Approval To Issue The Invitation To Negotiate (Itn) For The Re-Tendering Of Transport Services’ Outsourced Contracts

Report: 18
Date: 23 September 2004
By: Commissioner

Summary

This report informs the Committee of the current status of the re-tendering activity for outsourced transport services and seeks the Committee’s approval to issue the Invitation to Negotiate (ITN) documentation to a qualified short-list of bidders.

A. Recommendations

That the Finance Committee approves the issue of the Invitation to Negotiate (ITN) for the re-tendering of Transport Services’ Outsourced Contracts to a qualified short-list of bidders.

B. Supporting information

1. During 2002 and 2003 the Finance Committee approved the MPS’s proposed strategy for re-tendering those services previously outsourced. It also approved the creation of a dedicated programme, managed within Procurement Services, to undertake the review of the sourcing requirements for these services and the re-tendering of the contracts. This is known as the Outsource Services (OS) Programme and covers ICT, Pay and Pensions, Transport and Property Services. The Transport workstream is following the procurement route already followed by the Pay and Pensions and ICT workstreams and this will be the third set of Invitation to Negotiate (ITN) documentation that Finance Committee has been asked to approve for issue.

2. The Transport workstream developed both sourcing and packaging strategies for the future provision of transport services based on a comprehensive consultation process with senior MPS stakeholders, key contacts in other organisations in receipt of similar services and suppliers of differing, but related, transport services. Their views were sought on packaging, transition, transfer of data, contract duration, staffing / TUPE issues, attractiveness of the potential deal, market trends and current best practice. These strategies were noted by the Finance Committee on 22 April 2004.

3. This report refers to the re-tendering of those services currently provided by the two transport outsource contracts, services for the covert fleet currently provided in-house and the re-tendering of contracts for the hire and lease of general purpose vehicles. The table overleaf summarises how this range of transport services are currently provided and how this translates into the proposed eight Lot structure.

* These services will not be awarded to separate suppliers

4. These sourcing and packaging strategies addressed a number of lessons learnt from the previous outsourcing exercise, the resultant contracts and their performance. Their aim is to rectify the following issues:

• Problems caused by the use of MPS-wide vehicle availability targets which can sometimes leave individual Operational Command Units short of vehicles even though agreed contract performance is being met.
• Vehicle availability problems caused by a failure to co-ordinate vehicle and vehicle-mounted ICT equipment repair.
• Under-utilisation of the general purpose fleet and significant use of hire vehicles.
• Capacity limitations and high running costs of the in-house covert EFS and collision repair facilities.

Procurement Approach

5. The procurement route adopted for re-tendering the services within the OS Programme is the standard European Union (EU) “negotiated” route. This approach was approved by the Director of Procurement Services, having taken legal advice, and endorsed by the OCSG on 25 January 2004.

6. Members should note that the MPA’s standard approach to procurement is to follow the EU’s “restricted” procurement route that involves the issue of an “Invitation to Tender (ITT)” at the contract stage. This is used when the exact requirement of the products / services being tendered is known precisely in advance. The MPA Contract Regulations have been drafted with this in mind and consequently they refer to the ITT throughout. Having taken advice from the Deputy Treasurer of the MPA and the programme’s appointed legal advisers, it has been agreed that the ITN is synonymous with references in the MPA Contract Regulations to the ITT.

Qualification Phase

7. An OJEU notice for the provision of transport services was published on 22nd March 2004.

8. To encourage a robust competition, a proactive market engagement exercise was conducted which resulted in a healthy response to the OJEU notice. Details are contained in the exempt Appendix 2 to this report.

Commercial Strategy

9. The ITN documentation reflects the commercial strategies that have been developed and agreed by the MPS both at the OS Programme level and at the individual workstream level to meet the specific requirements of each re-tendering exercise.

10. The OS Programme Commercial Strategy was approved by the Directors of Resources, Finance, Transport Services and Procurement Services on 16th April 2004 and was endorsed by the OCSG on 25th May 2004. This strategy identifies the commercial positions the MPA wishes to adopt to best meet its overall business goals and to allow it to develop appropriate terms and conditions and commercial requirements to inform negotiations with bidders. It is also designed to ensure that the MPA retains sufficient flexibility and choice over supply options in its contract strategies to maintain value for money (VFM) over the term of the contract(s).

11. The Transport Workstream Commercial Strategy identifies the MPS’s commercial and performance requirements to be contained within the transport services ITN documentation and the starting positions in subsequent negotiations. It highlights:

• Positions that the MPA should insist upon with bidders.
• Positions where the MPA should express a preference but be prepared to evaluate alternative proposals on their own merits.
• Areas where the MPA should be guided by the market.

A management summary is attached at Appendix 1 for reference.

The strategy for the re-tendering of the Transport outsource contracts assumes a cost neutral outcome but with added value being gained by way of improved outputs from the new contracts. The MPS vehicle fleet can be divided into two general categories: firstly, vehicles fitted with specialist police equipment, normally owned by the MPA, and, secondly, unequipped general purpose vehicles which are a mixture of MPA owned, leased and hired (on either a short or long term basis). The desired outcome is an improvement in availability of front-line response vehicles and improvements in vehicle utilisation resulting in a reduction in daily spot-hire costs for general purpose vehicles. This strategy will clearly identify improvements in service performance and financial benefits.

ITN Documentation

12. The ITN documentation comprises five volumes as follows:

• Volume One: General documentation and instructions (including response requirements), in accordance with relevant MPA Contract Regulations.
• Volume Two: Draft terms and conditions.
• Volume Three: Detailed Statement of Requirements (output specification including HR and TUPE requirements).
• Volume Four: Pricing/Payment/Performance and Commercial requirements.
• Volume Five: Background information, including existing volumetrics.

13. All members of the Transport Action Group – including the nominated MPA Internal Audit member – will have reviewed all five volumes of the ITN prior to issue. Members may also review copies of the completed ITN documentation held by the Director of the OS Programme. It is not intended to lodge the ITN volumes in the Member’s Library at this stage due to their current commercial sensitivity. If required, the OS Programme office can provide a detailed briefing to individual Members.

14. Subject to approval of this report, the MPS intends issuing the ITN documentation to the short-listed bidders in early October 2004. The current timetable showing key procurement milestones thereafter is contained in the exempt Appendix to this paper.

C. Race and Equality impact

1. The OS Programme can confirm that this procurement exercise will ensure that contracts are only let with organisations that fully support the MPA’s equality and diversity policies.

2. There are no direct diversity and equal opportunity implications related to this report.

3. Consultation processes with MPS staff with regard to future requirements are ongoing for each workstream. A briefing process has been agreed with trade unions with a representative attending relevant meetings. With specific regard to the potential outsourcing of MPS staff in Lots 2 and 6A, the trade unions have been consulted. In addition, the OS Programme Director holds a bi-monthly meeting with trade union representatives to update them on general progress.

D. Financial implications

1. At this stage of the process it is not appropriate to reveal the financial implications in a public forum as it may compromise the effectiveness of the procurement competition. These are therefore detailed in the exempt Appendix 2 to this report.

E. Legal implications

1. The OS Programme can confirm that the matter for decision complies with procurement regulations and all relevant EU and UK Government Directives.

2. The OS Programme can confirm that the proposal is within the powers of the Authority.

3. At this stage of the procurement process the contract and terms and conditions are still subject to negotiation, but the drafts reflect the standard MPA terms and conditions. The OS Programme is drawing on specialist technical and legal advice to ensure that relevant clauses will be included to minimise or manage any risks that may emerge during negotiations.

4. The OS Programme can confirm that the ITN documentation (which includes a summary of the proposed contract) contains all the usual commercially appropriate terms and no unduly onerous terms.

F. Background Papers

Previously seen by Finance Committee

• Finance Committee – 10th July 2003 entitled “Appointment of Consultants to support the Outsource Services re-tendering programme and the Procurement Business Process Improvement Programme”

G. Contact details

Report author: Stuart Middleton – Director of Transport Services, Steve Atherton – Director of Procurement Services

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

Appendix 1

Transport Commercial Strategy

Executive Summary

Introduction

1. In order to develop the draft terms and conditions of contract and the commercial requirements, and negotiate with bidders in these areas, the MPS must consider carefully what commercial positions to adopt to best meet its overall business goals for the core services contract. At a strategic level these goals are derived from the key drivers for the programme agreed by the OCSG in September 2003, namely:

• Resilience – the provision of these services must reflect the unique role of the MPS as a world-class public safety organisation. This will include the provision of critical services in all operational circumstances.
• Flexibility – the ability to adapt the provision of the services to reflect future changes in MPS requirements in a controlled and economic manner that meets appropriate operational time scales.
• Best value – the most appropriate delivery arrangements that meet the agreed requirements, provided at the lowest total cost.
• Delivery of business benefits – securing performance improvement within agreed budget limits, and innovation where this leads to clear business benefits.

2. This paper outlines the commercial principles for the MPS’s proposed transport services contract(s) to support the achievement of these goals.

Summary of Key Recommendations

3. The commercial terms for the outsource contracts need to be developed to reflect the following:

A. Service performance

• Include output-based performance measures.
• Link the measures to business goals.
• Insist on highly demanding service levels for mission critical services.
• Include service credits as a performance incentive, with the levels set in negotiation with suppliers.
• The MPS should have the right to ‘step-in’ to services (at the contractors expense) to ensure performance where remedies such as partial termination would be damaging or expensive.
• Ensure proactive monitoring and management action.

B. Value for money

• Not place unnecessary risk with supplier.
• Ensure adequate information is provided to the supplier about the risks being taking on, including the need for due diligence processes to be undertaken.
• Ensures the MPS pays for acceptable performance.
• Insist on an appropriately scoped open book/target margin regime as its primary means to ensure value for money through the life of the contract, supported by a financial model.
• Incentives to encourage both MPS and contractors to seek innovation and continuous improvement in service and cost.
• Include Gainsharing specifically to provide protection for the MPS against windfall gains by the supplier.
• Reflect an opening stance to use RPI(X)-x, where suppliers are asked to bid back the figure for the abatement (x). The contract should identify that the MPS and the supplier would agree a revised mechanism if RPI(X) were to no longer be used by Government (e.g. because of European standardisation).
• Include appropriate break-points during the contract period.

C. Flexibility

• Be based on payment mechanisms that reflect the underlying cost base.
• Provide the MPS with a range of payment mechanisms for new services and/or development work (not just time & materials), to ensure an appropriate level of risk transfer and incentives for each project.
• Include clear arrangements for change control.

D. Business continuity

• Insist on step-in rights
• Develop and periodically test and update a business continuity plan.
• Insist on the standard rights of contract termination.

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