXXXX Saving % XXXXX XXXXX XXXXX
*Value derived as total Forecast Expenditure (May 2016) minus the value of the retained Authority staffing costs. **XXXXX investment results in XXXXX additional deterioration of the network condition from current state.
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6.2.2 Table 12 shows three scenarios of costs for the new contract period from 2016/17:
• Column A shows the cost of the contracted services inflated year on year if current rates and service costs were applied;
• Column B shows the contracted service costs if efficiencies (tender savings and
year on year efficiencies) are achieved through the new contract and these are returned to the corporate centre (not re-invested), and
• Column C shows the cost of the contracted services if an estimated level of
investment, is applied over the contract period to maintain a steady state network condition. This is an estimated level of investment based on current rates and prices and limited knowledge of our investment requirements. This would be more accurately re-modelled when tender prices are known and refined over time as our asset knowledge improves.
6.3 Staff Costs Analysis 6.3.1 Council staff costs have been derived from the total current salaries and overhead bill for all
employees within scope of the DBC, this equating to Text Removed roles. 6.3.2 The development of the DBC has identified that there are Text Removed functional roles
that add no additional benefit to the new ‘emerging’ service delivery model and it is proposed that these roles are not transferred. It is therefore proposed that these staff are retained by the Authority with their salaries continuing to be met from existing budgets.
6.3.3 The remaining functional roles have been allocated as either, executive client (do minimum)
or contractor, this is summarised in Table 13.
Table 13 – Remaining functional staff roles:
Staff No. of Staff
£’s Comments
Staff (Retained Client)* XXXXX XXXXX Future cost to be met by the Authority, functional roles remain unchanged
Staff (Executive Client) XXXXX XXXXX Includes for additional salaries of XXXXX required to establish the team, this includes XXXXX new functional roles.
Staff (Transferred) XXXXX XXXXX Salary cost to be transferred to the new contractor
*Staff cost excluded from all further calculation, cost will be incurred by the Authority
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6.4 Forecast Cost 6.4.1 Based upon the service costs derived above, Table 14 illustrates the initial potential saving
to be derived from the procurement (tendering) process. The potential level of saving has been validated from the SMT and knowledge of the market rates in comparison to current charge rates incurred from the existing contract arrangements in place. This is averaged at 10% although evidence suggests this is between 6 and 18% depending on service i.e. revenue or capital services. This shows a potential reduction compared to current costs of £3.744m.
Table 14 – Pre/Post Tender Service Cost:
Spend Category Pre Tender * Tender Savings Post Tender
Staff (Executive Client) XXXXX XXXXX XXXXX Staff (Transferred) XXXXX XXXXX XXXXX Work Cost (Revenue) XXXXX XXXXX XXXXX Work Cost (Capital) XXXXX XXXXX XXXXX Charges (Energy/Contributions) XXXXX XXXXX XXXXX Other Service Cost XXXXX XXXXX XXXXX Corporate Overhead XXXXX XXXXX XXXXX Total Service XXXXX XXXXX Immediate savings from tender process
XXXXX
* 2013/14 expenditure inflated to 2016/17
6.5 Cost Savings
6.5.1 There are a number of potential savings that could be realised as a result of the
procurement strategy and service delivery model. These are identified and categorised in the Table 16.
Table 16 – Cost Savings: Saving Category Savings Comment
Transfer of staff XXXXX Transferred staff would result in a salary
reduction to the Authority, however the cost of the staff would still have to be met as part of the service cost
Tender Savings XXXXX Saving generated as part of changing the commercial approach to service delivery and commercial tension generated through the tendering process (Note, these are one-off savings available only at award of contract)
Efficiency savings XXXXX Year-on-year efficiency savings generated by the contractor
6.5.2 There are a number of further potential savings that may be generated as part of the
procurement and implementation process, which cannot be quantified at this time – as follows:
• Future Authority savings as move from executive to strategic client progresses; • Allocation of risk to the appropriate party, i.e. Contractor will be required to carry
winter service risk for number of runs completed in service period; • Reduction in Contractor’s service cost offer based upon allocation of service risk,
and • Innovation and efficiencies from different/new working practices.
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6.6 Asset Knowledge Risk Transfer 6.6.1 In the development of the Asset Management Plan (15 year strategic investment and
maintenance plans) and this DBC it has been identified that we hold detailed information for 16% of our asset inventory, primarily the carriageway asset, for which we have a 15 year asset management plan. Additionally, we have determined that our asset is 27.69% defective. Having gained this level of knowledge, we are now able to evaluate the financial implication (risk) associated with the asset. This risk has been calculated in monetary terms by evaluating the known asset condition against total asset value - this is shown in Table 17.
Table 17 – Comparison of asset condition against asset value:
Total Asset Value
£3,700,000,000
Percentage of Asset in Need of Repair “Steady State Asset Condition” (Condition of asset at commencement of contract)
27.69%
Derived from asset management plan modelling
Value of Asset in Need of Repair (asset in need of repair as identified in the 15yr asset management plans)
£1,024,530,000
6.6.2 Having ascertained the financial value of the asset in need of repair, further modelling has
been undertaken to understand value of defective asset as our intelligence increases over the contract delivery period. Table 18 illustrates how, as asset intelligence increases, the potential financial risk is reducing.
Table 18 – Impact of asset intelligence improvement on financial risks:
Unknown Asset
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
Value of Asset
in Need of Repair
XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
Further
Deterioration of Asset* (11% of Asset in Need
of Repair)
XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
Risk over
Contract Term (deterioration of asset/asset plan duration
(15yrs) x Contract Term
(7yrs))
XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
Risk as a
percentage of Total Contract Value (XXXX)
XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
*11% has been derived from the strategic asset management plan and represents the modelled further deterioration of asset over the contract term, i.e. the asset would now be 38.69% (27.69+11) in need of repair.
Reducing Financial Risk
Improving Asset Intelligence
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6.6.3 Having established the value of the risk, it is then important to understand how this risk is managed during the delivery of the contract.
6.6.4 If the Contractor were asked to manage the asset (Strategic client led model), based upon
our current knowledge and understanding of our asset and a “project outcome” of maintaining the asset condition “Steady State”, i.e. no further deterioration for the term of the contract. The Contractor would seek to recover the value of this risk within his tender price, which will manifest in higher tender prices for lump sums, priced works and the Contractor’s fee.
6.6.5 The impact of increased prices may result in an unaffordable contract or a further reduction
in the asset performance due to lower levels of investment being available for works.
6.7 Asset Management Investment Strategy 6.7.1 The asset investment strategy considers the funding requirements to maintain a service
performance (defective network in need of repair) for the duration of the contract investment period.
6.7.2 In developing the asset investment strategy four investment strategies have been modelled
as follows:
1. Steady state performance funding requirement; 2. Steady state performance funding with efficiencies removed (Text Removed tender
savings and Text Removed efficiency removed); 3. Steady state performance funding with efficiencies re-invested (Tender Savings and
efficiencies re-invested in service), and 4. Continuation of assumed future funding levels.
6.7.3 Within the model, the network condition has been modelled to show the effect of the four
funding strategies. 6.7.4 The impact on the network condition, and overall contract term funding requirement are
summarised in Table 19.
Table 19 – Impact on network condition and funding requirements:
Investment Strategy
Network Condition
(2015)
Network Condition
Year 7
% Change Network
Condition
Service Spend £’s (7 Years)
Added Value (£’s)
Benefit Ratio *
1 XXXX XXXX XXXX XXXX XXXX XXXX 2 XXXX XXXX XXXX XXXX XXXX XXXX 3 XXXX XXXX XXXX XXXX XXXX XXXX 4 XXXX XXXX XXXX XXXX XXXX XXXX
*The benefits ratio is calculated as,
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6.7.5 Figure 22 illustrates the effect on network condition over the seven year contract investment period for the four investment strategies.
Figure 22 – Effect of investment on network condition: Figure Removed
6.8 Funding Strategy 6.8.1 As identified in this report, it has been recognised that the condition of the Authority’s
highway network is in a state of deterioration.. However, this situation is not unique to East Sussex; many other highway authorities are in a similar position, as often reported in the national press and technical journals. Indeed, most recently a report on strategic road maintenance from the House of Commons Committee on Public Accounts4 stated:-
“The Department’s piecemeal and stop-go approach to funding for road maintenance in recent decades has made it difficult for highways authorities to deliver maintenance cost-effectively, with too much reactive work in response to flooding and other events and not enough focus on preventative work that is less expensive in the long-term”.
The Committee also stated in their report:-
“Long-term programmes of preventative work are the most efficient way of maintaining road infrastructure. While there will always be a need to perform some emergency and reactive maintenance, highways authorities need to plan and prioritise their maintenance activities over the whole life of their road infrastructure assets to get best value for money”.
And one of the Committee’s recommendations was:-
The Department should keep to the long-term budget allocations it has set out for local highway authorities to enable them and the supply chain to plan ahead confidently and efficiently.
4House of Commons Committee of Public Accounts - Maintaining strategic infrastructure: roads. Fifteenth Report of Sessions 2014–15
6.8.2 To maximise opportunity to, as a minimum, maintain our asset to its current state, for the
duration of the contract, it is essential that the appropriate levels of funding are made available. Due consideration must also be given to the County Council’s ability to fund this level of investment and to service the borrowing debt.
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6.8.3 Asset investment modelling has identified that an investment of Text Removed (Text Removed per annum) would be required to maintain the ‘steady state’ network condition over the proposed seven year contract period.
6.8.4 Financial modelling has further identified that by allowing the re-investment of in year
efficiency savings generated from the procurement strategy, an added value of Text Removed can be realised over the contract term. If this money is re-invested, it would equate to a Text Removed improvement in the asset condition.
6.8.5 However, the realisation of these additional benefits is directly linked to the client shape and
operating model. Using the wrong model, would result in increased prices and a further deterioration in the asset condition.
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7. NON – FINANCIAL BENEFITS
7.1 General 7.1.1 In addition to the financial benefits, the re-procurement of the highway services contract will
enable other non-financial benefits. By non-financial benefits is meant the socio-economic benefits to service users or wider society from the proposed infrastructure investment. The four key areas where non-financial benefits can be realised are socio-economic, localism, sustainability and customer service.
7.1.2 Table 20 identifies the key non-financial benefits that should be achieved through the
adoption of new contract proposals, as the Contractor will have greater control over the end-to-end processes from customer contact through to operational delivery. The table also identifies how these benefits could be evidenced and measured over the period of the contract.
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Opportunity /Benefit
Description Example Quantif iable (Y/N)
How will it be evidenced Evidence
Wider socio-economic impacts
Labour Market Use of SME’s and local labour
Y Supply chain and labour located in East Sussex
SME head office and labour home address within East Sussex
Environmental impact Reduction in travel time, reduced emissions
Y Supply chain and labour located in East Sussex. Targets set for carbon management
Vehicle tracking and travel time surveys. Apply CO2 calculator
Workers’ conditions Safe and healthy working conditions
Low accident rates, appropriate Personal Protective equipment
Y Safety Audits Accident records, Safety audit reports
Fair wages All staff paid at least minimum wage / market wages to attract competent experienced staff
Y Audit of TUPE data, terms of employment and analysis of local market rates
Employees contracts, financial records, market intelligence
Working hours and holidays
Fair and reasonable treatment throughout supply chain
Y Contract provision Audit compliance
Equality in respect of: • Age • Disability • Gender
reassignment • Marriage and civil • partnership • Pregnancy and
maternity • Race • Religion and belief • Sex • Sexual orientation
Equality throughout the supply chain
Y Legislation and contract provision
Audit compliance of contractor policies and procedures
Table 20 – Key Non-financial Benefits:
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Skills and training
Availability of apprenticeships Fully developed training plans, active encouragement of personal development
Y Training plans, apprenticeship schemes
Audit compliance of contractor policies and procedures
Community relations Effects on neighbours Relations with the local community & other stakeholders
Integrated single point of contact for operational delivery of the service
Y Engagement with customers, community and stakeholders
Customer and stakeholder satisfaction surveys. Audit compliance
Ethical business practice
Localism Contribution to the built and historic environment
Sympathetic scheme design and delivery
Partially Scheme specific Scheme specific
Contribution to diversity and stability of the local economy
Partially Stable supply chain. Working with local suppliers and participating in county council supply chain development initiatives.
Project Bank Account and/or defined payment terms
Supporting SMEs to maintain regular payments and steady cash flow
Y Supply chain payment terms equitable with main contract.
Audit compliance of contractor’s payment systems
Long-term financial viability
Transparency of forward work plans
N
Customer Service
Reduced level of complaints
Lower % of customer contact ending in complaints
Y Contacts and complaints register (CRM) system
Audit compliance
Stronger customer focus
Right first time information resulting in reduction in repeat customer contacts
Y Contacts and complaints register (CRM) system
Audit compliance
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Improved output from defined service standards, better design etc.
Meets customer expectations, right first time
Y Engagement with customers, community and stakeholders
Customer and stakeholder satisfaction surveys. Audit compliance
Better defined project scope
Better understanding of customer needs
Y Engagement with customers, community and stakeholders
Customer and stakeholder satisfaction surveys. Audit compliance
Sustainability Renew, reuse and recycle
% reduction of virgin material used in delivery of the service
Y % of recycled materials used against total volume of materials used
Audit compliance
Life Cycle Assessments
Implementation of Asset Management Plan
Y Efficient and effective service delivery resulting in cost reduction and added value
Evidenced through reduction in total service costs year on year
Climate change adaptation
Vulnerability to sea-level Rise, duties relating to Flood and Water Management Act 2010
Partially Designs developed in accordance with legislation
Scheme specific
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8. PROCUREMENT STRATEGY
8.1 Procurement Route 8.1.1 The anticipated value of the new Highway Term Services Contract is in excess of £40
million per annum which exceeds the current EU thresholds for works contracts and will therefore fall under the requirements of the Public Contracts Regulations 2006.
8.1.2 The EU Procurement Directives set out the legal framework for public procurement. They
apply when public authorities and utilities seek to acquire supplies, services, or works and set out procedures which must be followed before awarding a contract, when its value exceeds set thresholds.
8.1.3 Where the procurement of a works contract exceeds the EU value thresholds, then these
services must be procured using an advertised, competitive procedure that is open, fair and transparent, ensuring equality of opportunity and treatment for all tenderers.
8.1.4 There are four main types of procurement award procedure provided for under the Public
Contracts Regulations 2006; namely the open, restricted, negotiated and competitive dialogue procedures. There are no restrictions in the legislation on the use of the open and restricted procedures however the competitive dialogue and negotiated procedures can only be used in certain specified circumstances.
8.1.5 A detailed review of the procurement routes, considering the benefits and dis-benefits of
their use for the Highway Services re-procurement has been undertaken, (three stars representing most advantageous to the Authority), the output of which is summarised in Table 21.
Table 21 – Procurement Route Review:
Procedure Cost Time Lack of market engagement
Complexity
Open
Restricted
Competitive Dialogue
8.1.6 Based upon the output from the procurement procedure review, and given the extensive
pre-procurement preparation being undertaken in developing the Detailed Business Case, through early engagement with the market, research, service capacity and capability reviews, consultation and client maturity modelling, we are better able to define the service (contract) requirements and thereby target the procurement process.
8.1.7 We are in a position to clearly identify the required outcomes, define the scope and identify
the material aspects of the contract. Therefore, the restricted procurement procedure will be adopted. This will maximise the engagement from the market and optimise procurement resources, whilst allowing some flexibility for discussion and clarification with bidders, ensuring that they have correctly understood the requirement prior to submitting bids, therefore increasing the chance that the Authority receives high quality bids at the end of the process.
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8.2 Bidder Selection 8.2.1 The successful bidder will be selected on the basis of the most economically advantageous
tender in terms of technical, financial and legal evaluation criteria, in accordance with EU Regulation 18 paragraphs (6), (9) and (27) and Regulation 30(1)(a) of the Public Contracts Regulations (2006).
8.2.2 To ensure a fully compliant and transparent procurement process the procurement will be
undertaken via the SE Shared Services e-Sourcing portal (In-Tend), a web-based tool that enables the Authority and potential bidders to conduct the strategic activities of the procurement lifecycle over the internet. It provides a simple, secure, fully auditable and efficient means for managing the qualification and tendering activities reducing both the time and effort required.
8.2.3 The procurement lifecycle will consist of three principal stages:
• Stage 1: Pre-Qualification Questionnaire (PQQ); • Stage 2: Invitation To Tender (ITT) - submission and evaluation, and • Stage 3: Validation and Selection.
These are further detailed in Figure 23.
8.2.4 The procurement process is designed to ensure that the Authority awards the contract to a Contractor that is best placed to meet the requirements as set out in the tender and contract documentation. Figure 23 – Principal Procurement Stages:
8.2.5 The bidder that achieves the highest overall combined validated score, having passed all
elements of the tendering process will be awarded the contract.
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8.3 Tender Stages 8.3.1 Stage 1: Pre-Qualification Questionnaire (PQQ) 8.3.2 It is proposed to use the HMEP form of PQQ, which is based on the Publicly Available
Specification PAS 91 (published by the British Standards Institute), that sets out the nature, content and format of a set of questions on the core criteria essential to prequalification for construction tendering. PAS 91 has been developed to maintain and consolidate current standards and good practice in PQQ activity in a manner to reduce unnecessary proliferation of questions and question formats so as to significantly improve the cost-effectiveness of prequalification for both the Authority and the Contractor.
8.3.3 The PQQ will include a core series of standardised questions, whilst also providing the
opportunity for the Authority to add additional questions relating to its specific local service requirements. The questions will set out the information which is required by the Authority in order to determine the suitability of a potential provider in terms of:
• Financial stability; • Business and Professional Standing; • Commitment to Health and Safety; • Equal Opportunity and Diversity policies and capability; • Environmental Management policies and capability; • Quality Management policies and capability; • Technical knowledge and experience, and • Overall capability and capacity to meet the requirements of the service.
8.3.4 The financial stability of the potential providers will include an assessment using the
Authority’s standard corporate financial appraisal template, which considers the level of risk exposure to the Authority with regard to the financial standing of the provider and the total potential value of the contract.
8.3.5 The tenderers technical knowledge and experience, capability and capacity will be further
assessed against a series of questions specifically tailored to the requirements of the contract. Assessment criteria will include:
• Experience – demonstration of a proven track record of delivering works and
services of a similar nature to those required; • TUPE – demonstration of a sound understanding of the regulations regarding staff
transfer; • Safety, Health and Environment (SHE) - demonstration of a proven track record in
the management of Safety, Health and Environmental matters; • Systems - demonstration of the operation of appropriate systems for the
management of delivering works and services of a similar nature to those required, and
• Supply Chain Management - demonstration of a proven track record in the utilisation of SME’s and supporting the local economy.
8.3.6 The bidders’ responses will be evaluated against a pre-determined scoring matrix, utilising
both pass/fail criteria and weighted scoring mechanisms. In addition, there will be mandatory declarations (relating to certification, collusion, canvassing, good standing and pro-active community involvement) which applicants must agree to and sign, in order to be considered for the next stage of the process.
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8.3.7 Stage 2: Invitation To Tender (ITT) - submission and evaluation
8.3.8 This stage defines the service requirements that tenders must meet and is used to identify the best placed Tenderer to provide a quality and efficient service to the Authority.
8.3.9 Invitations To Tender (ITT) will be sent to up to 6 companies, selected as the highest
scoring respondents from the PQQ assessment, who indicate that they intend to submit a tender.
8.3.10 The tender process will be managed electronically via a secure e-Sourcing portal (In-Tend)
which all Tenderers will be required to register with, in order to access and return the tender documents, as well as submitting any queries to the Authority during the tender period.
8.3.11 Following issue of the tender documentation, Tenderers will be given the opportunity to
meet members of the Authority at a tender presentation meeting which will be held to explain, discuss and answer questions on the tender process. This will specifically help to identify and explain any service related issues, set out the tender process and timetable, clarify risk allocation and the tender return requirements, and also explain the proposed tender marking system.
8.3.12 A suite of predetermined quality related questions and pricing models will be provided in the
ITT, based upon which the Tenderer is required to demonstrate how he will meet the service requirements and objectives, and also provide specific evidence of previous experience of delivering similar services.
8.3.13 Tenderers’ submissions will initially be assessed by the Authority in three key stages as
follows:
(i) compliance check; (ii) marking of Quality Submission - independent Quality Evaluation Panel, and (iii) scoring of Financial Information - independent Financial Assessment Panel.
8.3.14 The quality and financial scores will then be combined, and the tender with the highest total
overall score will be validated as detailed below in Stage 3. In the event of more than one Tenderer having the same total score, these tenders will also be validated.
8.3.15 Stage 3: Validation and Selection 8.3.16 This concluding stage will enable the Authority to satisfy itself that the tender submission
can be validated in terms of both quality and price. 8.3.17 In validating the quality statement, the Quality Evaluation Panel will use any practical
means, and may directly approach any person or organisation named in the Quality Submission. The validation may also include meetings with the Tenderer, reference site visits (to see the offer being delivered), interviews with key staff identified in the tender. The key staff would be required to demonstrate their understanding of the service requirements and show how their skills and experiences have been applied to successful outcomes on previous relevant projects. Records of training, skill achievement and past experience may also be required to be produced.
8.3.18 The findings from the validation of quality will be used to moderate the initial scores
allocated during the quality evaluation process. If lower marks are subsequently awarded then the overall scores will be recalculated, but no higher marks will be able to be awarded.
8.3.19 The Financial Assessment Panel will validate the tender prices to check that the costs
included are representative of the likely costs to be incurred. The Panel will also validate the tenderer’s overhead and fee calculations to demonstrate that the figures stated are
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representative of the likely costs to be incurred. The Panel may also request further evidence from the Tenderer to demonstrate that the allowances made are based on costs actually incurred, and this may include interviewing appropriate accounting staff to provide the level of satisfaction required.
8.3.20 Following completion of validation, if the Tenderer’s score remains the highest, then that
Tenderer becomes the Preferred Bidder.
However, if either:
(i) validating the financial information has led to the rejection of the tender, or (ii) the Tenderer’s score has been changed, and is no longer the highest score,
then, the Tenderer with the highest total combined score will then be validated. This process continues until a Tenderer with a validated score higher than other bidders has been identified. This Tenderer then becomes the Preferred Bidder.
8.3.21 A further sustainability check will also be jointly undertaken by the Quality Evaluation Panel and the Financial Assessment Panel who will review the material submitted with the tender to verify that the proposed resources are likely to deliver the level of service set out in the quality submission. Further clarifications may at this stage be sought from the Preferred Bidder to enable a better understanding of the submission. Failure to provide satisfactory evidence to support any part of this aspect may result in the tender being rejected.
8.3.22 Following completion of validation and prior to award of contract, the Authority will also
require confirmation that the key staff (proposed by the Contractor) is actually available to start the project. Failure to offer a compliant service delivery team may lead to the rejection of the tender.
8.4 Decommissioning Plan for existing services 8.4.1 To manage the successful transfer of information, equipment, material(s) (if appropriate)
and staff from the existing contractor to the Authority or the new contractor, the current contract places an obligation upon the Contractor to provide timely and accurate information to the Authority prior to the commencement of any future procurement. This takes the form of Exit Plans which are currently under development by the Authority’s current contractors and will be subject to review and approval by officers of the Authority to ensure their compliance and timely delivery.
8.4.2 The Exit Plan will include (amongst other things required by or agreed with the Authority)
arrangements regarding:
• Staff and operatives (TUPE); • Resources in use for carrying out the works; • Stores and stock, such as de-icing material (Salt); • Equipment owned or leased for the purpose of works delivery; • Premises; • Works in progress (Due for completion after handover date); • Transfer of responsibility for assets owned by the Authority (Depots, Gritters); • Information Communication Technology systems; • Other communications; • Records and information; • Details of 3rd party supplier/sub-contractors utilised, and • Arrangements for access for the incoming contractor to carry out due diligence
reviews of the works.
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8.4.3 To safeguard handover arrangements and ensure continuity of service whilst minimising risk during the transition from the old to the new, there are commercial mechanisms within the current contracts to incentivise the Contractor to provide and meet his obligations and timelines as set out in the Exit Plan.
8.4.4 In the event that the current provider were to be successful in bidding for the new contract, a decommissioning plan will still be required due to the significant changes in the new service delivery requirements.
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9. OPTIONS APPRAISAL / EVALUATION
9.1 Options Appraisal 9.1.1 This section considers the three options of Executive, Strategic or a Staged (Executive to
Strategic) contract model approach and the benefits and risks associated with each. 9.1.2 To determine the best option to deliver the required outcomes for the Authority the following
key areas have been considered:
• Evidence from recent Soft Market Testing (lessons learnt and market ability); • The requirements to adopt each model; • The main benefits (both financial and other), and • The main risks of adopting each model.
9.1.3 Finally the suitability of each option has been re-assessed against the HM Treasury’s five
case business model of Critical Success Factors originally assessed in the OBC to determine which option presents the best opportunity to the Authority given the considerations above.
9.1.4 Soft Market Testing - The main findings from the recent site visits and market engagement
are set out in Section 4.3. These can be summarised as:
• Text Removed • Text Removed • Text Removed • Text Removed
• Text Removed
• Text Removed
• Text Removed • Text Removed
• Text Removed
• Text Removed
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9.1.5 Executive client led contract – On the basis that ‘do nothing’ is not an option and an
Executive client arrangement is the ‘minimum’ position that the Authority would want to adopt, this option is considered first. The key requirements for this option are:
• The transfer of ‘traditional’ client services such as design and maintenance management, to combine as a larger package of services to be provided by the Contractor to enable leaning of end-to-end business processes and introduction of new technology;
• Re shaping the client organisation to manage the new contract with key functions
such as, commercial, financial, contract administration, audit, performance and including development of functions like asset and relationship management, and
• A new contract form that includes appropriate payment mechanisms for different
services moving operational risk for service delivery to the Contractor. This will be linked to robust performance requirements but with reward for good performance and ‘penalties’ for poor performance. This is coupled with an incentivisation mechanism that, given the right levels of investment, will deliver the improvements in the network condition required for the project.
The main benefits of this option are:
• It provides a reduction in staff salary costs of Text Removed per annum;
• Potentially it presents greater opportunities for the staff transferring in terms of skills and career development within a broader and commercial organisation;
• The Contractor has the opportunity to ‘control’ the end to end processes in an
efficient and effective way without day to day hand off and instruction from the Authority. This enables them to streamline business processes and use the latest technology to support this, to maximise the effectiveness of the service they can provide. This is reflected in the prices they offer;
• The mixture of lump sum and target cost services provides a good balance of
routine work with ‘fixed’ regular income to cover costs and overheads combined with opportunities for innovation in programming, packaging and delivery of target priced works and potential for additional gain share;
• Potential service efficiency and reduction in costs of Text Removed equating to Text
Removed compared to current service costs;
• Further year on year efficiencies averaging Text Removed per annum equating to Text Removed over the period of the contract;
• There is potential to re-invest the efficiencies gained over the contract period to improve the network performance;
• It moves the client organisation to the next level of maturity that would provide the
foundation for a highly skilled contract/commercial management resource that could be utilised across other services over time;
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• It provides the opportunity to obtain sufficient asset condition data to develop management plans and long term funding requirements;
• An opportunity to develop knowledge and understand risks of managing our asset with the Contractor so both parties can manage and develop the services over time, and
• This option is readily achievable within the timeframe of the procurement, is attractive to the market and will enable the Authority to achieve genuine service savings while presenting the least risk to do so.
The key risks of this approach are:
• Not establishing the right client organisation; • Selecting the wrong contractor; • Developing the wrong culture, and • Insufficient investment.
However, all the evidence considered in preparing both the OBC and the DBC suggests that both the Authority and the market can readily undertake this move.
9.1.6 Strategic client led contract – The key requirements to move to a Strategic client led
contract are similar to those set out above for an Executive option. However, there are additional requirements that could provide additional benefits but there are also potentially greater risks associated with adopting this option too early.
The key requirements to move to this option are:
• The transfer of additional services (beyond those services included for and Executive client) to the Contractor including the functions of asset management and technical audit to the Contractor’s organisation to provide;
• A high level of asset data knowledge, particularly condition data, to sufficiently
reduce the areas of ‘unknowns’ so that the risk around maintaining the asset can be appropriately managed. The requirements to acquire this information is included in Appendix 8, and
• A sufficiently developed AMP and investment strategy with a proven strategy and
understanding of how that could be applied to a 15-20 year asset management plan for our key assets.
The main benefits of this option are:
• A further reduction in staff salary costs to the Authority of Text Removed, in addition to the Text Removed identified for the Executive client led model;
• Additional efficiencies in service delivery are achievable by further integration and
leaning of process as asset management would be managed by the Contractor. This would enable the Contractor to fully integrate asset maintenance plans with long term delivery programmes to maximise resources, ‘strengthen’ the supply chain to reduce costs further and use the latest techniques and technology to deliver the Authority’s strategies and outcomes. These efficiencies would be captured through the incentivisation mechanism in the contract further benefiting the client organisation. This is the real ‘prize’ for the Authority, and
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• The Contractor would be responsible for managing the network and all the functions to manage it; therefore the project outcomes could be directly linked to the Contractor's performance and the ‘pain gain’ mechanism in the contract. The Authority would only need to concern itself with setting the strategy and outcomes with targets for the service, and the commercial management of the contract.
However, all the evidence considered in preparing both the OBC and the DBC suggests that both the Authority and the market can readily undertake this move.
Table 22: SWOT analysis – direct move to Strategic Client led contact: Table Removed
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The key risks associated with moving direct to a Strategic client led contract are therefore as follows:
• If a Strategic arrangement option is adopted too early without a sufficiently developed asset plan and knowledge, the Contractor, as a commercial organisation, will consider the associated risk of the weakness in the asset data and cost it into their price offer accordingly. This means there is potential for the cost of the service to be unaffordable and this would ‘wipe out’ any potential investment generated by the incentivisation model .This could result in further deterioration in the condition of the asset over the period of the contract;
• The data and ‘knowledge’ needed to manage and maintain our key assets cannot
be sufficiently completed within the timeframe of the re-procurement and therefore the above risk cannot be mitigated at this stage, and
• There is considerable reputational risk to the Authority (and the Contractor) of
service failure due to realisation of the unknown risks during the contract period.
The risks highlighted above present significant risk to the Authority in adopting this option on day one of the contract.
9.1.7 Staged approach (Executive to Strategic) – This combines the key requirements for both
Executive and Strategic, providing greatest flexibility, starting with the key requirements for and Executive client led contract and during the life of the contract, when the requirements for a Strategic client arrangement are in place, transferring additional functions (and staff) to the Contractor.
The main benefits of this approach are:
• This option provides the opportunity to achieve the benefits of both Executive and Strategic models within the life of the new contract by adopting an Executive client led contract on day one that delivers significant savings and transfers readily manageable services to the Contractor while leaving the Authority to continue to develop its ability, knowledge and skills to manage the new arrangements and asset approach;
• When the ability, knowledge and skills have developed sufficiently, the contract is
performing well and the Authority wants to make the move, further client services can be moved to either be provided by the Contractor. The benefits of a Strategic client organisation as set out above can then be realised and the Authority can the benefit from further efficiencies in service delivery;
• This approach has advantages over the other options as it manages the risk to both
the Authority and the Contractor; it is not ‘static’ and can provide the benefits of both the other approaches
• Market testing shows that this approach is attractive to the market as it offers the
opportunity to develop understanding of the asset jointly as the contract develops, and take on additional services if performance is proven.
Ultimately this option presents a choice to the Authority that it does not have to take up. Even when the service is ready the Authority does not have to make the change if, for whatever reason it does not wish to do so.
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The main risks with this approach are:
• Making the move from Executive to Strategic client arrangement too early providing opportunities for the contractor to ‘claim’ costs in the future against transferred but unknown liabilities
• It is not clear at this stage whether a move to a Strategic arrangement can be
achieved within the contract period and setting out an intention to do this by specifically adopting a ‘Staged’ approach at the tender stage may raise expectations and mislead the market to present widely varying tenders.
9.2 Options Evaluation
9.2.1 In the OBC we used the HM Treasury Five Case Business model to evaluate the six
options initially being considered and the three options considered here were evaluated as presenting the best opportunity to deliver the required outcomes of the project.
9.2.2 Using the same model we have re-evaluated these options taking all of the information
considered during the development of the DBC and summarised above. This evaluation is set out in Table 23.
Table 23 - Procurement Options Assessment Summary:
Key CSF’s
Option C Option D Option E Executive
Client Contract
Strategic Client Contract
Staged Approach
Strategic
Customer Focus 4 5 5
Improve & Develop Highway Infrastructure 4 4 5
Maintain a safe & secure Highway Environment
4 4 5
Make best use of resources 4 5 4
Collaboration 5 4 4
Economic Improve Economic growth 4 4 5
Tackle Climate Change 4 4 4
Management
Asset Management 4 3 5
Contract Management 5 3 5 Performance Management 5 3 5
Commercial
Transfer of Risk 4 2 4
Deliver the Services 4 3 5
Benefits Realisation 4 4 5
Value for Money 4 4 5
Market Participation 5 3 5
Financial Affordability 5 2 5
Funding Commitments 4 4 4
Savings & Efficiencies 4 3 5
TOTAL 77 64 85 PERCENTAGE 86% 71% 94%
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9.2.3 The score for Option C, an Executive client led contract, has reduced from the 91% in the
OBC assessment reflecting a better understanding of the ‘limitations’ of the benefits achievable by adopting an Executive arrangement.
9.2.4 The total score for Option D, Strategic Client led contract has reduced from the 80% in the
OBC assessment reflecting the detailed understanding of requirements to manage such an arrangement with the significant risk to the Authority of adopting this option on day one without a sufficiently developed asset management plan.
9.2.5 The score for Option E, a Staged approach, has also decreased from the 99% in the OBC
assessment again reflecting a better understanding of how this can be achieved but also reflecting the ‘uncertainty’ (at this point in the process) of whether this can be undertaken specifically within the next contract period. .
9.2.6 However, the re-evaluation completed following the extensive work undertaken in this
Detailed Business Case shows that moving to a Strategic organisation at some point does ultimately present the best opportunity to deliver the outcomes required over time. When to do this will only become clearer when the procurement is completed, the new contract started and our asset knowledge has increased. It would be fairer and clearer to the market to state our ultimate aim (ambition) is to become a Strategic led client organisation but it may not be achievable within the contract period. However, an option will be included in the procurement process and the contract documents to enable this to happen if the Authority and the Contractor are confident it can be achieved (the criteria to be a Strategic client are met etc.) and they want to do it within the contract period.
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10. CONCLUSIONS
10.1.1 The completion of the Detailed Business Case has taken the re-procurement project through the commissioning process sufficiently to plan and design the new service arrangements and to move the project onto the next stage of procurement (the ‘Do’ stage).
10.1.2 The detailed understanding obtained during the completion of the DBC and the analysis and modelling required to design the new service models has both confirmed and refined the work completed in the OBC and enabled us to thoroughly measure and define the benefits and risks of all the options proposed. This has been an important exercise to ensure that the Authority is appropriately informed and makes the right choice for the new service and one that presents the best opportunity it can to deliver the outcomes required for the benefit of all its customers.
10.1.3 The key conclusions from the DBC stage are:
• Opportunities - The new contract model provides an opportunity to move the highway maintenance service in East Sussex to a new way of working that reflects the modern market conditions and the development and maturity of our Authority. It will enable the introduction of new technology, new leaner processes and innovative maintenance techniques. As public services continue to be put under pressure to reduce costs we can have confidence that the new contract will deliver reduced costs from day one. There is also the opportunity through investment to reduce genuine operating costs over time as the network condition improves. In addition, the transfer of staff to the Contractor can be seen as a negative thing for those involved but it can also present opportunity to gain new skills and work within a wider organisation. This opportunity should not be under estimated particularly when budgets and opportunities within our own Authority continue to reduce;
• Learning Organisation – By initially moving to an Executive organisation, as a
highway authority East Sussex will be more able to focus on strategy and developing the client organisation’s contract, commercial, performance ability and developing a robust asset management plan. The Authority will be able to set clear outcomes and goals, monitor progress and ultimately benefit from genuine reductions in long term operating costs;
• Risk Transfer and Performance - Transferring service provision to the
responsibility of the provider will mean less direct management of day-to-day activities and more reliance on measuring performance against the set outcomes. Activities to manage safety and condition of the network will be managed by the Contractor not the Authority but the transfer of the risks in managing these services will be reasonable and manageable by the Contractor. Transferring services does not mean lower performance. The performance mechanisms included in the new contract will ensure performance is maintained or improved with financial assessment linked to the level of performance achieved;
• Funding - Key to the future service delivery and the success of the new contract will
be appropriate levels of funding for services and recognition that genuine asset improvement can only come with appropriate levels of investment for all our key assets. Choices for funding can be better determined when the contract has been tendered and prices are known and the condition of our asset is better understood;
• Executive, Strategic or Staged? - The work completed in preparing this DBC
shows that the potential maximum benefits can be achieved by adopting a Strategic client led contract but there are significant risks with this approach if it is adopted too early. It also demonstrates that at this stage we are probably not ready to adopt a
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Strategic client led contract because of the significant risks around the limitations of our knowledge of our assets. We need more time to develop this knowledge and prepare as an organisation for longer term investment planning however, at this stage we cannot determine the exact amount of time required to do this. The staged approach presents the opportunity to move over time from an Executive to a Strategic approach but it also suggests to potential tenderers that there is a firm commitment by the Authority to do so during the period of the new contract however, in reality this may not be possible. This will only become clearer over time but if it is our ambition it makes sense to set out this out to the market at this stage and include an optional mechanism within the contract to do so. It is therefore suggested that rather than adopt a staged approach we should adopt an Executive led contract but include within the contract sufficient flexibility to be able to do so. , and
• Market attraction – Market engagement during the process has clearly
demonstrated that the package of services that will be offered to the market even under an Executive client led contract arrangement will be very attractive in a highly competitive market place.
10.1.4 In considering all of the information, analysis modelling and contract development for the
DBC we have designed a contract model (whether Executive or Strategic client led) that will deliver a better service and enable the Authority to move on and focus on contract, commercial and performance management while determining long term improvement plans for its asset stock.
10.2 The Future - So what will be different about highway maintenance in the future?
• By focusing on improving our asset by delivering services in line with long term investment plans for our key assets we will improve public satisfaction, provide value for money, reduce claims and benefit the local economy. We will do this by:
• Using a new contract with a single contractor to provide a range of services including
some services that are currently provided by council staff (Text Removed staff will transfer to the contractor). By packaging work together in this way it will provide the best value to the authority through economies of scale and streamlining business processes.
• Form a new smaller but specialist client organisation (around 30 people) to manage the
new contract.
• Introduce new systems and technologies to enable better public and Member access to information and services in real-time.
• We will promote the use of local companies in the supply chain to provide services.
• Incentivise the contractor to be efficient but ‘fine’ the contractor if his performance does
not meet our standards using well defined performance criteria.
• Have more payment options available to help define costs, manage budgets and deliver better value for money.
• We will prepare and consider long term investment plans giving funding choices for
highway maintenance while generating efficiency savings to add more potential value to improve the condition of our network.
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11. RECOMMENDATIONS The following are recommended for approval for development in the next stage of the re-procurement project (the ‘Do’ tender stage):
1. Option C of an Executive client led contract is taken forward and developed for tender because it presents the best opportunity and the least risk to the Authority to achieve the outcomes required at this time. However, it is also recommended that we should set out to the market at tender stage our ambition to become a Strategic client organisation when the time is right but this may not be achievable within the new contract period and therefore an option will be included in the contract to enable this to happen if the organisation becomes ready to do so and wants to do so;
2. An Executive client organisation is created to manage the new contract
including appropriate contract, commercial, performance and asset management resources and skills.
3. The services proposed for transfer to the external market are included in the new highway maintenance contract and the Council staff currently providing those services are transferred to the new Contractor under the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations;
4. A contract is developed and prepared for tendering based on an NEC3 form of
Term Service Contract that reflects the Authority’s requirements, and clearly defines the service requirements and Contractor’s responsibilities, and
5. The Authority continues to develop its asset knowledge and long term
investment options for future consideration to optimise the efficiency and incentivisation mechanisms in the contract.
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12. NEXT STEPS
12.1.1 The next steps are to develop the contract documents for tendering. An OJEU notice will be
issued in December 2014 that will flag our intention to engage the market for tender and start the formal procurement process.
12.1.2 At the same time we will continue to develop the performance criteria for inclusion in the
contract, refine the contract mechanisms, determine the service levels required, develop the organisational change plan and develop the asset management plan.
12.1.3 The following is a summary of the key activities and tasks to be completed during the ‘Do’
stage of the commissioning process: • Develop and implement client change programme; • Prepare the tender documents & evaluation (PQQ and ITT); • Procure the services; • Mobilise the new arrangements; • Demobilise the existing arrangements; • Implement staff training and development; • Test the performance management regime, and • Operate the model and deliver the service.
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13. APPENDICES
1. Outline Business Case for East Sussex County Council Highways Contract Re-procurement Project (HCRP);
2. Service Area Assessments Removed; 3. Soft Market Testing Phase Two - Report of the Main Findings Removed; 4. Soft Market Testing Phase Three - Summary of Findings Removed; 5. HCRP Communications and Stakeholder Engagement Strategy; 6. Technology Systems: Review and Requirements for Detailed Business Case Report
and Highways Contract Re-procurement Programme Removed; 7. HCRP Risk Register Removed, and 8. Asset Management - The benefits for East Sussex.
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