Highways Agency

PFMAC Stakeholder Consultation Workshops Document

Appendix A - Presentations

Text only version

Slide show version available

Private Finance in Highways Maintenance

Stakeholder Workshops

Bristol/Birmingham

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Private Finance in Highways Maintenance

Yogesh Patel

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Delivering Customer Service

• Safe Roads
• Reliable Journeys
• Informed Travellers

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Vision

"To be recognised as being a client at the forefront of best procurement practice by working in partnership with a sustainable supply chain to deliver best value solutions and service."

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Key Principles

• Early creation of delivery team
• Integrated & incentivised supply chain
• Competitive & Sustainable supply chain
• Clear responsibilities
• Quality Design
• Supplier selection
• Optimum risk allocation
• Partnership approach
• Performance Measurement
• E-Procurement

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Motorway and Trunk Road Maintenance
Managing Agent Contractor
Model Contract Document

June 2003A1 Darrington to Dishforth DBFO Contract
Invitation to Tender
April 2001

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Best of Both

Private Finance in Highways Maintenance (PFMAC)
Consultation Document

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Objectives

Best Value

• Capture the benefits of the MAC and DBFO contracts in a single contract
• Incentivise service delivery and continuous improvements for the benefit of both the Agency and the supplier
• Obtain best whole life value
• Promote innovation in operational, financial and commercial arrangements
• Allow flexibility to introduce change
• Achieve best value allocation and management of risk
• Speed up delivery of network improvement schemes.

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Principal Elements of PFMAC

A diagram shows a honeycomb shaped diagram with two layers around a central block which states PFMAC.

Layer 1 around the central PFMAC block - Operations, Maintenance, Design, Build, Stewardship, Finance.

Layer 2 around the outside of layer 1 - Performance Specification, Safety, Innovation, Reduced Congestion, Customer Satisfaction, Environment, Appropriate Risk Allocation, Partnering, Flexibility, Service Delivery, Continuous Improvement, Whole Life Costing.

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Balance

Hard nose financing & Partnering

Image showing a handshake

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What Next...

• Workshops in Birmingham & Bristol
• Final Consultation Response Analysis including outcomes from workshops.
• Further development
• OJEC - Sept 2003
• ITT - Jan 2004
• Award - Dec 2004
• Start - July 2005

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PFMAC Summary of Consultation Analysis

Glyn Harrison
CVRL

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Response

37 detailed responses from 200 invitations

Breakdown of Respondents
Contractor	16
Consultants	11
Other Assoc/Group	4
Local Authority	3
Financial Advisors	2
Insurance/Risk Advisor	1

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Scope of Service / Work

• Component 2 schemes - majority view is PFMAC to have these as of right - with high degree of autonomy
• Component 3 schemes - role of PFMAC
  ??

PFMAC role on Component 3 schemes
Managerial / agent only	46%
Both manager & deliverer	37%
No view	10%
No C3 in PFMAC	7%

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Contract Duration and...

...Geographical Extent

• Duration of contract:

Duration of PFMAC contract
+5 years	4%
10-15 years	22%
+15-30 years	67%
+30-40 years	7%

Geographic extent: min. current MAC areas probably larger (x2) but dependent on level of turnover. Range of suggestions incl: £30-£50m C1+2 up to £80m pa; 1200 - 1500km

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Network Board

• Respondents agreed that Network Board was required in a similar format to MAC but expanded to recognise PF element
• Several suggested the composition be skewed to reflect risks of PFMAC

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Performance Measurement

• Consensus that outcomes are important, but mixed views over which outcomes the PFMAC should take full responsibility:
  • Network safety & journey times - split view
  • Customer satisfaction & environment - more against
  • Supplier performance & network condition - seen as
  • being more able to be placed with PFMAC
• Many inclined to share the responsibility for outcome delivery with HA and PFMAC to focus on outputs.
• Majority identified need for clear measurable deliverables and outcomes to be established at outset

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Payment Mechanism

• Differing views as to how the delivery of Component 1, 2 and 3 schemes can be linked to objectives:

Payment mechanism linked to outcomes
	Linked	Part-linked	No/difficult to link
C1	15	5	1
C2	2	1	20
C3	2	1	20

• A number of alternative payment & change mechanisms proposed incl: target costs, annual fees, lump sums etc...

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Supplier Selection

• EU procurement route - tend towards 'negotiated'

• Tender period: Min 4 months, optimum 12 months
• Mobilisation: 6 months

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Funding

• Probably an SPV structure but several alternatives proposed:
  • Prime contractor or alliance structure
  • Not for profit partnership
  • Single company with prime supply chain partners
  • New MAC contract with funding for C2 + C3 from public funds
• Limited restrictions on sale of equity
• HA equity partner:
  • Advantages: full partner/shared objectives
  • Disadvantages: potential conflicts of interest, adverse PR, public governance issues

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Handback & Risks

• Residual value was considered difficult to calculate and not preferred by many
• Risk Allocation & Management - a key element of contract. Summary list included in report but include:
  • Risks around scope reflected in level of responsibility and control vested in PFMAC,
  • 3rd party risks & asset condition to be established,
  • latent defects with HA?
  • resources to deliver with PFMAC,
  • late C3 schemes - many risks to remain with HA

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Any Questions?

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PFMAC

Scope of Service

David Sparkes
pdConsult

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Comparison

DBFO

• typically single route
• early delivery
• some operations
• design
• build
• maintain
• finance
• whole life cost solutions
• single supplier approach
• detailed risk allocation

MAC

• network area
• stewardship
• operations assistance
• design
• maintenance
• improvement
• partnering
• integrated delivery team
• risk management
• continuous improvement
• innovation

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Objective

Delivering Customer Service

Component 1 - knowledge & maintenance

Components 2 & 3 - improvement

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Knowledge

• watch
• investigate
• monitor
• inspect
• advise / report
• liaise
• co-ordinate
• programme
• listen
• think

This list then points with an arrow towards...

Area Network

• current state
• current needs
  • customer
  • network
• current action

Customer Service

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Maintenance

• Keeping roads open
  • cleaning
  • winter
  • emergencies
• Mending
  • repairs
  • replacement

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Improvement

• Small improvements
  • design by PFMAC
  • build by PFMAC
  • manage by PFMAC
• Major improvements
  • design by...?
  • build by...?
  • manage by...?

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Issue 1

What role should the PFMAC take in Control Office functions?

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

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Issue 2

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

• management of minor collisions
• dealing with abandoned vehicles
• removal of damaged / broken down vehicles
• escorting AILs / high risk vehicles

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Issue 3

What role should the PFMAC take in customer service issues?

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

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Issue 4

What involvement should the PFMAC have in developing major - financial threshold

• schemes known at tender
• future schemes
• managerial, deliverer or both improvement schemes?

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Consultation

What role should the PFMAC play in delivering Component 3 schemes identified after contract award?

46% managerial / agent only

37% both manager & deliverer

10% no view

7% no C3 in PFMAC

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Issue 5

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

• national contracts
• interfaces

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Questions

Scope

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

Performance

• See Nick Harding's presentation next....

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Performance Measures

Performance Measures

Nick Harding
Halcrow

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Why a Performance Specification?

• To align supplier decision making with HA objectives & high level outcomes
• To incentivise continuous improvement
• To allow aggregation of performance network wide
• To benchmark areas/contracts against each other
• To support culture change to customer oriented outcome driven process

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Questions to Consider

• Workshop questions we will ask:
  • Is it right to measure outcomes?
  • Are the chosen outcomes valid?
  • Are the proposed measures appropriate?
  • What are the risks in using these measures - to the Suppliers and to the HA?

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Measurement Streams

A honeycomb shaped image is given. The middle block is Delivered Outcomes with the outside layer - Safety, Journey Time Reliability, Network Best Value, Supplier Capability & Performance, Environment, Customer Satisfaction.

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Output/process Measures

A Diagram shows the following information.

The middle core has Supply Chain, PFMAC and Highways Agency between each are double-ended arrows joining them and they are outlined by a dotted circle. Customers are outside the circle outline and joined to the Highways Agency and PFMAC by double-ended arrows. Also outside the circle outline are Supplier Capability, Supplier Performance and Network Best Value. These are outlined by a box and an arrow is shown from the box to the circle outline. Government are outside the circle outline and join the Highways Agency with a double-ended arrow. Stakeholders are also outside the circle outline and join to the Highways Agency and PFMAC by double-ended arrows.

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Aggregation of performance from HA to MAC to suppliers

A diagram shows the following information.

Customers, PFMAC and Stakeholders are joined by double-ended arrows with a circle outlining the three. Outside the circle outline is a box containing Safety, Journey Time Reliability, Environment and Customer Satisfaction. The box has an arrow pointing to the circle outline. Outside of the circle outline is Highways Agency which has double-ended arrows pointing to Customers, PFMAC, Stakeholders within the circle outline and also Government outside the circle outline. Supply Chain is also outside of the circle outline and is joined to PFMAC by a double-ended arrow.

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Integrated Measurement System

• Combination of lead and lag indicators:
  • Measuring outcomes
  • Measuring quality and integration of process
  • Measuring performance as a result of process
• Use of Integrated Management System
• Normalization of measures allows benchmarking between areas
• Network measures rather than scheme measures - schemes contribute to overall outcomes

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Safety

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Safety Measures

Outcome Measures:

• Headline indicators from HA's accident database
• KSI and PIA rate with Severity Index
• Outcomes benchmarked against national average for similar roads

Process Measure:

• Highway Infrastructure Safety Assessment

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Journey Time Reliability

JTR Measures

Diagram gives the following information.

Using existing performance measures DBFO Contracts (Developed and Accepted Performance Measures) are separate from Traffic Control Centre (Developed Indicators) with Congestion, Delay, Stress and Reliability. Using proposed measures all these working together would free traffic flow and increase journey time reliability.

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Performance Incentives

Free Traffic Flow Measure

• Traffic speed against stress (traffic flow / capacity)
• Ensures that traffic flows through the area network at an acceptable speed (DBFO type measure)

Journey Time Reliability Measure

• Journey time variation against stress
• Ensures that journey times within the area network are repeatable and consistent

Measurements based on TCC sections

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Environment

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Environmental Measures

• EMS - tool for delivering performance improvement (Process measure as for HISA)
• Stakeholder buy-in to measurable targets - (using Regional Environmental Committees)
• Functionality of elements of soft estate
• Use GOMMMS to predict net environmental improvement from schemes
• Check against predictions

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Customer Satisfaction

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Customer Satisfaction

• Measure: extended road user satisfaction surveys
• Building on existing RUSS
  • Separate local survey of 600 people per area
  • RUSS team carrying out feasibility study
• Survey results directly affected by supplier activity
• Option to extend survey to other stakeholders, e.g. neighbours, vulnerable road user

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Network Best Value

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Network Best Value

Identified Future Maintenance

• Measure of present value of future maintenance
• Agreed at start and end of contract and monitored throughout
• Future interventions based on WLC and meeting network condition requirements using HA systems

Proactive Maintenance

• Measure CAT1 defects caused by deterioration

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Supplier Capability & Performance

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Supplier Capability

• Adopt and develop the capability assessment toolkit (based on business excellence model)
• 6 capability attributes, 3 indicators per attribute, 5 levels of performance
• Self-assessment followed by 3rd party check
• Assessment followed by action plan to improve
• Aligns PFMAC with HA
  • Balanced scorecard
  • Construction Best Practice Indicators

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PFMAC Workshop

Discussion Group Session 1

• Scope of Service
• Performance Specification

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Workshop Discussion Groups

Overview of the Syndicate Group Sessions

Objectives of the workshop discussion session:

• To briefly review the subject area(s) so that all understand the content and context
• To address the issues/questions raised from the position papers and presentations
• To allow participants to identify any other issues related to the subject + any other issues

• Record on the flip-chart, all discussion points , supplementing with notes for clarification to ensure understanding

• Suggest that an "other issues" sheet is kept whilst working with the group so that other matters can be noted as you progress thro' the specific issues.

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Workshop Discussion Groups

• If you find that you are straying into another subject (probably because they are related) then record the issue and hold it for the next subject e.g. participant raises a payment issue when you want to discuss scope.
• Summarise the group's view at the end of each issue/question and see if there is a clear view as to the group's opinion.
• Someone from the group to present back to the wider group their findings.
• At the feed back session we would like to take one issue/question at a time from each group and to draw out any consensus/divergences etc from the whole workshop-

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Workshop Discussion Groups

Key Questions

Scope of Service:

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 onroad and off-road technology equipment and systems?

Performance Specification:

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

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PFMAC Workshop

Payment Mechanism

Clement Walsh

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Scope

• Would pay for:
  • Operating costs
  • Routine maintenance
  • Periodic maintenance (Renewals)
  • LNMs
• Would not pay for:
  • 'Imposed LNMs'
  • TPIs

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Structure - Tier 1

• Unitary charge
• Would make payment on bonus/penalty basis for:
  • Journey Time Reliability
  • Safety
• Would make payment on achieving objectives for:
  • Environment
  • Network Value

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Structure - Tier 2

• Penalty points mechanism based on delivery and performance in relation to Integrated Management System
  • Safety, Network Value, Environment, Customer Satisfaction and Supplier Capability
• Points would be allocated for failure to rectify non-conformance
• Escalation of points could ultimately lead to termination of contract

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Incentives and risk

• Mechanism needs to :
  • incentivise the delivery of continuous improvement of performance across the network
  • be sensitive to the measurement of outcome improvements across the network
  • be geared to ensure that both excellent and poor performance are treated appropriately
  • Be geared to ensure the PFMAC will be incentivised to invest

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Issues for discussion

• Should a payment mechanism incorporate both financial (Tier 1) and points (Tier 2) elements ?
• What are the key issues with linking an outcome based performance specification to the proposed payment mechanism?
• Should all the elements of service delivery (OMR and LNMs) be incorporated into the base unitary payment as proposed ?
• How can the payment mechanism be structured to ensure sufficient incentive to deliver outcomes whilst maintaining a

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Best Value Risk Allocation

John Hughes-D'Aeth

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Key Questions

• Can a "fixed" long term contract offer assured VFM?
• What are the implications of requiring the PFMAC to bear the risk of latent defects?
• How to ensure flexibility
• How to avoid HA being "left in the lurch"

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Question 1

Can a "fixed" long term contract offer assured VFM?

• How will PFMAC approach the risk of changes in standards?
• Should HA seek to benefit from efficiency savings?

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Question 1 (cont.)

Possible answer - interim review of pricing

• Benchmarking/market testing
• Specific indexation
• Share profits above agreed level
• But need to preserve focus on whole life cost/value

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Question 2

What are the implications of requiring the PFMAC to bear the risk of latent defects?

• Accuracy of network condition data
• Risk of major failures
• Risk of multiple repairs/renewals
• VFM issue

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Question 2 (cont.)

Possible answer - risk sharing

• Is this desirable?
• If so, how might it be achieved?
• Implications for HA
• Use of risk register

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Question 3

The "ideal" structure is inflexible

• Future changes in HA policy, budgets etc
• HA may wish to change outcomes
• Avoid need for DBFO change mechanism if possible

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Question 3 (cont.)

Possible answer - interim review of outcomes

• Agree changes to KPIs/metrics
• Learn lessons from rest of network
• Sharing of cost adjustments (linked to overall profitability of PFMAC)

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Question 4

Risk that PFMAC may delay renewals, accumulate funds and leave HA "in the lurch"

• During the contract
• At end of term
• Risk of PFMAC insolvency

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Question 4 (cont.)

Possible answer - protection for HA

• Forward programme of predicted renewals
• Link to "network best value" KPI
• Tier 2 sanction if non-compliance
• Reserve account controlled by HA
• Handback - retention fund/bond

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PFMAC Workshop

Discussion Group Session 2

• Payment Mechanism
• Best Value Risk Allocation

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Workshop Discussion Groups

Key Questions

Payment Mechanism:

1. Should a payment mechanism incorporate both financial and points based elements ?
2. How can the payment mechanism be best structured to incorporate the performance specification outcome measures?
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 sufficient incentive to deliver outcomes whilst maintaining a optimum price/risk transfer ?

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Best Value Risk Allocation:

1. Can a "fixed" long term contract offer assured VFM?
2. What are the implications of requiring the PFMAC to bear the risk of latent defects?
3. How to ensure flexibility?
4. How to avoid HA being "left in the lurch"?

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A Reminder of What Happens Next...

• Workshops in Birmingham & Bristol
• Final Consultation Response Analysis including outcomes from workshops.
• Further development
• OJEC - Sept 2003
• ITT - Jan 2004
• Award - Dec 2004
• Start - July 2005

THANK YOU FOR PARTICIPATING TODAY!