Highways Agency

Summary Of Consultation Findings

The Highways Agency, in April 2003, issued a document entitled "Developing Performance Specifications: Consultation Document" to put forward options for widening the use of performance specifications, not only in private finance contracts but across all forms of procurement. The document was circulated to a range of stakeholders both within and outside the HA.

The 54 responses that were received provided a wealth of information and opinions about the options being presented and practical advice about the implementation of performance specifications. Respondents were generally positive about the move towards outcome based measurement and performance specifications although a number of concerns and reservations were expressed on a range of related issues.

Key Messages

• There are significant and worthwhile benefits in working under Performance Specifications including flexibility and a boost to innovation.
• The link between 'Outcomes' and 'Outputs' is not always clear or established. The large number of external influences may mean that in some instances that link is weak. Providers want to be measured by outcomes they can control.
• There are real problems of measurement in relation to outcome specifications. Time is needed to research and develop the measurement process, the HA should proceed slowly in introducing outcome measures.
• There is scope for industry to take on more risk but industry feels that risks should be shared with the HA and that there would be a cost associated with taking on more risk which would need to be reflected in the reward offered. Some risks should remain with HA. Risks should be fully understood and quantified and providers feel that there should be a cap on the element of risk they are required to bear.
• There is support for technical standards/specifications being made more flexible with some possible risk sharing with suppliers. However, there is no support for the HA fulfilling its Technical Governance role by totally passing responsibility for such standards to suppliers.
• There is support for industry engagement in setting standards/specifications. Joint working to speed up the approval of 'innovations' (rather than 'departures') was seen as the way forward.
• Short term and some other contracts were not considered suitable for outcome specifications.
• Consistency across the HA network may be compromised if there is wide flexibility in specifications.

Issues for Suppliers

• Respondents tended to agree that performance specifications would encourage innovation, improve efficiency and increase value within contracts although there was concern that small and medium contractors and the supply chain would be at a disadvantage due to the high insurance costs associated with performance specifications.
• Respondents were split over which elements of performance should be measured on an outcome basis. Some contractors appeared to welcome the application of performance specifications for all elements of work, although they also pointed to a number of potential problems. A number of client bodies and suppliers questioned the appropriateness of using outcome specifications. The majority of respondents agreed that routine and cyclic maintenance would be appropriate areas for outcome measurement and that outcomes outside the providers' control should not be measured using performance specifications (examples mentioned included safety and congestion). A specific concern raised was that the means of determining the long term durability of pavement structures do not currently exist and that this will constrain the associated performance measurement.
• When discussing the ability of industry in general to assume the risks inherent in outcome based performance specifications all respondents agreed that risks should only be transferred if they are manageable by the party to whom they are being allocated. Suppliers raised a particular problem about their ability to obtain insurance and the impact that this would have on their ability to apply for and fund projects. Clients noted a concern that unnecessary risks might be taken by contractors either due to commercial pressures or through a lack of adequate understanding.
• In order to develop the issue of risk management consultees were asked whether there were any risks that should not be transferred. The majority of respondents believed that the risk of political and client objectives changing could not be transferred to providers due to their lack of influence over the management of such risks. Clients preferred not to transfer the highway geometry and structural integrity risks.
• Respondents were also asked what risks they perceive in working under performance specifications; 44% of respondents believed that there would be misunderstandings and incorrect interpretations and that tender stage assurances may not be met. Again possible problems obtaining funding were raised as a major risk, especially for small and medium organisations. When asked how these risks could be managed the respondents were split almost equally between 'implement risk analysis and management', 'work in partnership' and 'link performance measurement to risk transfer'.
• The final question specifically relating to suppliers asked for suggestions on the cultural changes that might be required to facilitate the implementation of performance specification based contracts. The majority of respondents agreed with the sentiments within the consultation document that; "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". Respondents also felt that a change of mindsets would be required both within the Highways Agency and the industry itself. Again it was noted that cultural changes would affect the smallest companies hardest.

Issues for the Agency

• The first issue for the HA was concerned with whether performance specifications should be extended to all Agency contracts. A high proportion (83%) of the organisations consulted felt that performance specifications should not be extended to all, if any HA contracts; although 17% of respondents stated that they should be extended to all contracts, this view coming predominantly from contractors. Specific areas of procurement where traditional prescriptive types of specification should be retained included short term contracts, sensitive locations and improvement schemes. It was also noted by a large proportion of respondents that existing specifications should be retained as guidance and as a benchmark for best practice.
• In response to the question of how the HA's technical governance role could be supported by suppliers, respondents stressed that this role should remain with the HA with support from suppliers and not transferred. Tools that could be applied to assist the support process included quality management systems, working in partnership and innovation forums for continuous improvement.
• Taking this issue forward, the implications for suppliers if they were allocated the responsibility for standards was discussed. Respondents did not appear to welcome the transfer of responsibility and were concerned about inconsistency, uncertainty, inefficiency and increased costs. However there was also a view that such a transfer of responsibilities could result in improved professionalism with the emergence of specialists.
• The final question in this section of the consultation document asked for suggestions in relation to the use of future looking indicators. The responses showed that there were differences of interpretation amongst the respondents as to what 'future looking indicators' meant, what the benefits would be and how they would be utilized. Generally, it was felt that if such indicators are to be used they must be robust. Some contractors and consultants were of the view that future looking indicators are of limited value, apparently due to the problems associated with measuring the future performance of assets.

Issues common to both the Agency and Suppliers

• Respondents were asked to give their opinions on how suppliers will guarantee continued quality and best value without a detailed specification to follow. Feedback included a majority response that the SHW and DMRB should be retained as baseline guides to requirements and to provide a consistent approach. In addition it was commented that demonstrable outputs and benchmarking of costs should be established and quality management systems employed to monitor the processes.
• Similarly, the issue of how the HA will assure itself that the services being provided are to acceptable standards and meeting its objectives provided a split of responses between specifying performance standards, implementing an audit process, measuring outcomes and using quality management systems. Respondents generally agreed that a transparent and robust audit system would provide the necessary assurance and that the extension of PRIDe could be of value.
• Mechanisms that should be included to ensure that specifications and standards are updated as required to reflect best practice and to deliver continuous improvement were discussed. Continuous Improvement Groups were seen as beneficial, as was the retention of a custodian role by the HA for the specifications and standards. The importance of setting up a mechanism to make best practice available to all and therefore encouraging continuous improvement through the achievement of defined outcomes was noted, as were discrete reviews through external panels. There was also a comment that in an outcome specification based contract, achieving continuous improvement may require the contract to be renegotiated.
• Within performance specifications it was agreed that there would be considerable benefits if suppliers were prepared to share information; the majority of consultants, contractors and suppliers stated that they would be prepared to share information although clients were unsure that this would be the case.
• It was noted that the implementation of incentivisation mechanisms would be appropriate, especially to retain smaller organisations within the process. Innovation forums appear to be the most acceptable method of sharing information and it was noted that trade organisations already share information successfully and that therefore this could be extended subject to the protection of intellectual property rights.
• The final question within the document considered the impact on the bidding process if performance specifications were introduced. All the respondent types agreed that the key impact would be a more costly tender process and a requirement for longer tender periods and negotiations. Other key issues were the increased quality of data that would be required by the tenderers and its timely provision at the initiation of the tender stage and the requirement to better develop and understand the asset inventory for the network.

Other Key Issues

• One point of note made by a number of respondents was that higher prices should be expected at the beginning of the implementation of performance specification since this is the beginning of a learning curve, however in the long term this should level out.
• Other key issues raised through the responses were concerns that the transfer of responsibility for standards and specifications to suppliers would result in more conservative designs, in order to reduce the risk to the respective organisations. It was also pointed out that reducing costs is not necessarily conducive to better performance and that performance specification may lead to higher standards coupled with higher costs.
• There is a specific requirement for clearly identifiable reward systems and incentives for suppliers who accept the risks associated with performance specifications, especially at the early stages. Furthermore, it was mentioned that the introduction of outcome measures should not be rushed; they need to be thoroughly investigated and clearly understood by all the parties involved before they are rolled out; more research is required and trials conducted.
• It was noted that the recent issue of the new European Standard has moved the road markings industry from a purely "recipe" specification into one that allows the engineer to specify which standard of performance he requires. So the tools are coming into place. Many other areas of highway construction and maintenance are either introducing new standards or already committed to them.
• It was commented that the performance specified must be attainable, that standard methods of measurement are essential and that KPI's must be transparent and meaningful.