Highways Agency

Safe roads, Reliable journeys, Informed travellers

PFMAC Stakeholder Consultation Workshops Document

Contents

• Preface
• Executive Summary
• 1 Introduction
• 2 Workshop Findings
• 3 Workshop Logistics
• Appendix A - Presentations
• Appendix B - Subject Area Information

Also available in PDF format:

• PFMAC Stakeholder Consultation Workshops Document (610KB PDF)

Preface

During June 2003 the Highways Agency held two PFMAC Workshops, in Bristol and Birmingham, with a wide range of stakeholders who generously set aside valuable time from their extremely busy schedules.

For the Agency to introduce new initiatives into the maintenance of the network, working in a strong and meaningful partnership with stakeholders from the earliest opportunity is essential. The Workshops were convened in full accordance with that ethos, allowing delegates to actively consider the maintenance direction the Agency is taking and offer constructive comment in a professional and positive environment. The Agency has endeavoured to ensure that comments and opinions expressed by delegates have been properly incorporated into the report.

To be certain of maximising the potential benefits afforded through the PFMAC concept, the Agency has carefully considered how best to progress the project and it has decided to extend the timetable in respect of full operational implementation. This will allow maximum synergy with other important developments, not least the Traffic Manager role and the Secretary of State's Multi Modal Study announcement of 9 July, links to robust performance criteria and appropriate risk allocation through positive partnering. While the PFMAC development work continues, a new enhanced MAC will be considered. This will take forward many of the important and achievable benefits already apparent from the PFMAC including whole life costing attributes, performance specifications and partnership based risk-sharing.

To ensure momentum is retained, the Agency expects to engage in more focussed and direct interaction with stakeholders in the near future.

Executive Summary

In March 2003 the Highways Agency issued a consultation document entitled "Private Finance in Highways Maintenance (PFMAC)" to organisations from the construction industry, Private Finance, local and central government and others interested in either management of maintenance or Private Finance.

The consultation responses were analysed by the Highways Agency, and two stakeholder workshops subsequently arranged on the 11th and 13th June to build upon the issues identified from the earlier consultation feedback. Four discussion topics were identified and adopted at the workshops following the analysis of consultation responses: scope of PFMAC; performance specification; payment mechanism; best value risk allocation.

Scope of PFMAC

In identifying the scope of a PFMAC option it was considered by all parties a shared responsibility should be adopted although the HA would remain as the outward facing "brand" to the public.

The Control Office (CO) function should be closely integrated with the PFMAC and that, in general, responsibility would lie with those activities for which it could control, although this could be altered/increased over time. Furthermore, a consistent approach is required between the existing MAC and proposed PFMAC contracts as the CO is likely to encompass more than one maintenance area.

It was submitted the PFMAC take on the majority of on-road activities although some issues such as 'escorting' and 'education' require further consideration. However, these activities may be a shared responsibility with the full role devolving to PFMAC; the contract would need to accommodate this change. However, on-road and off-road technology equipment and systems are considered an important part of enabling the PFMAC to undertake its duties, and yet whether the PFMAC has responsibility for all equipment remained open to debate.

Delegates were confident of being able to plan, manage and price those schemes identified at tender. The general opinion was not dissimilar for those schemes initiated after tender although it was acknowledged that demonstrating Best Value without some form of competition might be difficult.

The majority of respondents confirmed that the PFMAC should ultimately be involved actively in the implementation of any improvements that would become the responsibility of the PFMAC during the life of the concession.

Some delegates felt the current £5m threshold used to distinguish the Targeted Programme of Improvement (TPI) schemes should be re-evaluated to consider a more favourable threshold of £10m. Scheme type and complexity would also need to be considered in identifying any threshold. One discussion group suggested a threshold of "3m based on EU guidance.

Performance Specification

Delegates agreed that in principle it is right to measure outcomes, however, concerns were raised whether there is sufficient historical data available to set benchmarks and measure performance in the achievement of outcomes.

It was also considered that the proposed outcomes were realistic and valid, although there was much discussion on the appropriateness of the proposed performance measures. In particular there was disagreement whether those measures identified against each outcome promoted the most suitable methods for measurement, e.g. whether safety is best measured by use of figures of Killed or Serious Injury (KSI). There were also particularly strong concerns expressed with regard to the manner in which measures were linked to the payment regime.

One further issue related to the basis of the benchmark and whether this should be external, internal or both. Clarity and robustness of the proposed measures were also identified as important to the success of the PFMAC option as was the ability to compare performance over time, whether in association with other areas or internally. However, it was submitted by some that an holistic view of overall levels of service should be taken into account rather than discrete measures. Identified risks concerning the performance specification included: lack of clarity; reliability of data; failure of measurement system; impact of adjacent schemes on PFMAC performance; changing HA priorities; difficulty in securing investment if linked to payments; potential for lack of control on safety; subjectivity of customer satisfaction.

Payment Mechanism

In principle, respondents considered the payment mechanism could incorporate both financial and points based elements, although it was considered that the variable element of payment in the unitary charge must be bankable and this may have the effect of "dampening" the payment mechanism. Concerns were also raised that a robust outcome-based performance measurement has yet to be finalised.

Further views suggested that outcomes be bonus related, possibly capped, but not subject to penalty deduction if not met, although some were concerned that LNMS outcome measures may be able to vary the PFMAC's revenues and consequently a limit should be imposed to ensure they are bankable. Payment for LNMS therefore may have to be by another method.

Best Value Risk Allocation

Establishing appropriate risk allocations to ensure best value was deemed complex although major risks identified included: inflation, latent defects and change control mechanisms. Issues affecting VfM included: consistency of work and budget certainty; changes and improvement works required; regional contracts not fully supportive of national focus.

In addressing inflationary risks and those related to the condition of the network, periodic reviews were considered as an appropriate method, and could further alleviate difficulties with re-negotiation when planned for at the outset.

Moreover, the PFMAC could suggestively manage latent defect risk at the outset although it was likely that a cost associated with transferring this risk would arise; an alternative view suggested the HA retain the risk at commencement with latent defect risk being transferred to the PFMAC over time.

It was also noted that regular/constant change could present a significant risk to best value. However, given a reasonable notice of proposed changes it was agreed the private sector can often adopt the change economically and as such a policy of 'no surprises' and advance warnings should be operated.

The following were also put forward as positive for risk and best value: build on precedent; limit on exposure (time & value); periodic reviews; cap on profits; business model review; reset risk and return balance; gain / pain share to ensure VFM (open book); scope of contract and reviews are clearly defined at start.

Further suggestions to accommodate the HA's requirement for flexibility included: a pain/gain approach rather than fixed traditional PFI; periodic reviews; comparison with plans (also check annually); "open book" approach and or target cost contracting; robust examination at tender stage; contract re-negotiation process; realistic forward/year-on-year programme (level of service). Some suggested that flexibility was dependent on the level of risk transferred, although the concept of Network Best Value was thought to be workable.

Summary

To be sure of fully maximising potential PFMAC benefits, the HA has decided to extend the timetable to full operational implementation. This will allow appropriate links to other significant developments including the Traffic Manager role, connection to robust performance criteria and risk allocation through positive partnership working. While PFMAC development work continues, a new enhanced MAC will be considered. This will capture and take forward many of the major achievable benefits already evident from the PFMAC including whole life costing attributes, performance specifications and partnership based risk-sharing.

1 Introduction

In March 2003 the Highways Agency issued a consultation document entitled "Private Finance in Highways Maintenance (PFMAC)" to organisations from the construction industry, Private Finance, local and central government and others interested in either management of maintenance or Private Finance.

The consultation responses were received and analysed by the Highways Agency. In line with the consultation process two stakeholder workshops were convened in order to develop some of the issues identified from the consultation feedback.

The first workshop was held at the Hilton Hotel, Bristol on 11 June 2003, and the second workshop was held at Jury's Inn, Birmingham on 13 June 2003.

The Highways Agency required an independent facilitator to undertake the workshops and Capital Value & Risk Limited (CVRL) were appointed to this role. Glyn Harrison facilitated the workshops with support from Jenna Shanks.

The objectives of the workshops were to:

1. Disseminate information on the likely structure and content of the PFMAC and the way forward
2. Disseminate consultation feedback to key stakeholders
3. Provide a forum for further discussion on specific subject areas prior to reaching final decisions on the PFMAC contact

This document is the report from the two workshops, providing details on the outputs from each of the workshop discussion groups, the attendees, programme and supporting information utilised.

The Highways Agency would like to thank all those who participated in the two workshops and the valuable feedback given, which will help inform the development of PFMAC.

2 Workshop Findings

2.1 Introduction

Following analysis of the consultation responses the Highways Agency and their team identified the following subjects which they wished to discuss further with key stakeholders:

1. Scope of PFMAC
2. Performance Specification
3. Payment Mechanism
4. Best Value Risk Allocation

Taking the above into account a one day workshop programme was designed and the same format utilised for both workshops. The format comprised:

• Initial presentations on PFMAC principles and objectives - Yogesh Patel
• Feedback on the consultation response - Glyn Harrison
• Session 1: Scope of services and Performance Specification.
  • Subject area presentations from David Sparkes and Nick Harding
  • Syndicate discussion on key questions related to the subject matter
  • Feedback from discussion groups and summary findings
• Session 2: Payment Mechanism and Best Value Risk Allocation.
  • Subject area presentations from Tony Rose(Bristol)/Clement Walsh(Birmingham) and John Hughes D'Aeth.
  • Syndicate discussion on key questions related to the subject matter
  • Feedback from discussion groups and summary findings
• Overall conclusions and way forward fro PFMAC

The detailed workshop programme can be found in Section 3.1.

Each workshop had representation from the core PFMAC development team, Highways Agency staff, consultants, contractors and advisors from industry. A full list of attendees for Bristol and Birmingham can be found in Sections 3.2 and 3.3 respectively.

During the workshop members of the team made succinct presentations to enable all participants to gain an understanding of the subject matter and some of the discussion issues pertaining thereto. Details of the presentations can be found in Appendix A.

Positioning papers were produced for each of the above subjects and were provided to participants ahead of the workshops. These are given in Appendix B.

The aim of the workshop discussion groups was to enable the core PFMAC development team to:

1. Test their thoughts/proposals with participants in an open and constructive manner
2. Identify any additional issues associated with the subject matter and,
3. Ascertain if there is a consensus for a preferred approach or whether flexibility exists to get as clear sense of direction for each of the issues raised

As indicated above the discussion groups were informed by initial presentations and a series of key questions were also posed. Given below is a summary of the key questions per subject:

Scope of Services

1. What role should the PFMAC take in Control Office functions?
2. What role should the PFMAC take in on-road activities?
3. What role should the PFMAC take in customer service issues?
4. What involvement should the PFMAC have in developing major improvement schemes?
5. How critical is it that the PFMAC has responsibility for the maintenance of on-road and off-road technology equipment and systems?

Performance Specification

1. Is it right to measure outcomes?
2. Are the proposed outcomes valid?
3. Are the proposed measures appropriate?
4. What are the risks in using these measures - to the Suppliers and to the HA?

Payment Mechanism

1. Should a payment mechanism incorporate both financial and points based elements?
2. How can the payment mechanism be best structured to link it with the outcome measures being developed through the performance specification?
3. Which elements of service delivery should be incorporated as part of the base unitary payment?
4. How can the payment mechanism be structured to ensure that there are sufficient incentives to deliver the outcomes and produce the optimum price/risk transfer?

Best Value Risk Allocation

1. How can the HA be sure of obtaining continuing value for money under what is essentially a fixed price long term contract?
2. What is the likely cost implication of requiring the PFMAC to bear the risk of latent defects in the network?
3. How can the HA's requirement for flexibility be accommodated?
4. How can the HA take comfort that the PFMAC will not underspend on renewal works, accumulate a sinking fund and then abandon the contract?

The following sub-sections provide details on the outputs from each workshop and their respective discussion groups. At the end of the section we summarise the findings from each workshop.

2.2 Bristol Workshop Findings

Participants were divided into four discussion groups each group chaired by a member of the core team. Given below are details of the composition of each group:

Group 1		Group 2
John Hughes D'Aeth	Berwin Leighton Paisner (Chair-am)	Tony Rose	PwC (Chair - am)
David Sparkes	PdConsult (Chair - pm)	Nick Harding	Halcrow (Chair- pm)
Peter Scott	Highways Agency	David Walker	Balfour Beatty
Colin Scargill	Carillion	David Williams	Babtie
John Wainwright	Carillion	Andy Williams	Atkins
Dick Freeman	Balfour Beatty
Mark Elliott	EC Harris

Group 3		Group 4
Jamie Hassall	Highways Agency (Chair)	Adrian Baxter	Halcrow (Chair)
Narendra Singru	Halcrow (Chair)	Ian Henderson	Halcrow (Chair)
David Grunwell	Highways Agency	Malcolm Wilkinson	Highways Agency
Brian Hicks	Colas	Keith Linford	KBR
Ian McCallum	AMEC	Stephen Todd	AMEC
Doug Willis	Babtie	Bill Hughes	EC Harris
Phillip Hoare	Atkins	Martin Hunt	Vinci

2.2.1 Scope of Services

Q1 - What role should the PFMAC take in Control Office functions?

Group 1

• Context of performance specification
• Information
• HA role is primary in control office
• PFMAC role to be supportive
• Information to be transparent / shared
• Shared location? Or comms links

Group 2

• Incident management - authority to control incidence
• Interface difficulty and impact of non-performance by other parties on PFMAC performance
• Ongoing political change risk (i.e.: what will happen to HA)
• All must but politically difficult therefore must recognised ongoing change of the role in the contract

Group 3

• Ideally to be within PFMAC remit / responsibility - recognise political dimension to this.
• Need to consider input of change over duration of contract

Group 4

• Poor decision making in control office could adversely affect PFMAC
• PFMAC should have a presence or at least a direct link to decision makers in control office
• If linked to payment then potential for loss of revenue
• PFMAC to have contingency plans
• PFMAC to undertake "on-road" activities with exception of escorting and education

Q2 - What role should the PFMAC take in on-road activities?

Group 1

• Extend existing duties of MAC (non-policing)
• "Yellow vs Blue" light
• MAC authority (All, abandoned vehicles.)

Group 2

• Incident management - authority to control incidents
• Interface difficulty and impact of non-performance by other parties on PFMAC performance
• Ongoing political change risk i.e.: what will happen to HA?
• All, but politically difficult therefore, must recognised ongoing change of the role in the contract

Group 3

• Ideally to be within PFMAC remit / responsibility - recognise political dimension to this.
• Need to consider input of change over duration of contract

Q3 - What role should the PFMAC take in customer service issues?

Group 1

• Driver error as cause of accidents - performance specifications / measurement
• Yes, but road user education is a separate issue.
• Complaints (within MAC control) to National framework
• PR - National framework to be as HA brand
• TCC

Group 2

• Interface with public as HA, but PFMAC has to have responsibility for customer issues
• Could be Shared role but co-location is essential
• PFMAC provides information to HA, but HA should be responsible for dissemination to public
• HA Brand is the face of service. CDM client role with HA

Group 3

• HA Brand at interface with customer but Not responsible for messaging
• PFMAC for future input

Group 4

• Shared, but with HA brand

Q4 - What involvement should the PFMAC have in developing major improvement schemes?

Group 1

• Threshold dependent on funding available in PFMAC
• PFMAC tender includes known improvements and provision for unidentified "small schemes" to a given value
• Periodic review to forward plan requirements
• PFMAC role?
• Management (at a minimum)
• Supervision
• Maintenance (need involvement in whole life decisions)
• ECI option, PFMAC takes through to target price (as HA agent)
• PFMAC construction role? Competition / procurement rules / issues
• Focus of MAC contract vs TPI opportunities

Group 2

• Are they changing?
• Identified at award - PFMAC responsible for complete DBM
• Contingent at award - PFMAC responsible for complete DBM
• Not identified- Essential that PFMAC is involved at least in managing TPI's / promoting
• Need mechanism (around performance) to ascertain whether they are awarded DB element
• Procurement issues

Group 3

• Operational advantage for TPI inclusion but financial implications for undefined schemes
• Network sterilisation
• PFMAC must at least manage / promote

Group 4

• Interfering with the operation of PFMAC if not included in PFMAC role
• Structure of PFMAC: SPV - TMC and Contractor
• PFMAC involved in identified renewals/improvement schemes - could also tackle future improvements
• Contributory role in development with opportunity to be involved in construction
• PF in PFMAC - £5M threshold - arbitrary figure, better to define by type of scheme
• How far into the future can schemes be identified at tender ?

Q5 - How critical is it that the PFMAC has responsibility for the maintenance of on-road and off-road technology equipment and systems?

Group 1

• Critical issue is information quality
• Not PFMAC responsibility for equipment
• Loss of PFMAC focus is an issue
• Technology changing - poor fit with other PFMAC duties
• Conflicts with equipment suppliers' responsibility for maintenance

Group 2

No comments

Group 3

No comments

Group 4

• Synergy for maintenance / road closures, specialism, consensus - under control of PFMAC

2.2.2 Performance Specification

Q1 - Is it right to measure outcomes?

Group 1

• Yes, providing they can be properly and easily measured

Group 2

• Asset knowledge up front - is it sufficient at moment?
• Operational focus of measures - customer service delivery
• Balance between comparing across areas and within PFMAC
• Asset condition information required but not maintenance regime specification
• Historical data
• Expected PV of maintenance not needed
• Incorporated for first PFMAC - shadow measure with other MAC's
• In principle outcomes are a good way of measuring performance but for Component 1 and 2 - Shadow measure with others

Group 3

Yes - but understanding of the factors and need to know what the outcomes are

Group 4

Agreed as an aspiration

Q2 - Are the proposed outcomes valid?

Group 1

• Safety - ok
• Journey time reliability - ok
• Customer satisfaction - mainly measure by journey time reliability
• Environment - ok
• Network best value - network board
• Supplier capability and performance - ok

Group 2

• The outcome measured - are they ok?
• Informed drivers - where is the measure
• Structure life
• Serviceability to users
• Road availability

Group 3

• Yes / No.
• Issues noted:
• Any other outcomes?
• Changes later
• Cost / benefit mechanism
• Difficult to decide which scheme to invest in - what benefit?

Group 4

• What is the difference between customer satisfaction and journey time reliability?
• Safety - regional difference PIA vs KSI.
• Use safety data to drive improvements - accident investigation?
• 20% of accidents are road condition, 80% driver error
• Journey time reliability - Accuracy of data? TCC data? - Data integrity
• Big impact of a scheme on journey time improvement
• Network value (positive) depends on condition data

Q3 - Are the proposed measures appropriate?

Group 1

• Safety - use KSI, PIA - non-injury accidents
• Journey time - use TCC data
• Customer Satisfaction - use Surveys but small % of measures
• Environment - use EMS, GOMMMS
• Network best value - use HA asset management system, business objectives
• Supplier capability

Group 2

• Comparators across network and against historical information is key
• Limited to area objectives from HA as to expected performance with improvement to be in relation to these.
• The risks associated with this for PFMAC is an issue
• Impact and delivery to be addressed via negotiation

Group 3

• Need to balance costs against outcome
• Major / minor balance
• When will HA instruct work?

Group 4

See previous comments

Q4 - What are the risks in using these measures - to the Suppliers and to the HA?

Group 1

1. Reliability of data
2. Historical data factors beyond PFMAC control
3. External factors that impact on investment decisions

Group 2

1. Failure of measurement system
2. PFMAC taking on more risks on performance of network and how to manage this
3. Impact of adjacent schemes on PFMAC performance - review process link
4. General economy?
5. HA risk is paying premium for delivery

Group 3

1. Are we 100% happy with MAC's?
2. Whole life costing
3. Changing HA Priorities
4. Lack of Clarity and untested
5. Open book accounting
6. Handback

Group 4

See previous comments

Additional issues and comments made during morning session:

General:

• Large amount of maintenance requirements
• Need to identify capital schemes early
• Longer term budget allocations
• What can the PFMAC do in case of an accident / blockage?
• What is the purpose - improve or maintain?
• Latent risks - defects transferred from one contractor to another
• Maintenance - if done correctly then asset condition could be as good at the end.

Scope of services:

• Make PFMAC responsible to the maximum extent possible
• Need for faster accident response
• Team working together
• Need for new schemes that are large identified upfront
• Need for funding "Abnormal" requirements
• Incorporate risk of political changes
• Customer services - similar to MAC's with improvement
• Technical equipment and systems
  • PFMAC to have supply chain support (technical partner)
  • PFMAC to control performance

2.2.3 Payment Mechanism

For the afternoon session the group 3 and 4 addressed Payment Mechanism first, before considering risk allocation.

Q1 - Should a payment mechanism incorporate both financial and points based elements?

Group 3

Yes

Group 4

Ok

Q2 - How can the payment mechanism be best structured to link it with the outcome measures being developed through the performance specification?

Group 3

• Cost & profit (bonus)
• Bonus only for better performance (unitary charge =basic performance)
• Tier 2 - 10 % of retention
• Tier 2 bonus points - 100% of retention
• Proposal of penalty in non performance

Group 4

The variable element of payment in unitary charge must be at a level that PFMAC will bear on a risk. This is likely to "dampen" the payment mechanism to a level that will not justify investment in LNMS Gearing is the issue

Continuous improvement - is this improvement in relation to the benchmark or is the benchmark expected to improve?

Q3 - Which elements of service delivery should be incorporated as part of the base unitary payment?

Group 3

• Minimum standard identify minimum amount (TRIMM Compliance)
• Business Plan
• Defined schemes
• No real alternative given principle of PFMAC
• Across the elements, but!
• Concern about measurement
• Composition of historic / comparators data is key
• With clear indication of expected performance (individual or composite indicated)
• Failure of measurement system
• External factors - impact on performance
• Upfront asset knowledge not mature / robust
• HA premium for delivery if above is not resolved

Group 4

• Ideally component 1 & 2, and Identified LMNS and TPI's
• Component 3 not considered practical because of gearing.

Q4 - How can the payment mechanism be structured to ensure that there are sufficient incentives to deliver the outcomes and produce the optimum price / risk transfer

Group 3

D Risk of both comps - maintenance and capital

Group 4

• PM could result in maintenance of asset and cheep & cheerful improvements
• How can the larger LMNS be incentivised? Some LMNS require - statutory procedures
• Could ask for contribution towards proposed LNMS

Other payment related issues:

• How will differences in capital schemes bid be resolved?
• Fix an amount, then go for the bid
• Need for PFMAC to know / receive historical data
• Can HA handover network?
• Not enough PF in PFMAC
• Need mechanism to include new LNMS after tender award
• How to price against outcomes?
• Ring fenced sums

2.2.4 Best Value Risk Allocation

Q1 - How can the HA be sure of obtaining continuing value for money under what is essentially a fixed price long term contract?

Group 1

Yes "if":

1. Build on precedent (investor effect)
2. Limit on exposure (time & value)
3. Periodic review (no review - no VFM, no funding)
4. Business model review
5. Reset risk and return balance
6. Must be gain / pain share to ensure VFM (open book)
7. Scope of contract and reviews are clearly defined at start

Use of Pain/gain (PPP) and benchmarking (PFI) - more risk

Group 2

• Will issues align with best value?
• Risk that work required doesn't match bid
• Could cap profits - favourite
• Use VM process to benchmark
• Basic unitary charge is difficult to renegotiate
• Component 2 schemes are easier
• Costs need to be seen as a whole - don't take individual rates / costs
• Benchmark as an HA need but not in contract
• How to guarantee sustainability - pain / gain share?

Q2 - What is the likely cost implication of requiring the PFMAC to bear the risk of latent defects in the network? / erroneous network conditions

Group 1

• Progressive shift of PDS
• Day1 - most HA
• Reviews - PFMAC Could outweigh everything else but thresholds
• Cost of putting right and impact on payments vs. expected based on maintenance plan, otherwise poor VFM
• Tenders based on clear set of rules

Group 2

• Unknown therefore PFMAC may as well pick it up
• Use risk register at negotiations
• Cleaner to pass risk
• If insurance used HS will eventually pay
• Large excess could mitigate costs
• Data availability and accuracy is key
• Setting cap only clouds the issue
• Identify high risk at tender stage

Q3 - How can the HA's requirement for flexibility be accommodated?

Group 1

• Pain / gain rather than fixed PFI
• Review
• Compare to plan (also check annually)

Group 2

• Interim reviews
• Large changes:
• Imposed schemes (Component 3) performance targets
• Changes limited where possible to review period
• Avoid constant change
• Changes in measures will be network wide and might be other drivers
• Restrict interference
• Component 3 schemes negotiated.

Q4 - How can the HA take comfort that the PFMAC will not under spend on renewal works, accumulate a sinking fund and then abandon the contract?

Group 1

• Reviews of plan also pick up need for future work
• Bond - not feasible
• Invest 'upfront'

Group 2

• Agree management plan
• Bond too expensive
• Process audit would give HA assurance
• Audit is expensive
• Links to performance measures
• Trigger levels need to be set correctly
• Holistic measures should give right balance
• Tier 2 type measure use penalty points

2.3 Birmingham Workshop Findings

Participants were divided into four discussion groups each group chaired by a member of the core team. Given below are details of the composition of each group:

Group 1		Group 2
John Hughes D'Aeth	Berwin Leighton Paisner (Chair-am)	Clement Walsh	PwC (Chair-am)
David Sparkes	PdConsult (Chair-pm)	Nick Harding	Halcrow (Chair-pm)
David Prigmore	Highways Agency	Mark Kumar	Highways Agency
David Gingell	Highways Agency	Graham Burgess	Highways Agency
Chris Connor	Mouchel	Mahier Al-Ani	Highways Agency
Roger Potts	Jarvis	Graham Jones	Parkman
Andrew Hugill	4ps	Trevor Platt	Serco
Tony Stratford	Intertoll	Nick Carter	Parsons
Richard Barrett	Atkins	Ian Smith	Intertoll
Mel Garside	Nuttall	Mike Mercer-Deadman	Mott MacDonald

Group 3		Group 4
Jamie Hassall	Highways Agency (Chair)	Ian Henderson	Halcrow (Chair)
Richard Taylor	Halcrow (Chair)	Clive Park	Highways Agency
Brian Pitkin	Highways Agency	Tony Wittering	Highways Agency
Mike Garnham	Highways Agency	Paul Carpenter	Mouchel
Andrew Berkley	KPMG	David Wright	Jarvis
Phillip Jackson	Ringway Highway Services LTD	Adam Wilson	Costain
Roy Pollock	URS Corp	Joe Burns	Amey
Alan Garner	Alfred McAlpine	Chris Arthur	Alfred McAlpine
Forbes Johnston	Mott MacDonald	Ruben Muruganandan	Nuttall

2.3.1 Scope of Services

Q1 - What role should the PFMAC take in Control Office functions?

Group 1

• CO Function to be integrated with PFMAC over time
• CO Function to devolve to PFMAC over time

Group 2

• HA is in control with PFMAC providing services to HA.
• Issues for PFMAC:
• Liability of Private organisation
• Trust of PFMAC taken on Traffic Officer role
• Ability to influence the performance of the road
• Potential conflict of interest

Group 3

• Effect on areas outside PFMAC area.
• Key roles/integration (PFMAC/Police/HA).
• PFMAC role to comprise as much as possible, within full integration.

Group 4

• If CO and TO are HA:
• Consequences to payment mechanism of decisions made by CO.
• 2 way dialogue; CO needs to be aware of PFMAC works programme & PFMAC to be informed of CO decisions and contingency plans.
• CO area will probably cover more than one maintenance area therefore consistency needed in PFMAC & MAC contracts.

Q2- What role should the PFMAC take in on-road activities?

Group 1

All roles should move to the PFMAC

Group 2

No comment

Group 3

• Role crucial (first on scene)
• Record all incident details (prosecution scenario)
• Power to stop/direct/re-open/escort
• Consider overseas examples
• Enhance existent systems

Group 4

• General agreement that on road activities should be included in the PFMAC
• Education role needs clarification?

Q3 - What role should the PFMAC take in customer service issues?

Group 1

• Supply of information to/from TCC } under HA (control)
• Complaints & PR } to remain as a HA brand
• Road user education to be shared

Group 2

• Politically incorrect for PFMAC to liaise with the public
• Stakeholder - PFMAC

Group 3

• As monitored against:
• community relations
• road user/non-road user group education

Group 4

• HA responsibility, assisted by PFMAC (or shared)
• Mechanism to pass penalties on to PFMAC (area-specific performance indicators where appropriate)
• PFMAC write brief
• PFMAC to be given opportunity to tender (value for money)

Q4 - What involvement should the PFMAC have in developing major improvement schemes?

Group 1

• If PFMAC take-over works then full involvement in the external procurement/handover schemes not identified at time of tender
• Schemes identified at time of tender then PFMAC to design & build & operate
• Threshold for Component 3 works is suggested to be £10m minimum

Group 2

• PFMAC to accept risk of managing - it must have an input in TPI delivery
• Without TPI there will not be enough interest - contract value likely to be low
• Must avoid monopoly situation - only few suppliers delivering TPI schemes

Group 3

• EU procurement laws (£ thresholds) affect involvement
• For future schemes then delivery & management
• Schemes < £3m not offered as a right but possible a first refusal basis?

Group 4

• Threshold is arbitrary the objective should be to ensure continuity of work. Include schemes up to £10m
• Any C3 schemes within PFMAC area identified at tender should be included
• Ideally C3 schemes identified after tender should be included but Competition issues may prevail
• General principle should be that PFMAC's all embracing role is disrupted as little as possible.

Q5 - How critical is it that the PFMAC has responsibility for the maintenance of on-road and off-road technology equipment and systems?

Group 1

• Except for infrastructure cabling - all to be with PFMAC.
• ICO equipment will be by PFMAC within their area

Group 2

• Maintenance -Yes
• Software upgrade/systems - No?

Group 3

• Supplier responsibility, payment/penalty alignment
• Service provision outside PFMAC control?
• Maintenance responsibility?
• Associated non-motorway complexities.

Group 4

PFMAC should have control of everything in its area.

2.3.2 Performance Specifications

Q1 - Is it right to measure outcomes?

Group 1

• Measure outcomes - YES
• HA to define

Group 2

Yes - need to measure within a defined framework, which might include some outputs

Group 3

YES (if aligned to objectives/measurable).

Group 4

Yes

Q2 - Are the proposed outcomes valid?

Group 1

• Safety - YES
• Journey time reliability - NO - too many factors outside of PFMAC control
• Environment - YES BUT see comments below
• Customer satisfaction - YES
• Network best value - YES BUT see further comments below
• Supplier capability & performance - IS THIS AN OUTCOME??

Appropriate	Risks/notes
SAFETY Yes	External factors
	What are similar roads?
	Keep it simple
JOURNEY TIME?	Too many outside factors
Too complex	Networks too diverse
[applicable for bonus/penalty]
CUSTOMER SATISFACTION Yes	Needs refinement
ENVIRONMENT Yes	Excluding regional environmental committee
BEST VALUE	Going in the right direction but needs refinement

Group 2

• Safety - must measure - Need more reliable data
• Journey time reliability - Yes
• Network Value - Concern what is the definition?
• Customer satisfaction - Yes
• Environment - Yes - some difficult to control by PFMAC e.g. noise, pollution
• Supplier capability - Yes - must be agreed by both parties

Group 3

Yes but ...% outcome influenced.

Group 4

Yes

Q3 - Are the proposed measures appropriate?

Group 1

No further comments

Group 2

Yes, depends what they are used for (payments, parity)

Group 3

• How long valid for?
• new outcomes/changed by partnering process.
• customer satisfaction - who approached? (Industry, public etc.)
• holistic level of service.

Group 4

No Comments

Q4 - What are the risks in using these measures - to the Suppliers and to the HA?

Group 1

No comments

Group 2

• Supplier:
• If linked to payments - difficult to secure investment
• Financial?
• Changes (e.g. standards)
• HA:
• Financial?
• Long term funding settlements from government

Group 3

• No measurement history
• Sensitivities
• Political interference/policy
• Appropriate data - accurate/benchmarked
• "Open book" scenario
• "Hardline culture"/ lack of trust/industry expectation.

Group 4

• Safety - concern about lack of control
• Customer satisfaction - subjective
• Network best value - how to assess. Depends on the quality of existing data and present and future assessment tools & methods.

2.3 Birmingham Workshop Findings

2.3.3 Payment Mechanisms

Q1 Should a payment mechanism incorporate both financial and points based elements?

Group 1

• Yes, but are the two linked anyway?
• Positive points?

Group 2

• Yes - incorporation of "bonus" PPs?
• Does Agency want to pay more (over unitary charge) for improved service? (Budget effect)
• Should there be a in interim step between good performance and termination?

Group 3 & 4

Content with the principle.

Q2 How can the payment mechanism be best structured to link it with the outcome measures being developed through the performance specification?

Group 1

Balance of outcomes in payment mechanism needs to reflect HA objectives. E.g.

Tier 1

• Journey time reliability - Bonus only
• Outcomes Safety - Bonus only
• Environment - Bonus only
• Network value - bonus/deduction, but capped
• Possible issue of congestion charging impact

Tier 2 - no comments

Group 2

Payment mechanism & outcomes:

• Measurement basis for outcomes
• Historical data (for forecasting) for outcomes
• [Long term debt v short term debt]

Group 3

No comments

Group 4

• There were concerns about loss of revenue for effects over which the PFMAC has no influence.
• If the outcome measures are able to vary the revenue sufficient to incentivise PFMAC to implement Limes the HA will have no control over its budget predictions.
• The variability of revenue based on outcome measures would need to be limited to make it bankable and therefore payment for LNMS would have to be by another method.

Q3 - Which elements of service delivery should be incorporated as part of the base unitary payment?

Group 1

• Penalty points for poor processes
• LNMS.

Group 2

Unitary Charge for: O & M (not including LNMS)

Q4 - How can the payment mechanism be structured to ensure that there are sufficient incentives to deliver the outcomes and produce the optimum price / risk transfer?

Group 1

No comment

Group 2

Outcomes & Incentives (say 5% of unitary charge)

2.3.4 Best Value Risk Allocation

Q1 - how can the HA be sure of obtaining continuing value for money under what is essentially a fixed price long term contract?

Group 1

No further comments

Group 2

Depends on balance of risk & pricing (Already accepted in DBFO)

Group 3

• Long term fixed-price maintenance - consistency of work/budget certainty/Whole Life Cost(WLC)
• Issue concerning improvement works
• Regional contracts may not support national need in best way
• Change?

Group 4

For Component 1 tenderers will probably view the risks (& therefore VFM) similar to O&M risk in a DBFO with a reasonable length of existing road, but because the PFMAC contract price will be influenced to a much greater extent by maintenance works these risks will be a larger component of the final price. The two big risks identified were inflation (e.g. construction cost inflation will not necessarily follow RPI) and existing network condition. A way of reducing these risks would be to allow periodic reviews to address specific concerns. For the Component 2 element the view was that identified schemes known at tender would offer good VFM but unidentified schemes financed from the unitary payment would be extremely risky.

Q2 - What is the likely cost implication of requiring the PFMAC to bear the risk of latent defects in the network? / erroneous network conditions

Group 1

No comments

Group 2

• Not VFM - HA to retain Latent Defects risk
• Increased cost to HA
• contingency pricing
• capital provision + £cap on risk?

Group 3

• Level of latent defects on mature network?
• Risk to be shared (partnership ethos)?
• PFMAC not to take latent defects risk or VFM based on certainty of condition (especially structures - "get-out" clause for catastrophic failures).

Group 4

Quality of condition data was considered essential to reduce risks in this area, and sharing risk registers should help to identify the areas of concern.

The size of the network would have a bearing. The larger the network the more likely that a small to medium size latent defect could be taken as part of general maintenance. However there was still a risk of a major or catastrophic defect emerging. One view was that latent defect risk on major structures i.e. category 3, should not be transferred to PFMAC.

Q3 - How can the HA's requirement for flexibility be accommodated?

Group 1

No comments

Group 2

No comments

Group 3

To what extent risk features if:

• HA retains risk, then not an issue!
• If shared/PFMAC, could be subject to negotiator skills?
• How much HA willing to pay for flexibility?
• "Open book" approach
• Robust examination at tender stage
• Contract re-negotiation process
• Realistic forward/year-on-year programme (level of service)

Group 4

The point was made that given reasonable notice of proposed changes the private sector can often adopt the change economically. Requirements given at short notice, for example, to adopt new reporting systems or to change part of the network can be quite disruptive and therefore costly. A policy of no surprises and advance warnings should be operated.
The general view was that the industry had no difficulty in working with "open book" and therefore a change mechanism built around open-book target cost would offer best VFM.

Q4 - How can the HA take comfort that the PFMAC will not under spend on renewal works, accumulate a sinking fund and then abandon the contract?

Group 1

No comments

Group 2

No comments

Group 3

Careful consortium selection - quality suppliers, continuity of work, monitoring service level.

Group 4

Select the right supplier in the first place.
The concept of Network Best Value was thought to be workable. There was a view that the Network Board should be involved.

2.4 Summary Findings

Given below is a summary of the findings from both workshops based on the recorded notes produced by each group ( as given in the foregoing section) and feedback discussions held after each morning and afternoon session.

2.4.1 Scope of Services Summary

1. What role should the PFMAC take in Control Office functions?

Bristol:

Consensus that the control office function ought to be closely integrated with PFMAC activities with PFAMC taking on responsibility for those activities for which it could control. This responsibility may increase over time. There were differing views as to how this could be achieved with some suggesting that the CO functions could devolve form HA to PFMAC over a given time period. Co - location is suggested to help improve effective and efficient communications.

Birmingham:

Similar views expressed to those above. Additional points of note are concerned the liability of the PFMAC as a private organisation and that the CO area will probably cover more than one maintenance area therefore consistency of approach is needed in PFMAC & MAC contracts

2. What role should the PFMAC take in on-road activities?

Bristol:

Many saw the need for the PFMAC to take on the majority of on-road activities. Exceptions and/or areas which would need further consideration were escorting and education. Again it was identified that the full role may require time to devolve to PFMAC and the contract would need to accommodate this change.

Birmingham:

Generally support the view that the role is very important and that PFMAC should take on the majority of on-road activities.

3. What role should the PFMAC take in customer service issues?

Bristol:

The consensus was that the public would see the organisation as Highways Agency whilst many of the functions associated with customer service would be undertaken by the PFMAC. A shared responsibility with close liaison between HA and PFMAC was confirmed by many.

Birmingham:

Concurred with Bristol workshop that HA to remain as the outward facing "brand" opposite the public. Road user education could be shared

4. What involvement should the PFMAC have in developing major improvement schemes?

Bristol:

For those schemes identified at tender then it was generally accepted that the PFMAC could adequately assess the content and competitively price for the works at tender stage. For those schemes initiated after tender and during the contract period there were mixed views as to the extent of the PFMAC role. Several confirmed that the PFMAC would be quite capable of both procuring, managing and delivering the improvement schemes but acknowledged that demonstrating Best Value without some form of competition would be difficult. The majority confirmed tat the PFMAC ought to be actively involved in managing/supervising the implementation of any improvements which would become the responsibility of the PFMAC to operate and maintain. Threshold levels were considered and the current £5million benchmark used by HA to distinguish major Targeted Programme of Improvement schemes (above £5m) should be re-considered. A threshold of £10m was suggested (at the feedback session) but scheme type/complexity should also be considered.

Birmingham:

Division of views expressed as to role of PFMAC. For schemes identified at the outset then these could be incorporated in at tender stage and competitively priced. For those identified at a later stage there was a split of opinion - some delegates considered that the FAMC should be undertaking both management and delivery, others identified the competition issues associated with such an approach. Thresholds were discussed and £10m identified both several delegates. One discussion group identified a threshold of £3m based on EU guidance.

5. How critical is it that the PFMAC has responsibility for the maintenance of on-road and off-road technology equipment and systems?

Bristol:

For those that addressed this question it was confirmed that on-road and off-road technology equipment and systems are a very important part of enabling the PFMAC to undertake their duties. As to whether the PFMAC has responsibility for the equipment was open to debate. Adequacy of existing equipment, age/defects and upgrading due to technology changes on the network were cited as reasons for not taking complete responsibility for the maintenance and up-keep of equipment.

Birmingham:

Differing views were expressed from PFMAC should have control of everything in its area to, everything except infrastructure cabling through to maintenance only and excluding software upgrades.

2.4.2 Performance Specification Summary

1 Is it right to measure outcomes?

Bristol:

The workshop participants confirmed that in principle it is right to measure outcomes. Whether there is sufficient historical data available to set benchmarks and measure performance in achievement of outcomes was identified by several participants.

Birmingham:

Similar views to Bristol.

2 Are the proposed outcomes valid?

Bristol:

The workshop confirmed that the proposed outcomes were valid, however there was much discussion on their appropriateness.

Birmingham:

Similar views to Bristol

3 Are the proposed measures appropriate?

Bristol:

Suggested measures were:

• Safety - use KSI, PIA - non-injury accidents
• Journey time - use TCC data
• Customer Satisfaction - use Surveys but small % of measures
• Environment - use EMS, GOMMMS
• Network best value - use HA asset management system
• Supplier capability - measure is output related rather than outcome perse

Clarity and robustness of the proposed measures and the ability to compare performance over time, either with other areas or internally was identified as being very important. The impact of matters outside PFMAC control e.g. accidents due to driver error rather than asset condition were identified as being factors affecting overall outcomes.

Birmingham: A not untypical summary of the views expressed was:

Appropriateness	Risks/notes
SAFETY- Yes, but need reliable data	External factors affect safety on network
	What are similar roads?
	Keep it simple
JOURNEY TIME - differing views debatable as to appropriateness.	A complex area to measure with many outside factors
	Network is diverse
CUSTOMER SATISFACTION Yes	Needs refinement e.g. who to include industry, public etc..
ENVIRONMENT - Yes	Excluding regional environmental committee. Some aspects are difficult to control by PFMAC e.g. noise, pollution
BEST VALUE	Going in the right direction but needs refinement
Supplier capability	This is more output related than outcome

Other points of note concerned the period of time for which existing outcomes would remain valid and whether new outcomes could be changed by the partnering process.

A holistic view of overall level of service was also suggested.

4 What are the risks in using these measures - to the Suppliers and to the HA?

Bristol: Typical risks identified were:

1. Lack of clarity and untested outcomes
2. Reliability of data/historical data factors beyond PFMAC control
3. Failure of measurement system
4. PFMAC taking on more risks on performance of network
5. Impact of adjacent schemes on PFMAC performance
6. External factors that impact on investment decisions
7. General economy?
8. HA paying a premium for delivery
9. Whole life costing
10. Changing HA priorities
11. Handback

Birmingham: Typical risks identified were:

1. If linked to payments then possibly difficult to secure investment
2. Financial?
3. Changes (e.g. standards)
4. No measurement history - Appropriate data accurately benchmarked
5. Political interference/policy - Long term funding settlements from government
6. "Open book" scenario
7. "Hardline culture"/ lack of trust/industry expectation.
8. Safety - concern about lack of control
9. Customer satisfaction - subjective
10. Network best value - how to assess. Depends on the quality of existing data and present and future assessment tools & methods

2.4.3 Payment Mechanism Summary

1 Should a payment mechanism incorporate both financial and points based elements?

Bristol: In principle, yes, the payment mechanism should incorporate both financial and points based elements?

Birmingham: Yes, in principle

2 How can the payment mechanism be best structured to link it with the outcome measures being developed through the performance specification?

Bristol:

Key points of note here were: The variable element of payment in unitary charge must be at a level that PFMAC can bear the risk. This is likely to "dampen" the payment mechanism to a level that will not justify investment in LNMS. The mechanism could include both cost and bonus with a bonus payable for improved performance. One issue relates to the basis of the benchmark - external or internal?

Birmingham:

Many expressed the view that the linkage to outcomes should be bonus related, possibly capped, but not subject to penalty deduction if these were not met. Concerns were expressed about loss of revenue for effects over which the PFMAC had no influence. Notable was the point raised concerning investment in LNMS which suggested that if the outcome measures were able to vary the revenue to the PFMAC then this would need to be limited in order to make it bankable. Payment for LNMS may have to be by another method.

3 Which elements of service delivery should be incorporated as part of the base unitary payment?

Bristol:

A typical proposal would be for Component 1 & 2, and identified LNMS and TPI's, but for unidentified Component 3 schemes these may not be feasible because of gearing. The issue of how the measurement of performance could be linked to payment was also identified.

Birmingham: Mixed views some include the operations and maintenance but exclude LNMS other included LNMS.

4 How can the payment mechanism be structured to ensure that there are sufficient incentives to deliver the outcomes and produce the optimum price/risk transfer?

Bristol:

No clear view expressed here, the concerns raised related to the relationship between payment for maintenance and payment for capital investment e.g. LNMS's. How is this to be adequately structured so that private investment/funding could be achieved and returns on investment realised.

Birmingham: One suggestion was Outcomes & Incentives at say 5% of unitary charge.

2.4.4 Best Value Risk Allocation Summary

1. How can the HA be sure of obtaining continuing value for money under what is essentially a fixed price long term contract?

Bristol:

The following were suggested:

1. Build on precedent (investor effect)
2. Limit on exposure (time & value)
3. Periodic reviews including Value Management
4. Cap profits
5. Business model review
6. Reset risk and return balance
7. Must be gain / pain share to ensure VFM (open book)
8. Scope of contract and reviews are clearly defined at start

It was acknowledged that re-negotiation would be difficult at a later stage if not planned for at the outset.

Birmingham:

The workshop discussion groups tended to focus on issues affecting VfM and these included:

• Consistency of work and budget certainty
• Changes and improvement works required
• Regional contracts may not support national need in best way

Two big risks identified by one group were inflation (e.g. construction cost inflation will not necessarily follow RPI) and existing network condition. A way of reducing these risks would be to allow periodic reviews to address specific concerns. For the Component 2 element the view was that identified schemes known at tender would offer good VFM but unidentified schemes financed from the unitary payment would be extremely risky.

2 What is the likely cost implication of requiring the PFMAC to bear the risk of latent defects in the network?

Bristol:

One view was that the PFMAC could take on this risk at the outset although there may be a cost associated with transferring this risk. An alternative view was that the HA retain the risk at commencement with latent defect risk being transferred to the PFMAC over time.

Birmingham:

Differing views expressed. Some considered that it would not be VfM to pass this risk to the PFAMC. Others considered that it could be passed but HA would retail the catastrophic failure risk typically associated with structures. Quality of condition data was considered by some to be essential to reduce risks in this area, and sharing risk registers should help to identify the areas of concern. In addition the larger the network the more likely that a small to medium size latent defect could be taken as part of general maintenance.

3 How can the HA's requirement for flexibility be accommodated?

Bristol:

Suggestions included:

• Pain / gain approach rather than fixed traditional PFI
• Periodic reviews
• Compare to plan (also check annually

It was noted that regular/constant change should be avoided. Change should be planned if at all possible.

Birmingham: Some suggested that flexibility was dependent on the level of risk transferred. Suggested methods of assisting flexibility were:

• "Open book" approach and or target cost contracting
• Robust examination at tender stage
• Contract re-negotiation process
• Realistic forward/year-on-year programme (level of service)
• Given reasonable notice of proposed changes the private sector can often adopt the change economically -- A policy of no surprises and advance warnings should be operated.

4 How can the HA take comfort that the PFMAC will not underspend on renewal works, accumulate a sinking fund and then abandon the contract?

Bristol: Suggested approaches included the following:

• Have an agreed management plan
• Process audit would give HA assurance but could be expensive
• Linkage to performance measures so that monitoring could take place

The use of a performance bond was considered too expensive

Birmingham: Suggestions included:

• Careful consortium selection - quality suppliers, continuity of work, monitoring service level.
• Select the right supplier in the first place.
• The concept of Network Best Value was thought to be workable. There was a view that the Network Board should be involved.

3 Workshop Logistics

3.1 Agenda

The same agenda was utilised at both Bristol and Birmingham:

9.00	Registration and Coffee
9.30	Introduction to the Day - Glyn Harrison, CVRL Purpose of the Workshop Format of the Day
9.40	Introduction - Yogesh Patel, Highways Agency Welcome from the Highways Agency Overview of PFMAC Questions & Answers
9.55	Consultation Feedback: Summary Analysis - CVRL Questions & Answers
10.15	Morning Session: Scope of PFMAC & Performance Specification Scope of PFMAC - Presentation by David SparkesPerformance Specification - Presentation by Nick Harding Each presenter will provide background to their subject and identify specific issues for the discussion groups. Participants are welcome to identify other issues related to the subject under review
10.40	Introduction to Discussion Groups - CVRL Introduction to Syndicate groups & chairs. Workshop Structure/Process
10.45	Discussion Group Session 1
11.00	Coffee - to be taken during discussion group session
12.15	Discussion Group Feedback & Development of Key Issues
13.00	Lunch
13.45	Afternoon Session: Payment Mechanism & Best Value Risk Allocation Payment Mechanism - Presentation by Clement Walsh/Tony Rose Best Value Risk Allocation - Presentation by John Hughes D'Aeth1. Format to be same as morning session
14.10	Discussion Group Session 2
15.10	Coffee - to be taken during discussion group session
15.15	Discussion Group Feedback & Development of Key Issues
16.00	Workshop Review Review of other identified issues Summary of Day and subject areas What Happens Next - Highways Agency
16.30	Workshop Close

3.2 Bristol Participants

The workshop participants for Bristol were:

Core Team

Name	Organisation
John Hughes D'Aeth	Berwin Leighton Paisner
Ian Henderson	Halcrow
Nick Harding	Halcrow
Narendra Singru	Halcrow
Adrian Baxter	Halcrow
Jamie Hassall	Highways Agency
Yogesh Patel	Highways Agency
David Sparkes	pdConsult
Tony Rose	PwC

Stakeholders

Name	Organisation
Stephen Todd	AMEC
Ian McCullum	AMEC
Phillip Hoare	Atkins
Andy Williams	Atkins
Doug Willis	Babtie
David Williams	Babtie
Dick Freeman	Balfour Beatty
David Walker	Balfour Beatty
Colin Scargill	Carillion
John Wainwright	Carillion
Brian Hicks	Colas
Bill Hughes	EC Harris
Mark Elliott	EC Harris
David Grunwell	Highways Agency
Peter Scott	Highways Agency
Malcolm Wilkinson	Highways Agency
Keith Linford	KBR
Martin Hunt	Vinci

3.3 Birmingham Participants

The workshop participants for Birmingham were:

Core Team

Name	Organisation
John Hughes D'Aeth	Berwin Leighton Paisner
Nick Harding	Halcrow
Ian Henderson	Halcrow (Chair)
Richard Taylor	Halcrow (Chair)
Yogesh Patel	Highways Agency
Jamie Hassall	Highways Agency (Chair)
David Sparkes	PdConsult
Clement Walsh	PwC

Stakeholders

Name	Organisation
Andrew Hugill	4ps
Alan Garner	Alfred McAlpine
Chris Arthur	Alfred McAlpine
Joe Burns	Amey
Richard Barrett	Atkins
Adam Wilson	Costain
Ruben Muruganandan	Edmund Nuttall
Mel Garside	Edmund Nuttall
Brian Pitkin	Highways Agency
Clive Park	Highways Agency
David Gingell	Highways Agency
David Prigmore	Highways Agency
Graham Burgess	Highways Agency
Mahier Al-Ani	Highways Agency
Mark Kumar	Highways Agency
Mike Garnham	Highways Agency
Tony Wittering	Highways Agency
Ian Smith	Intertoll
Tony Stratford	Intertoll
David Wright	Jarvis
Roger Potts	Jarvis
Andrew Berkley	KPMG
Forbes Johnston	Mott MacDonald
Mike Mercer-Deadman	Mott MacDonald
Chris Connor	Mouchel
Paul Carpenter	Mouchel
Graham Jones	Parkman
Nick Carter	Parsons
Phillip Jackson	Ringway Highway Services LTD
Trevor Platt	Serco
Roy Pollock	URS Corp

The Capital Value and Risk Team

Facilitator: Glyn Harrison
Assistant: Jenna Shanks

Appendix A - Presentations

Slide show version

Text only version available

Appendix B - Subject Area Information

PFMAC Scope of Service

Executive Summary

The objective of the Scope of Service discussions is to obtain answers to the following key questions:

1. What role should the PFMAC take in Control Office functions?
2. What role should the PFMAC take in on-road activities?
3. What role should the PFMAC take in customer service issues?
4. What involvement should the PFMAC have in developing major improvement schemes?
5. How critical is it that the PFMAC has responsibility for the maintenance of on-road and off-road technology equipment and systems?

Introduction

The Scope of Service of the PFMAC generally encompasses a greater scope of activities and responsibilities than the MAC's and DBFOs. The consultation document identified the following three key issues in any relationship between the PFMAC and the Agency:

• the level of autonomy that the PFMAC needs to deliver the required service, and
• the ability of the PFMAC to manage the risks affecting service delivery, and
• The level of control that the Agency needs to ensure proper use of funds so that the Secretary of State's responsibilities are discharged across the whole network.

In developing the Scope of Service many detailed matters are being addressed. This paper sets out and discusses some of the significant issues that have arisen and which will be explored at the workshop.

Network operator

The Highways Agency/ACPO roles and responsibilities review concluded that, with the exception of a few core-policing activities, the majority of activities could either be shared or transferred to the Highways Agency.

Responsibility for traffic management and traffic operations on the trunk road network is being transferred to the Agency, whilst the Police will retain responsibility for criminality, major incidents and accident investigation.

The review considered the following three elements of the Network Operator role:

• Control office functions
• On-road activity

It is envisaged that most of the central planning and control functions, such as routing of abnormal loads and planning for roadworks, will become a PFMAC duty, with the PFMAC supporting the Agency and Police in developing protocols and contingency planning. The majority of those functions are already contained in the MAC contract.

The current thinking is that operators in the Integrated Control Offices (ICO) will be Highways Agency staff working with the Police. A decision has not yet been made on the presence of the PFMAC/MAC/MA+TMC in the ICOs. The Incident Support Units (ISU) will continue to be out sourced and provided through the PFMAC/MAC/MA+TMC contracts

The current thinking is that high visibility patrols, the Traffic Officer (TO) role, will be an Agency in-house duty.

There remain issues within the Control Office and on-road elements that have yet to be resolved and these are discussed in more detail below.

Issue 1- Control Office Functions

It is important to have single point responsibility in the management of the Control Office; this is seen as essential in incident management/deployment and telephone call handling. Although the Agency is proposing to keep those roles in-house, the PFMAC will still be involved in incident management and deployment with the ISUs, and providing other resources needed to clear up and repair damaged infrastructure.

Clearly there will be an interface to manage between the Police, other emergency services, the TO, the ICO, the PFMAC and other organisations which have a role in incident management.

This is being dealt with in the procedures/protocols being developed for the TO.

The PFMAC will have a role in incident management/deployment. The ICO operator will be responsible for handling the emergency roadside telephones and calls re-directed from Police control offices. They will set the matrix signals and variable message signs and monitor the network using CCTV where available. There is no reason why the PFMAC cannot also monitor CCTV if a link is provided to them. Providing information to the media will also be a function of the ICO and the split between the ICO and TCC is something to be resolved.

If the PFMAC is to be measured on overall network journey time reliability, what role should the PFMAC have in the following activities?

• incident management/deployment
• telephone call handling
• incident sign setting
• monitoring road network (CCTV)
• providing network information to the media
• tactical and strategic sign setting

Issue 2 - On-Road Activities

The Agency is not proposing to take over accident investigation if there are injuries. For damage only the TO would attend, not the Police, and the TO would check those involved had exchanged addresses, insurance details etc, had called out a recovery organisation and were not in an unsafe situation on the highway.

There are other on road activities which fit in with the PFMAC's responsibility to keep the roads open and are linked to journey time reliability. Although dealing with damaged/broken down vehicles is covered by the Police vehicle recovery contracts, there may be an opportunity for the PFMAC to provide this service.

What role should the PFMAC have in the following activities?

• dealing with abandoned vehicles
• removal of damaged/broken down vehicles
• escorting AILs/high risk vehicles (supporting role)
• road use education (shared role)

Issue 3 - Customer Services

In the MAC contract the MAC generally manages customer service issues although overall control for strategic and politically sensitive matters rests with the Agency. If the PFMAC is to be measured on customer satisfaction, to what extent should the PFMAC have a role in the following activities? The question of "single branding" needs to be taken into account.

• queries and complaints
• public relations
• liaison with TCC
• road user education

Issue 4- Improvements

The PFMAC will be responsible for identifying improvement schemes to any value. It would have an "as of right option" to carry out schemes to a threshold value of £5m. Issues about discretionary and imposed improvement schemes need to be resolved.

Issues to be considered are:

• Should the threshold level of £5m be reconsidered?
• Should schemes above the threshold identified at tender be built and/or managed by the PFMAC?
• Should the PFMAC be given the opportunity to build or manage schemes above the threshold but not identified at tender?

Issue 5 - Technology Systems

If the PFMAC is to be measured on journey time reliability, should it have a role in the maintenance of on-road and off-road technology equipment and systems? Responsibility for the maintenance of the equipment in the new ICOs will depend on the form of procurement for the new offices.

It is likely that ICO equipment will be procured under a national contract, although the PFMAC might be required to maintain this equipment.

Some of the issues that will affect the final outcome are:

• geographical boundaries
• national contracts
• interfaces

Preformance Specification

Introduction

A key concept within the PFMAC contract is the use of performance measures. This strategy paper outlines proposed performance measures being developed for the PFMAC contract as an introduction to the workshop where we will ask you to consider:

• Is it right to measure outcomes?
• Are the proposed outcomes valid?
• Are the proposed measures appropriate?
• What are the risks in using these measures - to the Suppliers and to the HA?

Background

The development of the performance specification for the PFMAC is based on a needs driven process modelling approach that links procedures to outcomes. This understanding of needs has identified 6 streams of measurement that support the key objectives of the Highways Agency (HA). The measurement streams cover generic outcomes that the HA are striving to achieve. The measures will be context specific to enable evaluation of the contribution of the suppliers in achieving the HA's overall objectives. The aim is to keep measurement simple and easy to understand.

The measures add value by:

• aligning suppliers with the Agency's objectives
• encouraging innovation at all levels in the supply chain
• providing a driver for continuous improvement in service delivery
• improving whole life value decision making processes
• incentivising achievement of objectives by linking to payment
• allowing aggregation of measures across the network when adopted by other areas
• enabling benchmarking of areas against each other

Measurement of process, procedures and outputs will support the 6 outcome measurement streams as illustrated in Figure 1.

Figure 1 - Procedures, processes and outcomes

Measures

The proposed measures for each of the measurement streams are:

Safety - measured using HA's casualty reduction measures; total KSI, PIA rate and child KSI. It is proposed to report against a road safety index for similar roads. Also measuring non-injury incidents through TCC traffic data, Traffic Officer reports and network damage reports. The PFMAC will be expected to operate an auditable safety management system, which will provide evidence of a proactive approach to incident reduction through intelligent inspections, incident analysis, and knowledge of HA strategy and legal obligations.

Journey time reliability - measured using TCC data either provided for the contract by HA or through third party value added service providers (VASPs). It is proposed to use the TCC stress, delay and congestion indicators from the TCC reporting mechanisms in a format similar to the payment mechanism used in recent DBFO contracts along with whole journey time measures.

Customer satisfaction - measured using an extended form of the Road User Satisfaction Survey. It is proposed that a telephone survey is added to the existing interviews to gain the required level of coverage to give statistical significance to the results on an area basis. The measure will include a weighted combination of road user charter indicators and a measure of customer complaints and enquiries, and how they are responded to, using the HAIL and correspondence unit's databases.

Environment - measured primarily through process measurement of the PFMAC's Environmental Management System (EMS). It is proposed to use the Regional Environmental Committee - an established body of independent key environmental stakeholders (English Nature etc.) - to review the PFMAC's EMS. Options for environmental indicators are being developed with HA. They will need to align with the HA's own indicators, and it is likely that they will incorporate the 11 criteria used in GOMMMS (Guidance on Methodology for Multi-Modal Studies).

Network best value - to measure the efficiency and effectiveness of the PFMAC's asset management. The measurement will use the HA's current asset management systems (HAPMS, SMIS, Edb etc.) to forecast future maintenance requirements, providing the cost and the timing of required interventions. The present value of the required interventions is used as a measure of ongoing maintenance liability. This is based on a measure of network condition or serviceability (similar to DBFO), for example, using TRACS to measure pavement serviceability and using the new structures indicators for assessing condition of the bridge stock.

Supplier capability and performance - to measure the PFMAC's processes and the outputs and outcomes that they produce. PFMAC performance will be measured against the Construction Best Practice KPIs: Client satisfaction-product, client satisfaction-service, cost and time predictability, defects and workforce safety. The client satisfaction-service measure (supplier capability) will align with Procurement's Capability Assessment Toolkit (CAT) - based on the EFQM business excellence model - looking at 6 indicators; direction and accountability, strategy and planning, people, partnering, processes, and internal resources.

Integrated Management System

To ensure consistency of measurement across the different streams it is necessary to look at the PFMAC processes in holistic way. Therefore the processes defined in the various management systems (safety, environmental etc.) will be measured as parts of one Integrated Management System (IMS).

The PFMAC's IMS will be subject to audit and the audit process should look at culture, knowledge and behaviour of staff as well as procedural compliance. A system similar to the International Safety Rating System (ISRS) could be used for the audit of each element of the IMS whereby the audit team interview randomly selected staff to gauge the level of awareness and knowledge of the workforce and the strength of systems and process through structured questioning. This approach has been used successfully by TRL for local authority audit and fits with the Agency's new capability assessment approach.

The measures used in each stream reflect an element of the IMS i.e. all measures are related to outcome, output, and quality and process. The following table shows how the measures that have been selected conform to the IMS concept and relate directly to the Agency's business.

	Outcomes	Outputs	Quality & Process
Network best value	Effective maintenance	Serviceable network	Strategy, knowledge and behaviour
	Cost of identified future maintenance	Asset condition	Maintenance management system (MMS)
Safety	Improved road safety	Prevention and response to incidents on the network	Strategy, knowledge and behaviour
	Various: KSI, slight casualty rate, child KSI	Attending emergency incidents, repair CAT1 defects	Knowledge & implementation of SMS, workforce injuries
Journey time reliability	Improved journey time reliability	Road space planning	Network management
	Journey time reliability, congestion	Lane availability	Liaison with authorities
Customer Satisfaction	Satisfied customers	Listening to stakeholders	Strategy, knowledge and behaviour
	RUSS survey, HAIL, RUC	Focus groups (reports), Whitehall standards	Communication and Liaison
Environment	Respect for the environment	Reduced impact and environmental improvement	Strategy, knowledge and behaviour
	Regional Env Committee	EAP annual report	EAP & EMS
Supplier capability and performance	Efficient and effective business	Result of good process	Strategy, knowledge and behaviour
	Continuous Improvement	Construction Best Practice KPIs	Capability assessment toolkit

Key: Clear boxes describe what the outcomes, outputs and processes are.

Using the Measures

The adoption of an output / outcome based performance specification will enable a service provider 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.

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The measures break down into outcome focussed measures - measuring what customers and stakeholders see out on the network, and output focussed measures - measuring what the Agency needs from its supply chain. The 'supply chain' measures relate to efficiency and effectiveness in delivering the customer focussed outcomes:

The customer-focussed measures are aimed at outcomes aligning to HA objectives:

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The diagram illustrates how the whole of the supply chain, including the Highways Agency and Government, ultimately has the same customers - the road users and network neighbours and stakeholders.

The outcome-based measures are designed to be holistic. By aiming at high-level outcomes that encompass the Agencies aims and their values, and by allowing suppliers to take responsibility for achieving the outcomes rather than individual outputs we align the objectives of Agency and supplier much more effectively.

The use of high-level outcomes will require suppliers to rely on partnerships with 3rd parties such as the police and to take responsibility for factors outside their direct control to be able to deliver effectively. This risk needs to be reasonably predictable to be accepted by suppliers.

Risks

There are number of perceived risks to delivery and operation of the performance measures, the workshop is intended to explore these issues. Risks identified to date include those below but others will be identified:

Data in databases may be inadequate or invalid. Databases may not be available throughout the contract, in particular the TCC contract is scheduled to cover an 8 year operational period only.

Fallback measures/payment mechanisms will need to be included in the contract, does this place undue risk on the PFMAC?

There is a risk that the PFMAC may achieve compliance with the performance measures without contributing to the objectives of the HA. Holistic measurement at as higher level as possible will help ensure that the supplier is delivering what the HA want but what happens where the PFMAC pursues a strategy that is against HA policy?

The proposed measures are, in part, new and untried. Tenderers and their financiers may lack confidence in the objectivity or in the relevance of the measures and apply a high risk premium to their prices. The use of independent objective data sources where possible (e.g. TCC) and the use clear and conceptually simple measures linked to process should help allay concerns. Would it be best to have tried and trusted fallback measures included and develop the new measures in parallel to be included at an agreed point (e.g. interim review)?

There is a risk that the HA current thinking on bringing the Traffic Management role 'in house' may dilute the effectiveness of performance measures and limit the opportunity of linking payment to performance. There will be a requirement to partner but can we measure the PFMAC on outcomes that the HA has more control over than the PFMAC?