Project: Replacement provision for the Highway Term Service Contract (HTSC)

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1 BUSINESS JUSTIFICATION CASE (BJC) Project: Replacement provision for the Highway Term Service Contract (HTSC) Purpose: To support the Councils Highways Service in the management of highways infrastructure, through the design and procurement of a new contract model to replace the existing HTSC that will expire 31 March VERSION HISTORY Version Date Issued Brief Summary of Change Owner s Name Draft V First draft version David McDonald Draft V Second draft version Adrian Norcombe Final Final version Adrian Norcombe

2 CONTENTS 1. Purpose 2. Strategic context 3. Case for change 4. Available options 5. Preferred option 6. Procurement route 7. Funding and affordability 8. Management arrangements 9. Appendices: Appendix A - Lessons learned outcomes. Appendix B Results of procurement route choices Appendix C Environment Overview Committee Appendix D - Procurement timeline Appendix E EqIA screening form Appendix F Project risk register

3 ENVIRONMENT AND THE ECONOMY COMMISSIONING NETWORK - BUSINESS CASE 1. Purpose 1.1 To seek approval for the reprocurement of the Highways Term Service Contract (HTSC) using the Highways Maintenance Efficiency Programme (HMEP) standard contract documentation. Development of this set of standard documentation was commissioned by the Department for Transport (DfT) to encourage the highways sector to deliver efficiency savings through: collaboration and change; procurement, contracting and standardisation; asset management and benchmarking and performance. 2. Strategic Context 2.1 The current HTSC commenced in April 2009 for five years with provision for up to a further five years comprising five x 1 year extensions. The contract has a maximum duration until March 2019 and is in its third annual extension due to end on 31 March The cumulative expenditure throughout the existing contract currently provided by Hanson Contracting, is nearing the upper limit of the 30 to 70M range published in the Official Journal of the European Union (OJEU) for the period of the Contract. 2.3 As at the end of the financial year 2015/2016 this sum amounted to 65,527,468. Dorset County Council (DCC) legal team advised that in order to defend the council s position against possible challenge, it would be prudent to terminate the existing Contract two years prior to the full term of March 2019 and seek a replacement provision. 3. Case for Change 3.1 Prior to any decision being made about how the new Contract would look, a lessons learned exercise was held with council stakeholders to review the existing Contract model together with representatives from the Borough of Poole (BoP) and Bournemouth Borough Council (BBC). 3.2 The outcomes from the lessons learned exercise can be seen in Appendix A. 3.3 Subsequently, BoP and BBC confirmed that they wished to work in collaboration with DCC on this reprocurement project. 3.4 The DfT commissioned the HMEP to produce a toolkit that would allow Local Highway Authorities (LHA s) to identify and inform on the procurement routes open to them. They have also produced comprehensive procurement and contract documentation packages that are available for use by all LHA s to significantly reduce the costs of procuring a contract of this size. 3.5 The use of the toolkit and contract documentation is encouraged by the DfT and enables LHA s to demonstrate they are using best practice when bidding for incentivised funding.

4 3.6 The Procurement Route Choices for Highway Maintenance Services toolkit was used to determine how our current service is aligned with current thinking and which procurement option would be best suited to realise future service ambitions. 3.7 The exercise was conducted with members of staff from DCC, BoP, BBC and the Dorset Local Enterprise Partnership (DLEP). 3.8 The results of the exercise (see Appendix B) recommended that an In-house delivery with top-up arrangement was deemed to be the most appropriate contract model, which would provide opportunities for any necessary updates and improvements in service delivery. This had previously been endorsed by the HMEP when they undertook a peer review of Dorset Highways contract arrangements in Two alternative options (e.g. a Local Authority Trading Company or wholly In-house Provision) were identified as possible, given the procurement constraints. However when considered as part of the case for change review it was agreed neither option was suitable because they did not retain the strengths of the current delivery model. This view had previously been endorsed in a report submitted to the Environment Overview Committee on 9 October 2014 together with supporting legal advice (Appendix C) The detailed responses given to clarify the reason for the decision being recommended can be found in Appendix B however the headline figures are tabulated below. Core influences Fully aligned Partially aligned Not aligned A. Procurement, contracting, standardisation 33.3% 66.7% 0.0% B. Collaboration and Shared Services 50.0% 25.0% 25.0% C. Asset Management 100.0% 0.0% 0.0% D. Benchmarking and Performance 83.3% 16.7% 0.0% Improvement E. Corporate Strategy and Objectives 0.0% 100.0% 0.0% F. Public Perception 100.0% 0.0% 0.0% G. VFM / Affordability / Finance 80.0% 20.0% 0.0% H. Governance 100.0% 0.0% 0.0% I. Scope 0.0% 100.0% 0.0% Overall need for changes summary 60.7% 36.5% 2.8% 3.11 A project timeline has been produced (Appendix D) identifying key milestones for the project in order to meet the procurement deadline of 31 March An EqIA screening form has been submitted to the Environment and Economy Diversity Group (Appendix E). The feedback was to include equality and diversity issues into the tender. The HMEP documentation for the Pre-Qualification Questionnaire has a section devoted to this and assigns a 15% weighting towards the overall quality score.

5 3.13 Prior to the Contract documents being published it is proposed to hold an industry day to gauge whether the Contract model is aligned to the needs of the market and vice-versa. 4. Available Options 4.1 Four options of the In-House plus Top Up model were then evaluated as outlined below: Shortlisted Options NO. OPTION DETAIL EXAMPLE IN-HOUSE plus Single Provider TOP UP all works in scope IN-HOUSE plus Single Provider TOP UP, specific works in scope IN-HOUSE plus Multiple Provider TOP UP, specific works in scope IN-HOUSE plus Tendered Requirements Full capacity provider, to work side by side with Highways service. Specific works excluded e.g. winter service, surface dressing works etc. and delivered by the in-house service (the current model) Multiple term service contracts with specialist contractors to cover specific scope of works e.g. Surfacing, Bridges, Drainage, Earthworks etc. Use of available Frameworks and contracts along with ad-hoc tenders. (do minimum option for comparison) Carillion, SW Highways Hanson with supply chain Raymond Brown, Mildren Construction, Tarmac, G Crook & Son HCC Gen 3 Framework, SCAPE Framework, In- House support contracts The evaluation process included a Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis which was scored against five evaluation criteria, each with equal weighting. The results of this exercise can be seen below. SWOT Analysis OPTION 1 - IN-HOUSE plus Single Provider TOP UP all works in scope Strengths Resilience for all services backup to ensure need met. Engage Private Sector skills in all areas. Weaknesses Limited market. Variable performance in some areas no supplier good at all things. Difficult to terminate single provider.

6 Easy to administer. Consistent Brand. No on-going tender costs. Opportunities Benchmarking with in-house. Sharing Best Practice. Long term relationship opportunity. Additional specs delay reprocurement. Lack of clarity regarding responsibility. Threats Single provider failure. Lack of market interest. Locked in with single provider. Cosy relationship. Loss on in-house skills and staff through under-utilisation. OPTION 2 - IN-HOUSE plus Single Provider TOP UP, specific works in scope Strengths Resilience for works included. Early Contractor involvement. Engage private sector skills in specialist areas. Expanded market over Option 1 more tenderers. Improved rates for specialist areas. Easy to administer. Consistent brand for works included. No on-going tender cost for works included. Simplified specification for tender. Opportunities Benchmarking with in-house. Sharing best practice. Long term relationship. Easy support for funding bids (LEP) Opportunity to share programme and get cross project opportunities. Weaknesses Difficult to terminate. Potential lack of clarity where scope not defined clearly. Lack of clarity regarding responsibility. Threats Single provider failure.

7 OPTION 3 - IN-HOUSE plus Multiple Provider TOP UP, specific works in scope Strengths Increase supply chain in specialist areas. Better tendered rates in specialist areas. Expanded market over Option 1 and 2. Opportunities Benchmarking with in-house. Sharing best practice. Long term relationship. Some opportunity to share programme. Weaknesses Co-ordination of works on site. Increased contract admin. Threats Increased risk of claims for programme delays. Communication issues. Clarity around responsibility. OPTIONS 4 IN HOUSE plus Tendered Requirements Strengths Most competitive rates. No initial procurement costs (i.e. use of framework providers). Opportunities Utilise new frameworks/contracts and providers that may arise. Weaknesses Significant contract administration. No long term relationship. No early contractor involvement. Increased risk of claims (culture). Timescales increase on programme. No continuity of workload. Threats Lack of interest from frameworks. Lack of in-house contract management skills outside of partnership.

8 SCORED Evaluation Evaluation Criteria: No. Criteria 1 Promote the local economy Description Ability to use local companies or promote use of local supply chain through contract management. 2 Deliver value for money Deliver VFM through competitive tendering, efficiencies, improvements and added value. 3 Deliver flexibility and early contractor involvement Resilience to change in needs, ability to programme works and gain efficiencies. 4 Provide a Unique Brand Ensure high quality of delivery maintained across the business need. 5 Enhance the authority s capability and capacity Promote skills, information and technology sharing with commercial market. Provide sufficient capacity when required. All five criteria received an equal weighting in the evaluation. Scoring Mechanism: Score Will Criteria be met? 0 Not at all 1 Partially only 2 In some respects 3 In most respects 4 In all but minor respects 5 In all respects Results Summary: Delivery Option Single Top- Up All Works Single Top- Up Specific Works Multiple Top- Up Specific Works Tendered Requirements Local Economy Value for money Flexibility and ECI Unique Brand Capability and Capacity Total (max 25)

9 Results Detail: OPTION 1 - IN-HOUSE plus Single Provider TOP UP all works in scope CRITERIA SCORE HOW MODEL MEETS CRITERIA? Local Economy Value for money Flexibility and ECI 2 3 Unique Brand 5 Enhance Capability and Capacity Restricted market due to wide scope of works. Contract would provide for use of local supply chain. Tendered rates retained for period of contract, provides resilience against any negative market changes. Ability of contract to manage supply chain tendering 5 In-House capacity retained. ECI guaranteed 4 In-House lead and managing unique Brand. Supported by Single provider Access to wide scope of skills. Limited innovation in comparison to other options. Enhanced capacity OPTION 2 - IN-HOUSE plus Single Provider TOP UP, specific works in scope CRITERIA SCORE HOW MODEL MEETS CRITERIA? Local Economy Value for money Flexibility and ECI 3 Contract would provide for use of local supply chain. 3 Unique Brand 5 Enhance Capability and Capacity Tendered rates retained for period of contract, provides resilience against any negative market changes. Ability of contract to manage supply chain tendering 5 In-House capacity retained. ECI guaranteed 4 In-House lead and managing unique Brand. Supported by Single provider Access to wide scope of skills. Limited innovation in comparison to other options. Enhanced capacity

10 OPTION 3 - IN-HOUSE plus Multiple Provider TOP UP, specific works in scope CRITERIA SCORE HOW MODEL MEETS CRITERIA? Local Economy Value for money Flexibility and ECI Unique Brand 3 Enhance Capability and Capacity Scope is likely to be open to local specialist supply chain. Works likely to be delivered by provider rather than wider supply chain sub-contracting Lacks economies of scale. Additional project management to deliver schemes. Low mobilisation costs as likely to be local suppliers. In-House capacity retained. ECI guaranteed. Flexibility limited by need to co-ordinate schemes where multiple providers used. In-House lead and managing unique Brand. Limited by multiple providers, but mitigated by co-ordination. 3 Access to innovation in specific skill set OPTION 4 IN HOUSE plus Tendered Requirements (do minimum option for comparison) CRITERIA SCORE HOW MODEL MEETS CRITERIA? Local Economy Value for money Flexibility and ECI 2 2 Unique Brand 1 Enhance Capability and Capacity Costs/impact of tendering will lead to packaging of works or use of national frameworks with less control of supply chain Potential for attractive rates through competitive tender. More at risk for any negative market position. High tender, contract management and back office costs. 1 In-House capacity retained. Reduced opportunity for ECI 2 Very difficult to maintain unique Brand without long term relationship and multiple delivery providers Access to wide market could provide access to most innovation. Offset by market reluctance to share without long term contract

11 5. Preferred Option 5.1 The preferred option is Option 2 In-House delivery with Single contractor Top Up covering a specific scope works. While Option 1 also scored highly the advantage shown by Option 2 was in the increased opportunity to engage with the local market. A key factor in this is that the scope of works required for Option 1 would restrict the potential market to large multi-disciplined national organisations. 6. Procurement Route 6.1 The preferred option identified by this Business Case is a contract model with a single provider for a term service contract period between five and ten years. A call off from an existing contract or Framework Agreement will therefore not be suitable. An OJEU compliant Public Tender will need to be undertaken by the Council. Of the five procedures permitted under Public Contract Regulations the most appropriate route for this requirement will be the Restricted Procedure (two stage procurement). 6.2 Restricted Procedure Justification The contract requirements, service and works, are well known to the authority and can be clearly defined, in particular through use of the HMEP standard form documents. The new contract will be similar to the previous arrangement so there is not a significant change or need for new methods of delivery. The conclusion is that procurement procedures involving negotiation, dialogue or innovation are not a key requirement in this tender process It is anticipated that there will be a number of interested providers for this contract opportunity. The tender process will require a significant investment on behalf of tenderers to complete all the required documentation and provide evidence. These factors exclude the Open Procedure and highlight that the Restricted Procedure is appropriate, as it includes the ability to shortlist interested providers before the invitation to tender period. 6.3 Consultation with authorities that have recently undertaken procurements for similar requirements and consultation with the potential market will be key activities to decide the tender process. These consultations will be specifically used to finalise the factors detailed below in part Timetable The following table indicates the timescales for the formal activities of the tender process, in particular those required by Public Contract Regulations: Activity No. of days Concurrent No. of days Publish informal PIN inviting providers to market consultation Market Consultation and collation of responses

12 Publish Contract Notice. Invite EOI and PQQ responses Evaluate PQQ responses. Financial checks and obtain references. Invitation to Tender Evaluate ITT and Award Decision Standstill Period. Provide feedback Formal Award Decision. Pre-Contract Award meeting Factors to be decided during the procurement development period: Collaboration with Poole and Bournemouth Councils. Collaboration between the three Highways authorities in Dorset has been set as a key aim for the new contract model. Officers from both Poole and Bournemouth Councils have been involved in the development of the business case for the new contract. Before publication of tender there will need to be agreement between the three authorities on the process and commitment to the result. As there is no formal status between the authorities, there will either be one contract (with DCC), and services delivered on a sub-contract SLA basis by DCC, or a separate contract with each authority. The later example will in effect be a collaborative tender process only. Options within this are to tender as three separate contract requirement (lots) to meet each authorities specific requirements, or all three authorities commit to accept a single award decision in order to benefit from economies of scale Tender Evaluation. Tender Evaluation Models are review and approved by the Councils Head of Procurement. The tender and evaluation process is completed electronically using the Councils e-procurement portal, Pro-Contract. The selection factors, to shortlist providers to be invited to tender, will need to be developed and approved. Use of template PQQ procedures established by HMEP and Crown Commercial Services, will support the need to meet Public Contract Regulations. There will also need to be discussion with the Councils Procurement and Finance support services, to establish criteria to exclude participation of noncompliant providers and shortlist providers for invitation to tender. The evaluation weighting allocated between price and quality aspects to make the contract award decision will be decided following consideration of, previous tender processes and examples from other authorities. The tender evaluation scoring method will, as a priority, need to demonstrate transparency and equal treatment, in order to reduce the risk of challenge to the whole tender process. Evaluation scoring will be objective, based upon defined criteria and, where possible, model answers. In view of the long contract term, the tender evaluation will require

13 responses to be directly applicable to the performance management of the contract following award. Evaluators will be selected only from officers representing the Councils collaborating in the process. They will be required to complete a disclosure of interest form before evaluation begins. 7. Funding and Affordability 7.1 The funding for the Contract is 100% capital from the DfT maintenance block allocation to support structural maintenance and works to structures. Funding from the Integrated Transport Block provides funds for identified Highway Improvements. Further funding is available in the form of the Pothole Fund and Cabinet approved corporate top up. Subject to approval, this contract will also be available to deliver capital schemes commissioned from the DLEP. 8. Management Arrangements 8.1 The Contract will be governed by a Strategic Board meeting quarterly, whose role will be to review the performance of the Contractor by means of a series of Key Performance Indicators (KPI s) relating to safety, quality, environmental impact, timeliness and financial performance. These KPI s will be submitted monthly and reviewed annually to ensure continuing improved performance. 8.2 The KPI performance data will provide evidence to base any decision to award possible Contract extensions. 8.3 The Strategic Board will be supported by an Operations Board who will meet monthly to review the Contractors performance, consider and provide recommendations to the Strategic Board on matters such as budget and programme issues, resources and expenditure, training requirements and items of innovation. 8.4 A risk register has been established for the procurement project (see Appendix F) and a risk register would be created for the Contract and reviewed at the Strategic Board.