Highways Agency - Safe roads, Reliable journeys, Informed travellers

Application of Procurement Principles to Specific Categories of Work

For procurement purposes, the HA's work can be split into four categories. Firstly, maintenance contracts for the strategic road network which also include works projects up to a value of £500k. Secondly, works contracts for maintenance, improvement and technology projects that have a value above the threshold in the maintenance contracts, up to a value of £5 million and are referred to as regional projects. Thirdly, works contracts valued at over £5 million and are referred to as major projects. The final category covers all other remaining areas of the HA's activities.

Maintenance and small works projects

Issue

Maintenance of the motorway and trunk road network in England is the HA's top priority. Timely and appropriate maintenance is required to ensure the safety of road users and to preserve the value of the asset which is estimated at around £60 billion. The procurement of maintenance requirements needs to support the objectives and targets set out in the HA's Strategic Plan for Maintenance.

Objectives

To maintain a competitive supply base and to employ incentivised suppliers who can deliver best value services and solutions which achieve the objectives of maintaining the network in a safe condition and so as to minimise:

• Expenditure over time
• Disruption to users and others affected
• Adverse impact on the environment.

Background and Future Actions

New Forms of Contract

The HA has developed a new form of maintenance contract, the Managing Agent Contractor (MAC) contract, which combines the roles previously undertaken by separate Managing Agents (MA) and Term Maintenance Contractors (TMC). The MAC contract achieves single-point responsibility and is a form of prime contract, which is favoured by the Office of Government Commerce. The first MAC contract came into operation in Maintenance Area eight in Northamptonshire in September 2001.

The MAC form of contract incorporates many of the desirable features of the optimal procurement arrangements set out above. The contract relies on Quality Management Systems and uses self-certification procedures to remove unnecessary supervision and duplication of effort. The quality system approach allows flexibility and encourages innovation to deliver a value added service. The contract is based on a strong partnership approach with an integrated supply chain and the contract duration, of up to seven years, is a significantly longer period than traditional maintenance contracts. The contract allows the MAC organisation to design and undertake all projects up to a value of £500k. It also incorporates elements of performance specifications for routine and winter maintenance and includes the requirement to set annual targets, to measure and benchmark performance, and to achieve continuous improvement.

The HA currently has 20 maintenance areas covering the whole of the trunk road and motorway network in England (excluding London which is managed by TfL). This number has reduced from over 90 areas in the mid-1990s when maintenance was undertaken by local authorities on the HA's behalf. The effect of the current detrunking proposals and an associated review of operational factors is expected to result in a further reduction to 14 areas.

It is likely that this number of areas will provide work opportunities for between six and eight MAC companies given that some firms may well be successful in bidding for work in more than one area. The phasing of the start dates of contracts into different tranches will provide regular opportunities to bid for work and it is expected that about 10 MAC organisations will be interested in such opportunities. While detrunking is implemented it may be necessary in some areas to continue with enhanced versions of the separate MA and TMC contracts. These will be used to confirm, via benchmarking, the improved performance of the MAC form of contract.

Action - The use of MAC contracts will be extended to cover the whole of the trunk road and motorway network in England over the next five years except on those parts of the network covered by private finance contracts.

PRIDe

In association with the new forms of maintenance contracts the HA has established a new group known as PRIDe, "Performance Review Improvement Delivery". This group will support the operational delivery teams in the development of robust quality systems which provide measurement of performance, compliance audit processes, identification of best practice, and the setting of continual improvement targets. This will require the development of audit and review techniques that cater for organisations and contracts that are run using quality management systems. Initially, PRIDe will utilise consultant services to undertake detailed audit/ review work and they will also draw on internal specialist support. Over time it is intended that the necessary audit/review skills will be brought in-house. PRIDe audits will involve a critical examination of the operation and effectiveness of suppliers' quality systems and procedures.

Action - The PRIDe team will be developed to ensure that the desired outputs and outcomes are being achieved, that propriety is being maintained, and that longer-term improvements are realised. The PRIDe role may be extended to other areas of procurement practice such as frameworks and private finance contracts.

Regional Road and Bridge Works and Technology Projects (frameworks)

Issue

Regional projects are defined for this purpose as those projects valued above the works threshold in the maintenance contracts (eg £500k for MAC contracts) and below £5 million, which is the figure used to define major projects. For these projects the HA now has the benefit of three year spending plans, which within the context of the 10 Year Plan, allow firm forward programmes of work to be produced. The projects make important contributions to the HA's targets for improving safety, reducing congestion and improving the environment.

Objectives

To make the most effective use of the forward programmes of work to deliver best value solutions as efficiently as possible by working in long term partnerships with good quality suppliers.

Background and Future Actions

Frameworks

The improved forward planning over a three-year period allows work to be packaged together and procured through framework arrangements. Frameworks provide better value for money compared with the procurement on an individual project basis. They allow long-term relationships to be developed which allow better programming of work and planning of resources. It allows firms to develop the skills and competence of the workforce and to make use of their experience on successive projects.

The frameworks make provision for contractors, and the supply chain, to be involved in the early planning and development of projects which allows more innovation and consideration of buildability. The firms will also have a greater understanding of the risks, and more time to develop health and safety plans and to mobilise for the construction of the project. The early involvement of the delivery team will also help to ensure that solutions and methods of working are developed which minimise disruption to road users.

Actions on frameworks: Frameworks will be used to deliver projects in this work category where there is an adequate workload of a consistent and continuous nature and this will be done on an area or regional basis;

• Framework suppliers and their supply chain partners will be involved in the planning, design and development of projects;
• Contractors will be required to support the HA in the development of performance indicators and in the identification of best practice. Regular performance assessments will be required to ensure that contractors are achieving required standards and delivering continual improvement;
• Frameworks will be managed by a nominated framework manager to develop a partnership across the whole community of framework suppliers and there will regular meetings to review overall performance and to consider forward planning;
• Incentivised target cost arrangements will be the preferred form of contract with reimbursement based on actual costs;
• Some work will be procured outside of the frameworks, where it is desirable to give other firms an opportunity to demonstrate their capability and to compare value and performance with work delivered through frameworks;
• Major maintenance projects costing in excess of £5 million will for the time being continue to be procured individually although opportunities will be sought to package projects together and to find other ways of providing continuity of work to make the most effective use of resources.

Construction Management

The HA has undertaken successful Construction Management pilots which have involved the Agency in entering into direct contractual arrangements with specialist trade contractors and suppliers. The overall management and coordination of the projects has been carried out by construction managers from the HA's managing agents. The pilots have enabled the HA to develop its understanding of issues affecting the supply chain and to learn more about how the supply chain can contribute to the delivery of best value using other forms of procurement. There have also been important lessons learnt about performance indicators and the measurement of actual costs.

Actions on CM: - Construction Management for the delivery of road and bridge renewal projects will be used in new areas nine and 10 to continue to improve our knowledge of supply chain management and performance measurement. The lessons learnt will be applied where appropriate to other forms of procurement. The HA and contractors worked together to bring the A43 Silverstone TPI scheme back on track following foot and mouth restrictions.

Major Projects - Targeted Programme of Improvements (TPI Schemes)

Issue

The Targeted Programme of Improvements announced in a New Deal for Trunk Roads comprised 37 schemes costing an estimated £1.4 billion. The intention is to start construction of these by 2005, subject to the completion of statutory processes. Five schemes were added to the TPI in 2000. In addition, seven schemes were identified which were not sufficiently advanced for the TPI at that time but they will be progressed through the statutory stages if they pass assessment through the appraisal stages. In 2001, eight schemes were added to the TPI.

The 10 Year Plan provides additional resources to implement decisions on the need for further major road improvements identified through the current multi-modal studies being undertaken by the Government Offices. The 10 Year Plan allows for 25% of the new capital investment to be provided by private finance. New schemes therefore, have to be assessed for their suitability to be delivered by private finance. (Also see separate section on private finance.)

The 10 Year Plan also identified the need to speed up the delivery of major improvement projects to support the targets for improving transport including reducing congestion and improving safety. In the past it has taken 10 years on average for schemes to progress from programme entry to start of works. The measures announced as part of the 10 Year Plan aim to reduce this period by between three to five years for non-controversial schemes without reducing public participation. Improved procurement procedures will contribute significantly towards that target.

Objectives

To support the delivery of the existing schemes in the TPI and new additions to the programme funded by the 10 Year Plan, to the required timetable.

To develop best value solutions for each individual project by establishing integrated delivery teams as early as possible and to create incentivised partnerships to deliver the schemes as safely and efficiently as possible.

Background and Future Actions

Design and build - early contractor involvement

The HA has undertaken most major projects since the mid-1990s using design and build (D&B) contracts with most risks transferred to achieve greater certainty of spend. The scope for contractor innovation has been limited because they have not been appointed until after the statutory planning stages that establish many constraints. In addition, improved price certainty has been sought by transferring risks, without giving full recognition to a contractor's ability to assess and manage the risks. This approach does not always support partnership working if commercial pressures come to the fore. Improved value for money can be achieved by allocating risks appropriately, and price certainty delivered by managing the risks in partnership, supported by incentives.

The earlier appointment of a contractor offers considerable scope for better value, but it is important to get the right timing. The earlier it is, the more scope there is for the contractor to contribute expertise and innovation, but the time period to construction should not be too long. There would be a risk that if a contractor were appointed too early they would not be motivated to contribute their best staff. The long period before construction could also make it difficult to maintain enthusiasm and to retain key staff.

The use of project partnering arrangements on the HA's major projects in recent years has been beneficial in achieving mutual objectives for the particular projects. However, the procurement of major projects on an individual scheme basis means that the partnerships and the invested knowledge and experience of team members, can be lost to the client if there is no continuity of work. The lack of continuity also makes it difficult for suppliers to plan their resources and does not encourage the training and development of the workforce. This could be resolved by applying long-term relationships to the delivery of major projects.

• For publicly funded major projects the HA will normally use a new form of D&B contract, known as "early D&B", where the contractor is involved much earlier in the planning process. The contractor will be appointed as soon as possible after identification of the preferred route and well before the statutory stages which normally involve a public inquiry;
• The contractor selection process will be based largely on quality, with the HA seeking to identify a supplier that has all of the right skills and who is considered most capable of working in partnership, to identify the optimal solution and to deliver it as efficiently and safely as possible;
• Suppliers will need to demonstrate good supply chain management practices as set out in this document. In particular, the relationship between the contractor and their designer will be very important and the HA will require designers to be adequately incentivised to deliver optimal solutions;
• The burden of tendering will be kept to a minimum by avoiding the need, as far as possible, for detailed design work during the tender stage;
• Pricing will be based on key cost components and a process to establish a target cost when the design is finalised. Target costs will be incentivised in a way that encourages continual improvement throughout the development of the project;
• Risk schedules will be developed with tenderers as part of the quality assessment process and also to identify a fair allocation of risks to the parties best able to manage them;
• The HA will develop ways of entering into longer-term relationships with contractors on the delivery of major projects to achieve the benefits which are being achieved on new maintenance contracts and framework arrangements. Options that will be examined will include frameworks and the packaging of projects into long-term programmes.

Use of design consultants on major projects

In summer 2001 the HA established four regional design consultancy frameworks which allow work to commence on schemes much more quickly, compared with separate procurement processes to appoint individual scheme consultants. The frameworks are based on the development of long-term partnerships to allow more efficient use and better planning of resources.

Duties of the framework consultants include the early assessment, planning and design of projects and taking schemes forward through consultation procedures to the identification of the preferred route. Following this, duties include the organisation of further survey and preparation work leading up to the appointment of an early D&B contractor. The consultant will normally continue as employer's agent playing an important role in supporting the partnership approach and using their invested knowledge to maintain progress while the contractor and the new designer become familiar with the project. One benefit of a new designer, employed by the contractor, being involved in the project is that they will bring a fresh look and can challenge initial concepts and be incentivised to find improvements. This will help to address one of the problems of traditional procurement where professional pride in the ownership of designs was a barrier to innovation and ideas for improvement.

Action - the HA will use these consultancy frameworks to take forward new schemes that emerge from the multi-modal studies. Work packages instructed under the framework will be aimed at achieving the most efficient use of resources by having a mix of schemes and tasks to balance out the peaks and troughs that occur in the planning processes.

Speeding-up delivery of major projects

The design consultancy frameworks will allow a much faster start on new schemes, saving up to a year when they enter the programme. In addition, the early appointment of contractors has the potential for saving over two years by allowing a more rapid start on site after statutory approval decisions have been made. These savings are additional to those that will be obtained by other means, including earlier public consultation and parallel working on appropriate activities.

Action - further time-savings and more effective use of resources will be sought by the consideration of framework arrangements for survey work such as ground investigations, topographical and environmental.

Other Areas of Procurement

The remaining areas of the HA's procurement activities include the acquisition and management of its land holdings, investment in information systems and technology requirements, research and development, estate requirements as well as training and development. It also covers telephones, supply of temporary staff, provision of utilities, and low value purchases covering items such as office equipment, services and supplies, catering, travel and accommodation. Wherever appropriate, the HA will enter into collaborative arrangements with DTLR or other government departments, and also to make best use of contract facilities established by the Office of Government Commerce.