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ITEM EX9

EXECUTIVE – 6 JULY 2004

FUTURE OF THE COMBINED MAINTENANCE CONTRACT AND ARRANGEMENTS FOR PROCURING HIGHWAY CAPITAL WORKS

Report by Head of Transport

Introduction

  1. This report seeks approval for the principles on which the Combined Maintenance Contract is to be either extended by renegotiation or re-tendered. It will set out a contract strategy as a framework for compiling the Contract.

  2. To allow time for the appropriate negotiations and procurement procedures to be followed, approval for a one year extension to the Combined Maintenance Contract has been given as provided for in the contract.

  3. The Combined Maintenance Contract also includes highway capital schemes up to £300K in value. Above this value schemes are usually individually tendered and alternative methods of procurement, such as framework contracts, need to be investigated.

    4. The Present Position

  4. Highway maintenance and small capital highway works were externalised in 2000 as part of a Combined Maintenance Contract. The contract also included vehicle maintenance and grounds maintenance for schools and other Council establishments. Commencing in April 2000, it was let to Isis Accord Ltd for a five year period ending in March 2005, with the presumption that annual extensions would be given provided contractor performance was satisfactory.

  5. The value of the contract was projected at £56M over the 5 years and involved the transfer of 170 employees. However, good capital finance settlements through the Local Transport Plan process and an increased Government emphasis on Highway Maintenance will increase the value to around £90M over the initial five year contract term.

  6. The grounds maintenance element of the contract has a total value of around £1M per annum. Vehicle maintenance looks after vehicles for Social & Health Care and the Library Service and has a value of £300K per annum. There is considerable synergy between the three elements of the Combined Maintenance Contract bringing operational and financial benefits to grounds or vehicle maintenance activities compared to the likely costs if these were separately contracted.

  7. Highway capital schemes with an estimated value greater than £300K are usually individually tendered with some exceptions of higher cost schemes being carried out by Isis Accord where early involvement has brought financial benefits. When specialist contractor expertise is required, schemes less than £300K have been tendered.

    8. The Principles behind the Contract Strategy for the Future

  8. The Best Value Review of Construction Services carried out in 2002 recommended that contractual arrangements must enable and encourage actions in line with the principles of ‘Rethinking Construction’. Government procurement policy and advice also promotes contracts based on ‘Rethinking Construction’ principles. Within the County Council, Resources are basing the renewal of the property term contracts on these principles.

  9. Rethinking Construction identified five key ‘drivers of change’ needed for successful contracts:

    • committed leadership

    • a focus on the customer

    • integrated processes and teams

    • a quality driven agenda and

    • commitment to people

  1. Focus on the customer within the context of the Combined Maintenance Contract means delivering appropriate quality work to cost and time, while still retaining flexibility enough to offer a responsive service. Integrating processes would remove some duplication or unnecessary work, possibly linking the client and contractor in an arrangement that presents a single identity to the public. This could remove some of the public confusion as to which organisation is delivering Highway Maintenance, achieve a faster service response and some efficiency gain through changes to work programming.

  2. One of the County Council’s key objectives is protecting our environment. Greater use of sustainable solutions, such as recycling, in highway maintenance and new capital works will help meet this objective, as will closer integration.

  3. The Customer Services Review in Environment & Economy is likely to recommend that moves are made to simplify public contact and improve response times to a request for a service. Integrated contractor and client teams could help such recommendations to be realised.

  4. The October 2003 Scrutiny Review on Highways and Drainage made a number of recommendations that will need to be addressed in any future contract arrangements. Changes in the contract should address several of the recommendations, but in particular Recommendation 6:

    5. "Find a way to improve the monitoring of repair work, perhaps by stipulating certain changes or standards as a necessary condition for extending the contractor’s contract, or by drawing up an agreement between client and contractor to specify how monitoring of works will be improved"

    This should be achieved through the introduction of a meaningful performance measurement regime to monitor the delivery of work on the ground and setting targets for improvement.

  5. Commitment to people means looking to our partners to apply the same values to their staff as the council does to its own staff. In this case, it means the Council taking note of the fact that the bulk of the contractors workforce is still made up of ex-County Council employees externalised as part of this contract and being aware of the effect of its decisions on those ex-employees.

  6. One of the outstanding actions left in the Construction Services review is to consider how individual contracts over the Combined Maintenance Contract threshold are let.

    7. Way Forward

  7. New arrangements are sought which provide better incentives for improvements in efficiency and economy, incorporate the above principles, and address issues that have been "sore thumbs" in the current contract. This could be done either by renegotiation of the existing contract with Isis Accord or by retendering the contract. The preferred way forward is to renegotiate with Isis Accord for the reasons below, but if this fails to deliver the means to achieving our objectives then to retender the contract. There is not enough time between now and the earliest end of the current contract for a retender process should this prove necessary so a one year extension of the contract to 31 March 2006 has been agreed, as provided for in the contract.

  8. Taken in the round, the overall performance of Isis Accord since the start of the contract gives no grounds for ending the contract without attempting a renegotiation. The original contract award included a quality assessment on which the company scored well and overall the company has delivered what was promised. The comparative information we have from the National Highway Works Benchmarking Club (to which we belong), our own satisfaction monitoring, and connections with other authorities that give an insight into contracts elsewhere, indicate that Isis Accord’s performance is at least as good as any likely competitor.

  9. It is generally accepted by procurement professionals that renegotiation is less disruptive than re-tendering. Re-tendering would be disruptive to both the county and contractor at a time when delivering the capital programme is a high priority for both the council and government.

  10. The provisions of TUPE would mean that the Isis Accord workforce and management would be transferred to another contractor if they won a contract re-tender. At a time of construction skills shortage a change of contractor would in effect only achieve a change in company style and unsettle the workforce.

  11. There are areas of the contract that are not perceived to be working well, often related to the costs of individual items. These concerns need to be addressed by a more open and fair system of reimbursement, such as actual costs, which demonstrate the reasonableness of the costs and remove misconceptions.

  12. Another concern is the ability of the contractor to programme and deliver work on time. Programming work is dependent not only on the performance of the contractor but also on the consultant and the County Council as client. Better project management and the introduction of a master programme for all individually named schemes that is agreed by all parties has started to improve certainty of delivery on time of these works. Delays on smaller, often isolated pieces of work are also a source of irritation, particularly where they have been promised to and/or paid for by others and delay reflects badly on us. More integrated teams with more influence for the client to direct work gangs should help avoid this sort of problem.

  13. Performance monitoring has been introduced into the Engineering Services Contract with Babtie as a contractual obligation and this should be extended into the Combined Maintenance Contract. Future extensions to the contract should be contractually linked to performance.

  14. Isis Accord is part of the Accord group of companies running similar contracts in other counties. As a company they have a good record of using innovative methods of working as promoted in Rethinking Construction. They recently won the Staffordshire County Council Highway Maintenance contract, a contract containing similar aspirations to our contract strategy. Isis Accord have made a presentation to the client staff showing that they are prepared to make changes in line with our contract strategy.

  15. There is no apparent reason why renegotiation should fail, but as an incentive and a fallback, the way forward also allows time for re-tendering the contract. A re-tender would adopt the same contract strategy as set out for renegotiation.

    16. Contract Strategy for Renegotiation or Re-tendering

  16. The detailed Contract Strategy for the renegotiation or, if that fails, the re-tendering of the Highway Maintenance Contract is set out in Annex A (download as .doc file). A summary of the main requirements of the contract strategy is given below:

    • Provide a distinct public identity for all aspects of delivery of the Highway Service (design, construction, maintenance) by integrating as far as is practicable the operations of the client, consultant and contractor. The practicalities of co-location should be investigated.

    • Incorporate improved mechanisms for control of cost, time and quality, preferably based on the mechanisms of the Engineering and Construction Contract (NEC contract) Term Maintenance Contract.

    • Specify the requirements for performance measurement and management, and for the provision of systems to support it. Introduce challenging targets to drive and encourage continuous improvement.

    • Adopt ‘open book’ principles to ensure fair and reasonable reimbursement of the Contractor and demonstrate to the client the same. The same principles should be extended into the contractor’s supply chain.

    • Move from the informal partnering in the existing contract to a formal partnering arrangement based on options within the NEC contract.

    • Considering the synergies between the three elements of the Combined Maintenance Contract, the new contract should investigate continuing to include Vehicle and Grounds Maintenance. This will need confirmation from the clients managing these aspects of the existing contract.

    • Facilitate the introduction of environmental improvements such as increased use of recycled materials and the use of alternative fuels in vehicles.

    • Allow flexibility within the contract to allow for future developments.

  1. The contract strategy for delivering highway maintenance and small capital highway improvement schemes needs also to consider how the larger capital schemes are to be procured. The use of either one or several parallel framework contracts would reduce the costs of tendering individual schemes and facilitate early contractor involvement. Setting the financial limits to give an overlap between the framework contracts and the highways maintenance contract will enable benchmarking and some useful competiveness. A framework contract allows a firm or firms to be appointed to construct a number of projects over a period of time giving efficiency savings through early contractor involvement and greater supply chain certainty.

    2. Programme

  2. The proposed programme for the renegotiation/re-tendering is included in Annex B (download as .pdf file). This programme shows that agreement on the renegotiation of the contract with Isis Accord needs to be reached before the end of October 2004 to allow sufficient time for re-tendering to take place.

  3. If renegotiation with Isis Accord is successful, changes will be made to the contract so that all the principles outlined in the strategy are in place by April 2006. Up to three further year extensions will be granted dependent on performance. The contract will then need to be re-tendered to start in April 2010.

  4. If renegotiation does not prove possible, the contract will need to be re-tendered to start in April 2006. The detailed programme is given in Annex B (download as .pdf file).

    5. Financial and Staff Implications

  5. At externalisation 170 employees transferred to the successful contractor. If the contract is re-tendered TUPE will likely apply and a significant number will need to transfer to the successful organisation.

  6. There will be some staff implications in preparing or renegotiation of the contract. The existing staff do not have all the expertise required for this work and consultants will need to be engaged at a predicted cost of £25K to provide specialist advice on the contract form and terms.

    7. RECOMMENDATIONS

  7. The Executive is RECOMMENDED to:

          1. approve the Contract Strategy set out in paragraphs 25 and 26 of the report and in more detail in Annex A (download as .doc file);

          2. endorse the extension of the existing contract by negotiation as described in the report, as a preferred option for the future Combined Maintenance Contract;

          3. to note the extension of the Isis Accord Contract for one year up to March 2006 to enable time for renegotiation of the contract and if this should fail re-tendering of the contract; and

          4. approve the development of a framework contract or contracts to cover works greater than £200K.

DAVID MCKIBBIN
Head of Transport

Background Papers:
Buro Happold Report to support the Best Value Review; Scrutiny Review of Highways and Drainage. October 2003

Contact Officer: Peter Brown Tel: 01865 815641

June 2004

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