SUMMARY/PURPOSE
1.
The
purpose of this report is to seek formal approval to the Council exploring the
benefits of a partnering approach to contracting by means of a pilot scheme
which will cover the Schools Building Programme from 2004/5 onwards.
BACKGROUND
2.
Partnering
fundamentally challenges the way in which the Council procures its works or
services and so requires the approval of this Committee.
3. If approved, a partnering approach would be used to engage
contractors to undertake around 10 to 12 projects per annum. Typically, these projects involve
refurbishment or extensions and individually range from £100,000 to £500,0000.
In total it is anticipated that £3 million per annum of work could be
involved. The Schools Building Programme
is considered the most appropriate vehicle for introducing Partnering because:
·
there
is a willingness on the part of the client and users to pursue it which could
be crucial in its successful implementation
·
in
other areas of the Council (such as Highways) Partnering would not, in itself,
solve a long term funding problem
·
there
is sufficient ‘repeat’ work (at least in its nature) to achieve the cost
savings and continuous improvement which Partnering can bring.
4. Features of Partnering
Partnering, as its name suggests, requires
the client (the Council) and the contractors, sub-contractors other suppliers
and the design team, to work in collaboration with each other so that the best possible outcome is achieved for all
parties. In the world at large, clients
like the Council, have become increasingly aware that competitive tendering,
with the contract being awarded on the lowest tendered price, does not
necessarily mean that they get best value.
Under competitive tendering, for a contractor, the priority is to win
work to support its fixed costs. This
may mean bidding low to win the contract.
Once the contract has been won, the priority then becomes profit and may
mean skimping on quality, health and safety or making claims to increase the
contract price. This leads, it is said,
to a ‘confrontational’ stance by the parties, the client paying more than it
expected and the finished product not meeting the quality that was hoped for.
How Partnering Differs
5. Partnering is different from the traditional methods of awarding contracts in that it requires a collaborative approach from all the parties involved. The aim is to find the contractors and designers that best fit the contract package. The criteria for selecting them is set out later in this report. In essence, Partnering involves a different way of remunerating contractors so that:
§
There are
effective incentives for them to perform well.
§
There is
realistic and fairer apportionment of risk between the client and contractor.
§
There is a
culture of continuous improvement which is shared by the contractor.
6. Having
selected contractors and the design consultants which best fit the Council’s
requirements the Council then begins to work in collaboration with them. It is only then that a target price is
agreed. Risk to the client’s and contractor’s
interests is then managed by allocating it to the party which is more capable
of dealing with it. At this stage, too,
performance indicators are developed, the contractor’s profit and overhead are
fixed (so that he can focus on delivering value) and the parties also agree how
further ‘gains and pains’ are to be shared between the parties. Provided the contract performs to the
standards expected (and indeed demonstrates a drive for continuous improvement)
the partnering relationship will continue indefinitely (but subject to review)
giving the contractor every incentive to maintain his performance to gain
repeat orders.
Other
Features and Benefits
7. Partnering
has other features and benefits:
(a)
The number of
contractors or consultants is generally reduced compared with traditional, open
market competition.
(b)
For a chosen
contractor, there is therefore less competition and a more consistent stream of
work.
(c)
For the
client (the Council) there is the benefit of continuous improvement that comes
from working together more often.
(d)
There will be
at least two strategic partners to prevent complacency on the part of
contractors and to ensure that should the strategic alliance come to an end,
there is at least some competition remaining.
(e)
Greater
transparency is required in relation to costs.
This, in turn, requires an ‘open book’ relationship.
(f)
The
collaborative approach goes beyond the relationship between client and
contractor – it embraces the design team, sub-contractors and others in the
supply chain.
(g)
Proponents of
partnering suggest that there are significant cost savings (20-30% are not
uncommon) that can be achieved. These
can be achieved through a combination of ‘value management’, ‘value
engineering’, removing uncertainty by managing risk, incentivising contractors
by having a gain/pain share scheme, continuous improvement, better design and
open book accounting. The following
graph illustrates how costs can be reduced.
SELECTING PARTNERS
8. Members
are asked to consider the following recommended criteria to be used when
prospective contractors are being considered for their eligibility as
partners. It is important that the
Council is seen to be acting fairly in this regard and that its procedures are
transparent. Members are invited to
modify the criteria as appropriate and to delegate the final determination of
the criteria, their application and weightings to the Strategic Director for
Corporate Services in consultation with the relevant Portfolio Holder
|
Criteria |
|
Technical Track record on previous schemesAbility to respond promptly Quality of resources/expertise Ability to harness all design, construction and risk
issues Ability to prepare target costs and programmes Willingness to work with ‘open book’ Ability to manage Health and Safety/CDM |
|
Commercial Financial strengthEconomic tests (eg Schedule of Rates) Adequate insurance |
|
Soft Issues Ability to work collaborativelyAbility to manage supply chain Appropriate culture Understanding IWC and its aims Ability to innovate Commitment to continuous improvement Commitment to staff, training and equal
opportunities Evidence of Quality Assurance regime and culture |
STRATEGIC CONTEXT
9. As reported above, partnering would fundamentally challenge
the way in which the Council procures works and services, and could have a
profound effect on the contractors with which we do business. The driving force behind partnering is a
national agenda which seeks to improve the performance of the building industry
and ultimately to improve the quality of the finished product – buildings that
are better designed, more fit for purpose, representing value for money and
delivered on time.
10. As mentioned above, partnering would result in fewer
contractors working with the Council.
The advantages of this are that contractors (and consultants) have more
certainty about being awarded more work.
They can then afford to invest, not just in plant, but in people (by way
of training) and in new technology and methods. In that sense, partnering may have the effect of encouraging
contractors to grow and develop, employ a better trained and skilled work
force. It will also require that they
have a collaborative culture operating within their companies and in their
relationships with other ‘players’. These organisational developments will benefit any company which
can sustain a collaborative approach with the Council.
11. In terms of the service, the LEA has to demonstrate continuous
improvement in the design and suitability of its schools, as well as provide
for new places, as directed by the DFES.
Partnering should also lead to delivery of school projects on time,
within budget and with lower ‘full-life costs’.
CONSULTATION
12. Presentations
have been made to the Directors’ Group, an Informal Executive, and a seminar of
senior staff involved in contracting, and there has been a general consensus
that the Council should experiment with partnering – hence the pilot being
proposed in this report.
13. Further
consultation, with the industry and other stakeholders is taking place during
challenge days arranged for the Best Value Review of Procurement which is
currently underway. Early feedback
suggests that some local businesses already have some experience of partnering
and that there is a mixed opinion of it.
Many agree with the principles of partnering, but are concerned about
the effect on the local economy and in particular the potentially damaging
effect on smaller businesses. Clearly,
these concerns need to be dealt with, and the pilots will help us assess both
the benefits of partnering and any drawbacks.
One mitigating factor against this is that most of our smaller works
will continue to be awarded by the traditional method.
14. Discussions
with local Housing Associations and the Health Trust indicate that those
organisations are working up similar schemes.
15. Consultation with schools via the Asset Management Planning
Steering Committee (which has 2 representatives from each of the Sectors) has
taken place. Generally, feedback from
them is positive and they are very much in favour of the concept of partnering.
FINANCIAL/BUDGET IMPLICATIONS
16. The
financial implications of partnering are that potentially it offers significant
savings for the Council with an improvement overall of the outcome of building
projects and the value for money that they represent. The projects which will form part of the pilot are already
planned and their cost provided for within the schools building programme. There is no extra cost associated with
partnering, merely a different approach.
However, because of the fundamental changes required and because it is
important to get it right, the Council has already engaged the services of a
consultant to assist it through a potentially steep learning curve, at a projected
cost of £12,000.
LEGAL IMPLICATIONS
17. The
Council has a duty to provide and maintain school buildings, and best value in
so doing, under the provision of the Schools Standards and Framework Act 1998
and the Local Government Act 1999.
18. The proposal is that up to £3million worth of building works
is potentially involved, and whilst EU procurement thresholds are £3.8million,
it is more likely that the whole agreement, which could last for five years, is
the relevant figure to use (ie five years at £3million per annum equals
£15million). The notice inviting
expressions of interest will therefore need to be posted in OJEC, and the
selection process subject to the requirements of EU law.
19. Although the Council’s own Standing Orders make no specific reference
(as yet) to partnering, advice taken indicates that partnering is not
inconsistent with the principle of ‘Most Economically Advantageous Tender’ (or
MEAT) as set out in them. In due course
(within six months and before a detailed agreement is made with partners)
Standing Orders will have been reviewed to take account of such initiatives.
OPTIONS
20. The Council has the following options:
(i) continue to award contracts using ‘Most Economically Advantageous’ criteria, as set out in the Council’s Contract Standing Orders;
or
(ii) continue to award contracts as in (i), but at the same time to explore the benefits of partnering by way of a pilot scheme covering the Schools Building Programme.
EVALUATION/RISK
MANAGEMENT
21. The Executive is being asked to approve
option (ii) above as it represents an opportunity to achieve better outcomes at
lower cost – overall better value for money.
The real risk here is that the Council does not explore new and
innovative ways of working. If, after
using these trials to test the benefits of partnering, it is concluded that
there are none compared with traditional methods, the Council will be in a
position which is no worse than now. In
that sense there is little risk involved.
There is the risk though that the partnering approach has a profound
effect on the local building industry which, although could be positive, could
also be negative, if not managed properly by the Council. This is why the Council is only, at this
stage, proposing to run a pilot scheme.
Many of the small building works (say under £100,000) will continue to
be awarded on a traditional tender basis, which will ameliorate some of the
potential harmful effects on smaller businesses.
RECOMMENDATIONS
22. (1) That
the Executive approves the use of a partnering approach to contracting when
awarding contracts under the Schools Building Programme 2004/5 onwards.
(2) That the
Executive approves the criteria recommended at paragraph 8 for the selection of
the Council’s partners, and to delegate the final determination of criteria,
their application and weightings to the Strategic Director for Corporate
Services and the relevant Portfolio Holder.
BACKGROUND PAPERS
23. ‘Rethinking Construction’ - DETR Taskforce led by Sir John Egan
‘Constructing the Team’ - Sir Michael Latham
Report to Informal Executive - 7
May 2003
Presentation by Dr Neil Jarret - Informal
Executive 7 May 2003
The Council’s Procurement
Strategy - Executive approved December 2002
Procurement Routes for
Partnering – A Practical Guide - Dr
Jon Broome
Contact Point : Bob Streets, ( 823622, e-mail: [email protected]
Tony Flower, ( 823263, e-mail: [email protected]
M J A FISHER
Chief Executive Officer
And Strategic Director of
Corporate Services
P HARRIS R
BARRY
Deputy Leader Portfolio Holder for
Resources