Highways Agency

Safe roads, Reliable journeys, Informed travellers

The consultations

This is the third of the three linked consultations in respect of developing new and/or improving the existing policies for procurement and forms of contracts.

The first consultation released in December 2002 aimed at making improvements to the DBFO contract and introducing the principles of early contractor involvement into the delivery process. The second consultation relates to introducing private finance into operation & maintenance contracts such as the managing agent contracts (PFMAC).

This, the third in the series, puts forward options for widening the use of performance specifications, not only in private finance contracts but across all forms of procurement. We seek your views on the proposals within this document and welcome any other ideas that you may have to improve the procurement process.

The consultation is also available in PDF format

• Developing Performance Specification - (656KB PDF)

Section 1 - Foreword

The motorway and trunk road network in England is an asset of national importance. The improvement and maintenance of these strategic highways is critical to supporting a healthy national economy and providing value for money for the taxpayer.

Significant changes have taken place in the highway maintenance industry over the last few years with the introduction of performance specifications in all aspects of highway infrastructure management. The Highways Agency is moving towards performance measurement in the procurement of services from the whole supply chain.

The Agency is committed to improving its procurement and contract management processes. The intention is to develop a strategy to foster an environment of trust and accountability in which service providers are motivated to innovate and provide an excellent service whilst optimising value for money. Within this new environment the Agency would like to create the conditions required to stimulate innovation by allowing suppliers the opportunity to deliver required outcomes and to meet performance targets without prescribing the means of delivery. Outcome based measurement has the potential to improve all our decision making processes by integrating what we do throughout the supply chain.

The key issues and questions outlined within this document are aimed to stimulate debate and encourage feedback on the future use of performance specifications across the industry. Your contribution to this process will help us to make a difference.

I look forward to receiving your views, and ideas, in response to this consultation document and to working in partnership with industry as a whole in the future development of performance specifications.

Tim Matthews
Chief Executive

Section 2 - The consultation process

Industry's views are sought on the key issues associated with the adoption of performance specifications. It is aimed at the key players of the highways sector -contractors, consultants, local authorities, product manufacturers, materials suppliers, specialist advisers, financial advisors, legal advisors, road users and those with environmental concerns.

This document describes the key issues involved in developing performance specifications and presents a number of strategic options for changing the way the Agency specifies its work.

The Agency seeks the industry's views on the following:

• How the construction industry can respond to the challenge of meeting performance standards?
• Whether the options presented in this document offer the best potential to drive performance improvement?
• Other options that should be considered?
• What is the best method of implementing the most favoured option?

Your responses and views are sought on the proposals in this document. You are requested to respond specifically to the questions on pages 18 and 19 but any other suggestions that you may have for widening the use of performance specifications are welcomed.

The Agency intends to summarise your replies in a published report without attribution, i.e. removing references that may identify the response with any particular organisation.

Please send your replies and comments to Tony Wittering at the address below by 6 June 2003.

Tony Wittering Room 111 Highways Agency Heron House 49/53 Goldington Road Bedford MK40 3LL

Tel: 08459 556575

Email: performance@highways.gsi.gov.uk

Section 3 - Performance specifications

3.1 What is a performance specification?

Traditionally specifications have given a preferred design solution to define how a service is to be delivered, or an item is to be fabricated or constructed. This has often been based on empirical evidence -'it worked before so it will work again'. This method of specifying is inherently conservative with little incentive for suppliers to explore options for potential improvements.

There are many different views on what constitutes a performance specification. In this document we consider performance specifications that avoid prescriptive methods and focus on the final product or service. These can be described either in terms of the delivery itself or in terms of the benefits delivered - output and outcome driven measures:

• Output measures define the end product of works carried out on the network. This is usually in the form of a series of outputs that will deliver the desired outcome. For example meeting road surface skid resistance requirements is one output that will help enable the safety outcome to be realised.
• Outcome measures define the benefits that should be delivered as a consequence of the works carried out on the network. This will usually take the form of the level of service required. For example journey time reliability or level of safety.

3.2 Why use performance specifications?

The Agency's key driver for the further development of performance specifications is the potential to optimise service levels whilst at the same time offering better value for money. The driver, that we see for suppliers, is the ability to innovate more cost effective methods of work, reduce administration costs and increase efficiency.

3.2.0 Benefits

The objective that the Agency seeks to achieve by widening the use of performance specifications is to ensure best value is achieved throughout the life of the contract by:

• aligning suppliers with the Agency's objectives
• encouraging innovation at all levels in the supply chain
• offering an incentive to improve the efficiency and effectiveness of processes
• providing a driver for continuous improvement in service delivery
• improving whole life value decision making processes
• greater cost savings as the industry gains experience and confidence in this relatively new concept.

The adoption of an output / outcome based performance specification will enable suppliers to be rewarded for achieving the Agency's stated objectives, rather than simply by reference to the amount of work done, thereby promoting better value and improved price certainty against service delivery.

The Agency aims to widen the use of performance specifications on the majority of its contracts.

3.2.1 Risks

There are also perceived risks in introducing performance-based specifications across a broader spectrum of work:

• inappropriate application of performance measures resulting in a situation whereby suppliers can meet targets without achieving the desired outcome
• a possible reduction in ability to change contract requirements
• a potential for loss of consistency in approach across the network
• the loss of control of the technical governance role and
• a lack of preparedness in the construction industry.

Overall the greater flexibility of performance specifications should bring a general improvement in value for money and it is therefore worth pursuing their wider use.

3.2.2 Impacts

Widening the use of performance specifications will impact on the way the Agency works together with its suppliers. Potential changes likely to take place are:

• more reliance on risk management
• increased trust between partners
• greater involvement of the supply chain
• changes in working culture.

An atmosphere of trust and unity will need to be established and maintained by development of a partnership culture among suppliers as well as between the suppliers and the Agency. For example, sharing of information on a common platform could generate substantial synergies.

3.3 Feedback from "Paving the Way"

In a previous consultation paper, "Paving the Way" (December 1999) the issues of performance specifying different aspects of the Agency's business were addressed and we asked:

"What are the benefits in working under a performance specification?" and "Which Managing Agent Contractor (MAC) functions would not be suitable under a performance specification?"

The main benefits perceived by respondents were; increased opportunity for innovation, greater flexibility in working practices, improved quality of service and the potential for cost savings.

79% of respondents in December 1999 stated their belief that cyclic and routine works would be suitable for performance specification and only 15% believed that all or the majority of duties should be performance specified.

Significant difficulties were seen in measuring the service providers' effect on customer satisfaction and road safety. It was also felt that longer term functions were difficult to assess and that the effect of random and unforeseen events could distort measurement.

The industry has moved on since 'Paving the Way' and it is worthwhile establishing whether these views are still widely held, and the questions are asked again in this document. The Agency is now looking to explore options for allowing Industry to take greater responsibility for the products and services they offer thus creating the opportunity for innovative approaches to common challenges and driving continuous improvement.

Section 4 - Agency's current thinking

The Agency is looking to develop a generic framework of performance measures at both output and outcome levels that can be applied to different contracts commensurate with the level of transfer of responsibility and risk.

One model for specifying outcomes based on understanding needs and processes is the '4D Model' shown below.

 Figure 1: Performance Specification Model

The 'Deliver' level of the diagram in Figure 1 contains and states the desired outcomes. These represent the overall requirements of the contract and would be focused on the Agency's stated aims and objectives or vision. This is the level at which a performance based contract would aim to measure the service delivered by the supplier.

The 'Demonstrate' level of the diagram represents the processes that are carried out to support delivery of the outcomes. These processes equate generally to 'outputs'. The Agency would require assurance that these issues have been properly considered but would not specify how they are to be addressed.

The 'Detail' level represents the quality management procedures that will need to be in place as part of any contract. The Agency would not need to be involved in this detail but would need to know that the system was in place and available for audit if required.

The 'Develop' arrow represents the need for continuous improvement over time.

A process model in the format described above provides a line of sight between detailed procedures and high-level outcomes. Being able to clearly define this route allows both the HA and suppliers to identify processes that contribute to the delivery of required outcomes.

Understanding this allows purposeful management of change and therefore drives continuous improvement.

Six generic measures have been initially identified and proposed as the key performance indicators for delivery as shown in Figure 2: The measures will need to be made specific to reflect the contribution that the supply chain makes in achieving the required overall objectives.

 Figure 2 - Key Performance Indicators

The Agency is now considering a range of options for applying the performance regime:

Option 1: Developing Existing Specifications

The Agency could retain the present mix of prescriptive and output based specifications. The current documentation (the Design Manual for Roads and Bridges (DMRB), Manual of Contract Documents for Highway Works (MCHW), etc) could be maintained, with changes in line with the European standards. Improvements to the departures from standards process could be introduced with a change in culture to encourage greater innovation. In addition, the Agency would continue to improve current Performance Specifications for Routine and Winter Maintenance.

This approach would represent the status quo and is seen as a low risk but low benefit strategy. A potential risk for the Agency and its suppliers is that of lost opportunities to make substantial improvements.

This represents specifications aimed at the detailed procedures level in the 4D model.

Option 2: Performance Specification for Maintenance only

The current Performance Specifications for routine and maintenance work could be expanded to include design and delivery of major maintenance and renewal of network assets e.g. earthworks, pavements, drainage, structures, environmental aspects and other elements. New specifications will build on the existing standards and specifications. The current documentation (DMRB, MCHW) would be used for guidance purposes and for testing "equivalence" where necessary.

This approach would aim at the output level of the 4D model.

Option 3: Full Performance Specifications

This option is an outcome based performance specification for all design, construction and network management activities. It includes defining high level measures such as those referred to above. This is expected to substantially change the existing level of risk transfer between the Agency and the suppliers. At the same time, this is expected to offer more freedom for suppliers to innovate.

This option would aim to specify the outcomes that the Agency needs to achieve without reference to inputs or procedures. Under this option the future of the DMRB in its present format would be uncertain.

Section 5 - Issues

There are a number of perceived limitations and challenges on how far the Agency can go down the road to full performance specification and these are set out below. These issues need to be addressed in the future development and use of performance specifications.

5.1 Technical Governance

The Agency is responsible for technical governance for highway management and engineering on behalf of the Secretary of State. This role cannot be passed on. However, the Agency can ask the supply chain to carry out the tasks to help it meet its duties. What role the supply chain should take to support the Agency is a major area for discussion.

HA Standards

Currently the Agency's two main technical documents are the Design Manual for Roads and Bridges (DMRB) and the Manual of Contract Documents for Highway Works (MCHW). Some see these documents as prescriptive with little room allowed for designers or contractors to exercise flair and innovation. This perception might be dispelled with a change in working culture.

Suppliers and local authorities look to the Agency's current standards and specifications to limit their exposure to risk. If the HA defines outputs and outcomes rather than inputs and methodologies, then the responsibility of ensuring technical excellence will rest with the industry and suppliers. The existing Agency standards and specifications would be used as a guide to existing best practice, but the issue then arises about who would be responsible for updating the guidance and defining best practice.

The new European codes and standards will introduce new forms of specifications that will need to be followed.

5.2 Issues for Suppliers

• Risk management/analysis - Until now, the Agency has carried most of the risks associated with specifications and standards. Under a performance specification regime it is expected that a number of these risks and responsibilities will be transferred to the suppliers.
• The Agency will need assurance that highway design, construction and maintenance processes are developed in line with industry best practice principles.
• An understanding of the risks involved in the use of performance specifications is essential.
• Development of a comprehensive risk management system will therefore be critical to enable risks to be managed and their impact minimised as far as possible.
• The conventional method of specifications has been claimed to stifle innovation and create a barrier to improving construction performance. Suppliers are potentially in the best position to instigate innovations for improvement in service levels and reduction in costs. Ideas from suppliers could, thus, play a key role in defining the performance specifications.

5.3 Issues for the Agency

• Under its Procurement Strategy, the Agency is considering extending the use of performance specifications to other forms of contract, including DBFO. In doing this it must ensure that consistency of outcome across the network is maintained.
• The Agency provides technical and corporate governance and the use of outcome-based performance specifications must not compromise this role. Possible means of assurance for the Agency include the use of quality management systems, regular auditing procedures, product guarantees and liability insurance.
• A major issue is that of durability and future performance of the network assets. The Agency will need to know that work carried out today will perform in the future. This will require future looking indicators most likely based on suitability of process.

5.4 Issues common to both - Suppliers and Agency

• The development of a performance specification will need to ensure quality and durability of the end product.
• A robust set of performance indicators will need to be developed to ensure that realistic sustainable targets are set and can be easily measured.
• Performance specifications will need to be easily tailored to the specific requirements of a particular area, while ensuring a consistency of outcome across the network.
• There is a need to develop lead indicators that point to successful performance in the future rather than only identifying past performance or failure. Indicators, such as predicted durability of roads and structures, could be developed.
• Performance specifications will need to be flexible enough to accommodate future changes in standards and best practice in highway construction and maintenance.
• The use of performance specifications could have an impact on tender periods, methods of supplier evaluation/selection, the amount and quality of information needed within tender documents.

Section 6 - Questions

Here is a list of questions to which the Agency would like you to respond. Please do not feel obliged to answer all questions. In addition, the Agency welcomes any other comments that you may have.

Issues for the Suppliers

1. What are the benefits in working under a performance specification?
2. What elements of performance should be measured on an outcome basis? Are there any which should not be so measured?
3. What are your views on the ability of industry to assume the risks inherent in outcome-based performance specificationsand are there any risks that should not be transferred?
4. What risks do you perceive in working under a performance specification? How would you propose to manage those risks?
5. What cultural changes do you think will be necessary within industry as a whole to facilitate the implementation of performance specification based contracts across a wider spectrum of work?

Issues for the Agency

6. Do you think performance specifications should be extended to all Agency contracts or are there specific areas of procurement where the traditional prescriptive type of specification should be retained?
7. How best can the Agency's technical governance role be supported by suppliers?
8. What impact and implications do you consider there will be on suppliers if the Agency were to fulfil its technical governance role by passing responsibility for standards and/or specifications to suppliers?
9. What views and suggestions do you have in relation to the use of future looking indicators as a measure of performance?

Issues common to both the Agency and Suppliers

10. Without a detailed specification to follow, how will suppliers guarantee continued quality and best value for the Agency
11. How will the Agency assure itself that the service is being provided to an acceptable standard and that the Agency's objectives are being met?
12. What mechanisms should be included in contracts to ensure that specifications and standards are updated as required to reflect current best practice and to deliver continuous improvement?
13. Will suppliers be prepared to share information with other suppliers in relation to performance specification issues, and if so on what terms?
14. How will the use of performance specification based contracts impact on the bidding process?