Highways Agency

A Review of the Management and maintenance arrangements for motorways and trunk roads in England

Foreword

Peter Nutt England's trunk roads and motorways are an important national asset. Efficient and effective management and maintenance of these strategic highways is critical in terms of providing a service for the road user, supporting the national economy and in delivering value for money for the taxpayer.

The Highways Agency is committed to improving its road procurement and contracting policies and is continually improving the quality of service to the road user. It has also been the catalyst for significant change in the highway maintenance industry, with the introduction of competition in the procurement of management and services. The proposals contained within this consultation document aim to take this process further by building on the strengths of the current procurement strategy and making full use of the emerging highway management culture within the industry.

However, this process of evolution will neither be slow, nor be limited in its vision. We seek a strategy to foster an environment of trust and accountability in which service providers are motivated to innovate, to deliver excellence in their service to the road user, and to receive fair reward. I believe that industry is both able and eager to take up the challenge to partner with us and help us forge this new environment. I look forward to receiving your views and ideas in response to this consultation document and to working with you in the development of the new procurement strategy and the contracts themselves.

Peter Nutt
Chief Executive

December 1999

Network Map

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Purpose of this document

The Highways Agency is undertaking a review of the way it procures services for the management and maintenance of the trunk road and motorway network in England.

The document describes the key issues involved in developing better methods and presents a number of strategic options for change.

We now need your views on whether these options are right, if there are other options that we have missed, and how best we can implement and operate whichever options we finally adopt.

Introduction

Why do we want to change?

Workmen

We seek to be an excellent Government procurement client, achieving best value through understandable, practical and accountable contracts and procurement processes. We already work in partnership with industry in managing and maintaining the road network. To achieve best value we must further strengthen this partnership.

We plan to roll out an improved procurement strategy over the next four to five years as existing contracts are relet. Your views and actions can help us to best deliver this process of planned continuous improvement. The first four new style contracts are due to be tendered next year as are due to be tendered next year as shown on the indicative programme at the back of this document.

The consultation process

The Highways Agency has already held consultations through workshops and other discussions with industry. These have provided outlines for the future contracts but we are now looking to refine key details before the contracts are further developed.

Comments are welcomed on the proposals in this document. We specifically ask you to respond to the questions on pages 18 to 31, but would also welcome any other suggestions you may have. We do not expect answers to all questions and your replies will reflect your priorities.

Your replies will be summarised and published without attribution, ie removing references that may identify the response with any particular organisation.

Those responding will be invited to follow up their responses in a series of workshops to start in February 2000 where we can evaluate the responses and influence the drafting of the new contracts.

Please send your replies and comments to Tony Amies at the address below by 21 January 2000.

Tony Amies,
Road Procurement Policy Team,
Highways Agency,
Room 4/22,
St Christopher House,
Southwark Street,
London
SE1 OTE

Tel: 0207 921 4113
Fax: 0207 921 2259

Email: tony.amies@highways.gsi.gov.uk

The current solution

Background

The Highways Agency maintains, operates and improves the network of some 10,500 km of trunk roads and motorways and 16,000 structures in England on behalf of the Secretary of State. This network has an estimated replacement value of around £65 billion.

The Highways Agency works closely with local authorities, rail, coach, bus, water and air operators to integrate this network with the rest of England's roads and other forms of transport.

Since its inception in 1994, the Agency has overseen the rationalisation of the 91 Local Authority Maintenance Areas that were in place to the current 24 Areas. This rationalisation is likely to continue further as the 30% of the trunk road network identified for de-trunking is transferred to Local Authorities.

In each of the 24 maintenance areas the Highways Agency currently procures the management and maintenance service delivery through contracts with a Managing Agent (MA) and a Term Maintenance Contractor (TMC).

Expenditure on road maintenance

In the 1998 "Roads Review" The Government made road maintenance the number one priority for the Highways Agency. This was supported by an increase in funding for road maintenance from £530 million in 1997/98 to £765 million in 99/00. These increased funds and the greater certainty provided by a 3-year budget allocation (the "Comprehensive Spending Review") means that the Agency is now in a better position to operate a long-term programme.

The right maintenance at the right time (ie whole life cost decisions) will be cheaper and deliver the best possible service to road users.

Current contracts

Currently the Highways Agency procures maintenance and management services via Managing Agent contracts, Term Maintenance Contractor contracts, specific one - off ("discrete") contracts, and in some Areas, framework contracts. In addition communications systems maintenance is procured through regionally based contracts.

This document focuses upon the Managing Agent and Term Maintenance Contractor contracts and how these might be developed in the future.

Within an Area, the Managing Agent is responsible for carrying out all design work, asset inspections, network maintenance management, and supervision of the Term Maintenance Contractor. This also goes for all extra maintenance projects that might arise except for road improvement schemes of greater value than £1 million.

The Term Maintenance Contractor carries out all routine, cyclical and winter maintenance; and small capital maintenance and improvement works up to a limit of £100,000. The Term Maintenance Contractor also provides an emergency cover service.

Road works The Regional Communication Maintenance Contractor maintains all motorway and trunk road communications equipment across several Agency Area networks.

The Managing Agent contracts are currently awarded for a 3-year initial period with two optional 12-month extensions. The Term Maintenance Contractor contracts are for 3 years with one optional 12-month extension.

The intention is that the first 4 Managing Agent and Term Maintenance Contractor contracts will be retendered in 2000.

Discrete major maintenance schemes (as distinct from routine, cyclical and winter maintenance) are currently procured by a range of methods, principally using Design and Build, "ICE5" or "ECC" contract forms.

Having a value limit for the works undertaken by the Term Maintenance Contractor ensures that a significant number of contracts are put out to competitive tender throughout the life of the term contract.

A balance needs to be maintained between

sustaining a steady workload for the Term Maintenance Contractor
supplying work for longer-term Framework contracts to be placed
maintaining the flow of one-off contracts to a competitive regional/ local market.

The Inter-relationhip of the issues Building Our Goal

Building Our Goals

The diagram above demostrates Inter-relationship of physical and contractual issues or drivers for change that contibute to the delivery of the Highways Agency's overall goal of Best Value

Options for the future

The first Managing Agent and Term Maintenance Contracts for a Highways Agency maintenance Area were let in 1996. Since then contracts in all 24 Areas have been let. The contracts are successful, but improvements can still be made.

Four procurement options have been identified from the initial consultations and our experience of operating the current contracts. These options broadly map out how the Highways Agency sees the contracts being developed over the next few years. Each option will be evaluated in terms of how it achieves best value. The practice of letting Pilot contracts will be employed.

A major principle in this evolutionary process is combining the roles of the Managing Agent and Term Maintenance Contractor into a single company service provider, called a Managing Agent Contractor (MAC). Achieving this integration presents a number of problems and it may be necessary to reach the goal in stages.

No one option is envisaged as providing the perfect solution for all Areas. Geographic, work type etc issues dictate that a basket of procurement options will be required.

Of course, these may not be the only options. Other ideas, emerging from this consultation will be considered and may well be adopted.

Option 1 - Improved Managing Agent and Term Maintenance Contractor contracts with Partnering Board

This option will feature improvements to the Managing Agent and Term Maintenance Contracts, combined with the introduction of a Partnering Board.

Key elements of this option include:

The Partnering Board will consist of senior members of the Managing Agent, Term Maintenance Contractor and the Highways Agency. The Board will benchmark performance targets, review investment decisions and encourage innovation. It will also have a role in dispute resolution. Note : (In a number of Areas informal "Partnering Board" arrangements already exist).
The contracts will use a partial performance specification for routine maintenance. This facilitates more innovation in service delivery. Greater use of target cost type arrangements will ensure that there is greater price certainty at the same time as offering incentives to the contractors to improve their performance.
Increased contract duration, say 5-7 years, and an increased threshold for work done under the Term Maintenance Contract. The precise duration and threshold values will be determined through this consultation exercise, taking into account the type of work, the need to provide a consistent workload, and the effect on the regional or local industry marketplace.

Option 2 - Network Contractor and Network Adviser contracts with Network Board

Network contractors This option is being developed in parallel to option 1. The key differences over option 1 are that:

The Contractor role is much greater, with significant additional responsibilities eg quality assurance. The Network Contractor will be required to deliver all works and to do so without the supervision currently provided by the Managing Agent. The roles of the parties will be changed to reflect that the Network Contractor will take more responsibility for highway management, thus allowing the Network Adviser to focus on the strategic planning of maintenance needs, design and whole life costing of maintenance plans.
A Network Board would replace the Partnering Board discussed in option 1. The Network Board, formed by representatives from the Highways Agency, Network Adviser and Network Contractor will have executive authority to set performance standards, monitor continuous improvement and ensure delivery of the service in addition to steering the contract partnering.
More robust and planned audit functions need to be in place as there will be a greater need to audit the quality systems to ensure that the work is being delivered to the performance requirements. These audit systems may facilitate the use of more extensive performance specifications, above those used in option 1.

Option 3 - Managing Agent Contractor contracts

road works This option involves the combination of the Managing Agent and Term Maintenance Contractor roles into a single operating company. The Managing Agent Contractor (MAC) will be required to produce a rigorous quality plan setting out in detail how it will ensure that works are delivered to the Highways Agency's requirements and that appropriate service is provided for the customer. The Highways Agency will use audit processes to demonstrate service delivery, value for money, propriety and accountability.

Key features include:

The requirement to partner with the Highways Agency, and set up a Network Board, as described in Option 2 above, to provide a strategic steer, set performance targets etc.
The use of a comprehensive performance specification for routine and capital maintenance (in the short-term this may be a partial performance specification with adjustments made to accommodate the situation).
A complete focus on service delivery for the customer and optimise efficiency of the administration and management of the contracts

Option 4 - Privately Financed Managing Agent Contractor contracts

The introduction of private finance for major capital works projects has been successful. It is therefore important to see if the same benefits can be achieved in the more predictable and steady expenditure environment existing for maintenance. The Privately Financed Managing Agent Contractor (PFMAC) is seen as a further extension of the Option 3 that is worth Pilot testing.

Key features include:

Greater risk transfer
A longer term contract - say 15 to 30 years - although this will have an impact upon the Highways Agency's control of the network.
Shadow tolls or similar payment mechanisms as developed for the DBFO, for example, payment on availability, would be envisaged.

Evolution of Maintenance Area Contracts Diagram

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Consulting questions

cyclist Whichever option(s) the Highways Agency chooses to adopt, there are a number of detailed questions about the implementation, scope and operation of new contracts that need to be answered.

Tender Process

Quality Promises at tender stage

It is difficult to ensure that statements made in tender quality submissions ("quality promises") become contractual obligations.

Should "quality promises" become contractual obligations, and particularly with regard to staffing promises how can the service provider be encouraged to meet or better the staffing quality promised at tender stage?
What should be the balance between quality and price in the selection of the service provider? How should this be evaluated?

Credit for good performance when re-tendering

There are difficulties in applying a verifiable system of performance ranking that gives credit when re-tendering to existing service providers for giving above average performance.

Is it appropriate to take into account good or bad performance by existing providers when assessing tenders for future work in any Area? If so, how might this be done in such a way that new players are not disadvantaged?

Cost of tendering

In order to evaluate tenders fairly, and to provide opportunities for quality to be demonstrated, a large amount of information is offered and sought from tenderers. The cost of this exercise, for all parties, has to be balanced by the improvement in pricing and service which it produces.

What steps can be taken in the tender process to keep the cost of tendering to a minimum whilst at the same time giving scope to service providers to demonstrate their capabilities? How will these steps vary with respect of each of the procurement options proposed?
What information most influences the cost or efficiency of the tender process?
How does the form of specification affect the cost and duration of the tender process?

Managing Agent and Term Maintenance Contractor combined bidding

Because partnering will be key to the new contracts one option would be to require the prospective Managing Agent and Term Maintenance Contractor (or Network Adviser and Network Contractor) to partner in advance of making their tender submissions. Under this option the bids would be submitted simultaneously and assessed together, although two separate contracts would be placed.

What advantages and disadvantages might flow from this approach? How might it be bettered?

Scope of work and services

Function split

The division of functions between the Managing Agent, the Term Maintenance Contractor and Highways Agency is not always clear. One of the perceived benefits of the Managing Agent Contractor approach is that it will remove this problem.

What are the significant areas of duplication? How might the Managing Agent and Term Maintenance Contractor contracts be changed to avoid such duplication?
Which roles currently undertaken by the Managing Agent would not be suitable to be carried out by a Managing Agent Contractor, and why? Who should perform these roles?
Are there functions currently carried out by the Highways Agency, or procured from others, which could sensibly be carried out by the Managing Agent / Term Maintenance Contractor/ MAC / PFMAC? If so, which ones? What are the risks involved?

One-off schemes and thresholds

The Highways Agency recognises the benefits of providing a steady work flow to the service provider so that a sustainable level of resources can be maintained. Particular care must be taken in setting the threshold levels for work performed within these contracts to ensure that they are efficient and that a local competitive contracting market is sustained.

With the Managing Agent Contractor, there is a further issue as to whether it should manage or procure one-off contracts above the thresholds.

What are appropriate levels for the thresholds for discrete schemes under each of the service provider contracts? Should the threshold level vary for different types of design and work activities and if so how?
What steps could be taken to preserve the local construction market if the works threshold were raised? onconsultation
What should be the Managing Agent Contractor's role in the design, procurement and/or administration of discrete schemes (major repairs and improvements)? Why?
What role should framework contracts play? Should framework contracts be procured by the Term Maintenance Contractor or MAC or by the Highways Agency directly or both? What type of work would be suited to these contracts? How could value for money be demonstrated in each case?

Data collection

The collection of consistent financial and technical data is necessary to facilitate benchmarking, performance review and audit trails. As the contracts become more orientated towards a performance specification, the importance of accurate technical condition data at tender stage increases to facilitate better-informed bids and improved risk management.

Under the Managing Agent and Term Maintenance Contractor arrangements, who should be responsible for collecting network condition data? How does this change for MAC / PFMAC contracts? Is the data currently collected sufficient in scope to permit (a) effective tendering; (b) performance specification? If not, what extra data should be collected (or discontinued)?
What are the constraints on contractors making available historic data on work quantities for audit purposes and to inform future tenderers?

The proactive role of the Highways Agency

To make full use of the proposed contract options and to take part effectively in the Network Boards etc, the Highways Agency will need to consider ways to integrate its own staff with the service delivery team(s). A practical balance needs to be struck to ensure that full co-operation and efficiency of operation can be achieved whilst retaining independence, upholding propriety and retaining accountability.

Would this be advantageous to the operation of the proposed contracts? If so, why?
What activities and decisions would benefit most from this approach?

Installation of Communications equipment

The Highways Agency currently procures the maintenance of communications equipment separately from the Managing Agent and Term Maintenance contractor contracts

Should the service provider be responsible for installing / maintaining communications equipment?
What operational benefits / disbenefits would this approach bring?

Specification

Performance

Under the current arrangements the Managing Agent is compensated by lump sum and time charge payments. The Term Maintenance Contract is compensated by reference to a schedule of rates with lump sum preliminaries. In both cases the Brief or Specification tends to be prescriptive. Efficiency and innovation are not encouraged because there is no contractual mechanism for them to be rewarded.

There is a strong belief that performance specifications create the freedom for service providers to deliver most efficiently and effectively. They encourage innovation, ownership of the works and focus on what is really required, ie service for the customer.

The adoption of an output-based performance specification will enable a service provider to be rewarded for achieving the Highways Agency's high level objectives (customer service, network quality, whole life costing and so on), rather than simply by reference to the amount of work done.

What benefits and risks do you perceive in working under a performance specification?
Which aspects of the existing Managing Agent and Term Maintenance Contractor duties currently undertaken according to prescriptive specifications and compensated by unit rates or time charges could be both specified and valued under a performance related specification?
Which of the MAC's functions would not be suitable to be let on a performance specified basis? Why? 24 What aspects of performance will be difficult to deliver because they cannot be easily measured?

Risk allocation

To ensure efficiency, economy and best practice, risks must continue to be allocated to the party best able to manage them. Risk allocation must also be transparent. The risk allocation between the parties will inevitably change under the Managing Agent Contractor contracts.

Which risks currently allocated to the Highways Agency, Managing Agent and Term Maintenance Contractor would more appropriately be re-allocated to a different party? Why? When should risks be identified? Who should, and how should they be involved?
Which party should bear the network condition risk under the single operator approach, and why?
What other risks should be transferred to the single operator which are not borne by the Managing Agent and Term Maintenance Contractor ? And vice versa. How should the MAC be compensated for assuming extra risks?

Contract Duration

Flexibility and change mechanisms

The duration of the contract must recognise the Highways Agency's need for flexibility to deal with strategic changes in management of the network, such as integrated transport policies, tolling, technological developments etc. At the same time the duration needs to be sufficient to encourage investment in plant, to enable the benefits of continuous improvement to be obtained and to encourage the network contractor to embrace whole life costing.

Bearing in mind the above, what is the ideal duration for the Managing Agent and Term Maintenance Contractor and MAC/ PFMAC, and why?
What are the advantages/disadvantages of having a contract period with possible extensions, as opposed to a fixed term?

Preserving the market

Contracts of longer duration and wider scope could result in better services and lower prices, but fewer, larger contractors may dominate the local market. This may lead to a restricted and uncompetitive market in the long-term unless provision is made to foster and utilise a balanced competitive market. This balanced market should represent the best ie quality service providers and specialists drawn from international, national and regional spheres of operation.

What are the implications for regional construction markets in extending the duration or widening the scope of the service provider contracts?
What steps should the Agency take to ensure that the regional market for smaller highway maintenance contractors is preserved?
How will the local construction market be affected if a MAC/PFMAC replaces the Managing Agent and Term Maintenance Contractor contracts?

Payment Mechanisms

Whole life costing

Whole life cost evaluation is a vital part of the Highways Agency's investment decision making process.

How can the MA, TMC and MACs be incentivised to embrace whole life cost issues more fully? What payment mechanisms would be most appropriate to achieve this?

Incentives

The Highways Agency wishes to encourage efficiency, innovation and the sharing of good ideas and best practice.

What payment mechanisms should be developed which will reward the service providers at the same time as benefiting the Highways Agency, either through cost savings or improved levels of service?
Which payment mechanism, or combination of payment mechanisms, would be most suitable for each of the following categories of work under each contract option and why?:
- routine maintenance?
- winter maintenance?
- minor repairs, structural maintenance and improvements (pavement and bridge repairs, safety fencing, white lining etc)?
- network management?
- design and construction of discrete schemes?
- advisory functions?
How should innovative ideas be trialled to demonstrate value for money? Who should fund those trials?

Continuous Improvement

Continuous improvement can be considered both in terms of quality and price. Longer-term contracts will provide obligations and incentives towards continuous improvement, with a view to increasing efficiency and economy.

What performance indicators should be used to best monitor continuous improvement through the life of the contract? What incentives/penalties should be offered/imposed to ensure achievement of the required levels of performance? Does this change with type of contract ie MA, TMC, MAC or PFMAC ?

National Benchmarking and Best Practice

Comparison of performance between Areas is difficult and benchmarking has been identified as key. The Highways Agency also wants to be able to implement best practice identified in one Area throughout the national Network. Continuous improvement in terms of cost, customer service and network quality and safety within each Area needs to be demonstrated.

Under the existing contracts, specifications and prices are not benchmarked during the life of the contract

What is the mechanism to enable best practice to be shared and disseminated across the network in the face of commercial pressure not to do so?
How should intellectual property rights in ideas be addressed (if the Highways Agency then wanted to use the idea on another contract not held by the innovator? How should the approach differ between innovations within a tender and innovations brought forward within the life of the contract?

Partnering

General

The Highways Agency, as Network Operator, has a key part to play as part of the team delivering the service for customers on the network. The Highways Agency will seek to select service provider partners who are committed to the principles of openness, teamwork and commitment throughout the supply chain.

The partnering ethos demands that parties raise and solve problems as they occur. Partnering is an accepted concept within both the Highways Agency and the construction industry. It however represents an aspiration that is difficult to turn into reality.

What steps should be taken to ensure that the partnering concept permeates the relationship between the Highways Agency and its service providers, at all levels within their organisations?
How should partnering be extended throughout the supply chain?

Network Board

The role of the Network Management Board is that of a Partnering Board with additional executive functions to address strategic issues affecting the Area contracts, for example; best practice, consistency, accountability, overall targets, whole life costing, and benchmark targets to measure continuous improvement. The Board must operate in such a way as to prevent the single operating company instigating high value, high profit work for its own benefit.

What form should the Network Board take? Should it administer constraints and resolve disputes or should it be more proactive in setting targets for continuous improvement?
How should such arrangements be formally provided for within the contract structure?

Road User Issues

Safety and Environment

Network Safety and congestion represent significant costs to the nation. Accountability for problems such as noise and pollution rests with the Highways Agency. There are no incentives for current service providers to identify improvements that may be environmentally necessary or desirable, such as quieter surfacing, habitat improvements and enhancement of the soft estate. The Highways Agency needs to ensure that, in future, service providers are properly aligned to deliver its objectives and responsibilities by using performance measures and payment mechanisms. There are also a number of legal requirements relating to the protection of flora and fauna that must be considered.

How can the MA and TMC, MAC and PFMAC be encouraged to take this wider perspective in their day-to-day operations? How can they be encouraged to take ownership of the problems and to identify solutions?
How should the views of road users and those living close to the road be captured and evaluated?
How should good stewardship of the environment be measured and rewarded?
How should service providers be incentivised to identify improvements and enhancements to the soft estate and road environment?
How can the service providers be fully committed to considering integrated transport within their remit? How might a Network Board assist in promoting integrated transport solutions?
How should performance in relation to "soft" issues (sustainable construction, network safety, congestion etc) be measured, evaluated and rewarded?

Key Performance Indicators (KPIs)

Key performance indicators can be pitched across a wide range -depending upon whether a macroscopic or microscopic view is taken. They can measure the contractual as well as the physical. They can be geared towards customer satisfaction targets or measuring the degree of continuous improvement within a contract. A critical element of the output-based approach to procurement is the need to define robust and measurable performance indicators against which to judge performance. Easily measured key performance indicators can be directly related to payment, however, qualitative issues may be better linked to bonus/penalty point incentives.

Do KPIs have to be linked to incentive payments? If so, why? And, how might a system be implemented? (Give examples of KPIs where possible.)
Should the incentive be in the form of quality points or cash payment? How might these point systems operate?
What are the respective advantages and disadvantages of indicators which are general, covering the entire contract with a single indicator (ie an outcome- a network fit for purpose) or selective, covering major items only ie an output- drainage and winter maintenance)? Would there be any advantage in KPIs which were even more specific, covering each individual item of work?

Highways Agency franchising

The Highways Agency can allocate risk under the contract to the service provider, but ultimately, as the Network Operator it is accountable to the Road User.

One of the key functions of the service provider will be to receive and deal with comments, queries and complaints from the public about the road network. Getting the right incentive and reward mechanisms for this activity is difficult but essential. An example of this is the handling of 3rd party claims for and against the Highways Agency.

How can service providers be encouraged to develop a level of ownership at the same time as being given the freedom to deliver a service, and yet still ensure a uniformity of service delivery across the Network that fully reflects the Highways Agency's ideals?
Should special road signs be erected in an area to advertise who is the service provider?
How should the customer interface be handled under each approach? Should the first-line response be for the service provider in all cases, or should it be the Highways Agency?

References Glossary of Terms

A new Deal for Transport: Better for Everyone. The Government's White Paper on the Future of Transport -DETR, July 1998. (Integrated Transport).

'A New Deal For Trunk Roads in England.' - DETR, July 1998. (Roads Review).

Achieving Excellence. Constructing the best Government Client . HM Treasury, 1999

Modernising Government White Paper, March 1999

Constructing the team. Joint review of procurement and contractual arrangements in the UK construction industry . Sir Michael Latham, July 1994

Rethinking construction . The Report of the Construction Task Force (Sir John Egan)

Highways Agency Business Plan 1999/2000

Constructing Improvement. The Client's Pact with the Industry - Construction Clients Forum (CCF)

Glossary of Terms

MA
Managing Agent

MAC
Managing Agent Contractor - single operating company

PFMAC
Privately Financed Managing Agent Contractor

TMC
Term Maintenance Contractor

ICE5
Institution of Civil Engineers Contract 5 th edition

ECC
Engineering Construction Contract

Service Provider
A collective term to include the MA, TMC, MAC and PFMAC

Soft Estate
The land from the edge of the carriageway to the highway boundary

Network Board
A Board made up of members of the Highways Agency and the service providers, which makes strategic decisions and reviews, monitors and benchmarks the service providers' performance

Whole life costings
A technique which optimises the lifetime costs of acquiring, owning, operating, maintaining and disposing of a highway asset

Quality Promise
Statements made in tender quality submissions

Indicative Programme