Approval to issue the Invitation To Tender (ITT) for the re-tendering of property services Facilities Management Service (FMS) contracts

Report: 10
Date: 20 April 2006
By: Commissioner

Summary

This report informs Members of the current status of the tendering activity for the outsourced Property Services Facilities Management Service (FMS) Contracts and seeks Members’ approval to issue the Invitation to Tender (ITT) documentation to a qualified list of bidders. The paper also seeks authority to extend the existing incumbent FMS contracts with Interserve and Babcock for an additional 4 months to cover the period between December 2006 and the new contract start date during April 2007. This extension is essential to ensure FM service continuity during the new contract transition period.

A. Recommendations

Members are asked to:

1. Approve the issue of the Invitation to Tender (ITT) for the re-tendering of Property Services Facilities Management Service (FMS) Contracts to the qualified list of bidders detailed in Exempt Appendix 2.
2. Approve the extension of existing FMS contracts with Interserve and Babcock to ensure continuity of service until the new FMS contracts commencement in April 2007.

B. Supporting information

1. Originally two outsource contracts were let in October 1998 with a commencement date of 1 January 1999. Each contract was for a term of five years with facility for possible extension of up to two years thereafter. One contract was for Facilities Management services, the second for Direct Labour services.

2. In April 2003 recommendations were approved by the Finance Committee to enter into interim outsource arrangements which enabled an in depth review of the Property Services Sourcing and Packaging strategy for outsourced Facilities Management services. These interim arrangements were approved by the Finance Committee in October and November 2003.

3. In 2002 and 2003, the Finance Committee approved the MPS’s proposed strategy for re-tendering those services previously outsourced. This included 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.

4. Known as the Outsource Services (OS) Programme, the programme covers Information Communication and Technology (ICT), Pay and Pensions, Transport and Property Services. Following the procurement route adopted by the Pay and Pensions and ICT workstreams, the Property Services workstream have developed both sourcing and packaging strategies for the future provision of Facilities Management Services. These strategies were approved by the Finance Committee in July 2004.

5. The strategies were developed by way of a comprehensive consultation process with senior MPS stakeholders; key contacts in other organisations receiving similar services and suppliers of differing, but related, property services. Views were sought on packaging, transition, and transfer of data, contract duration, staffing/TUPE issues, and attractiveness of the potential deal, market trends and current best practice.

6. The Facilities Management Service (FMS) Contracts are the second stage of the overall FM Strategy Procurement. The procurement follows the successful appointment of the Facilities Management Information Centre, approved by the MPA Finance Committee in December 2005. The intention is to procure two FMS contracts split geographically North and South of Greater London. These contracts will replace the time expired FM Service Contract currently with Interserve Ltd and the Managing Agent role provided by Babcock Infrastructure Services.

7. The primary role for each FMS Contractor is the efficient and effective delivery of Facilities Management services across the MPA estate including Building Engineering Services, Building Fabric Maintenance, Security Services, Cleaning, Grounds Maintenance, Office Services, Waste Management and Pest Control Services.

8. The FMS Contractors will be responsible for the delivery and fulfilment of all (non-specialist) FM services for the MPA estate. The selected suppliers will also provide comprehensive information to the Facilities Management Information Centre (FMIC) to evidence the performance of all FM Services undertaken and provide timely FM service reporting to enable an information led Facilities Management approach.

9. The new FMS Service builds on “best practice” concepts used in both Public & Private sector companies across the UK. The new contracts will provide both Reactive and Planned FM services on a 24/7/365 day per year basis. The FMS contractors will also deliver minor building fabric and engineering projects. The new contracts differ from the existing in the following ways:

• Delivery of the service will be split into 2 geographically based packages/contracts (North and South of London). This split will provide additional service resilience and flexibility compared with the existing single contract with Interserve.
• The new contracts will include a mechanism that links service payments to achievement of performance targets and continuous improvement.
• The new contracts will provide greater flexibility to accommodate the future estate changes and Policing needs.
• The new contracts will provide a greater focus on the proactive avoidance of FM service failures.
• The new contracts provide an opportunity to enhance the current FM service delivery and value for money.

10. This report refers specifically to the tendering of the Facilities Management Services (FMS) Contract. The existing contracts with Interserve and Babcock will expire on the 31 December 2006. The planned commencement of the new contracts is scheduled during April 2007 to ensure a safe and resilient transition period and coincide with the MPA financial year. Approval is therefore needed to extend the existing Interserve and Babcock contracts to bridge the gap between 31 December 2006 and the new contract commencement in April 2007. The fixed expenditure with Interserve (fixed element) is circa £24m per annum, so the value of the extension is worth approximately £8m for the 4-month period. This expenditure is not an extra cost and would have been incurred on the new contracts had they been awarded to run from January 2007. The budget provision for these costs has been included in Property Services' budget for 2006-07. Commencement of the new contracts in April rather than January 2007 provides a longer mobilisation period for the new suppliers to allow for security clearances and the transition of staff under TUPE.

Procurement approach

11. The procurement route adopted so far for re-tendering the services within the OS Programme is the standard European Union (EU) “Negotiated” route. This still requires the MPS to develop the specification for complex services in sufficient detail for bidders to be able to price. This process has been utilised in Transport, Pay and Pensions, ICT and FMIC so far. The purpose of the procurement process is to select the most suitable supplier who will best meet the MPS’s outsourcing objectives. Under a negotiated route, the MPS seeks to move as quickly as possible to work with suppliers who appear to offer the best fit with its business criteria whilst conforming to the legal requirements and defined stages which protect competition.

Chart 1: The key selection stages are identified in the diagram (see supporting material)

12. The new FMS contracts will be procured utilising the new EU Competitive Dialogue Process (CDP) procurement route, which came into effect in the UK in January 2006 (this approach has been used widely in Europe over the last few years). The reasons for utilising this route are that the procurement is complex and requires extensive dialogue in the development of the final service specification.

13. The CDP procurement route is a halfway house between the open “Negotiated” route previously utilised by the programme and the “Restricted” routes used in standard MPS procurements. This procedure preserves not only competition between the bidders but also the need for the contracting authorities to discuss all aspects of the contract with each candidate whilst utilising internal resources in a more cost effective way than that expended in the open “Negotiated” route.

14. The competitive dialogue process, whilst currently not part of the contract regulations, is in the spirit of them. It is a competitive process that will enable the Authority to demonstrate value for money has been achieved, and members will be involved at key stages, including approval to award the contract. There will be no preferred bidder, and therefore members will not be presented with a fait accompli at the contract approval stage. The Director of Procurement Services and Outsource Contracts Steering Group (OCSG) has approved this approach, after review of its suitability for this procurement with our legal advisors, in December 2005. Below is an overview of the differing stages in the competitive dialogue process.

Chart 2: An overview of the differing stages in the competitive dialogue process (see supporting material)

15. The new CDP route enables a competitive dialogue to occur between the Authority and respondents prior to an Invitation to Tender being issued to shortlisted respondents. The Competitive Dialogue process, which is seen as “best practice” in the industry (ref. OGC), will enable the Authority to develop service solutions with respondents prior to issuing the ITT documentation. This ensures that the respondents are fully conversant with the MPA requirements and will enable market best practice and service delivery innovation to be captured and embedded into the service specification.

Qualification phase

16 The OJEU notice for the provision of Property Services FMS Services was issued on 16 December 2005, giving a response deadline of 25 December 2006. A qualification process in line with standard MPA and MPS procedures, by means of a pre-qualification questionnaire, was undertaken. 21 responses were received within the response deadline. A full evaluation process has been undertaken and a list of 8 qualified bidders has passed the process for progression to the “Dialogue” stage of the procurement process. Details of the process and the qualified bidders are provided in Exempt Appendix 2.

Commercial strategy

17. The Property Services FM Commercial Strategy mirrors the OS Programme Commercial Strategy. The strategy identifies the commercial positions the MPA will adopt to best meet its overall business needs and to develop appropriate terms and conditions and commercial requirements to inform negotiations with bidders. It is designed to ensure that the MPA retains sufficient flexibility and choice over supply options and ensures value for money (VFM) is maintained throughout the term of the contract.

18. The Commercial Strategy for the FMS contract procurement was approved by the Finance Committee in April 2005. An outline of the Commercial Strategy requirements developed by Property Services for this procurement is detailed in Exempt Appendix 3.

Timetable

19. Subject to approval of this report, the MPS proposes to issue the ITT documentation to the short-listed bidders in mid June 2006. The proposed timetable showing key procurement milestones thereafter is detailed in Appendix 1.

20. To ensure members are fully briefed prior to the issue of the ITT, an additional briefing session will be offered to members in early June. The purpose of this briefing will be to notify members of any changes and refinements to the contract documents as a result of the Dialogue process and to provide members with an opportunity to discuss the qualified list of respondents and service specification prior to commencement of the tender period.

Abbreviations

ITT

Invitation to Tender

FMS

Facilities Management Service

OS

Outsource Services

ICT

Information Communication and Technology

FMIC

Facilities Management Information Centre

EU

European Union

CDP

Competitive Dialogue Process

OCSG

Outsource Contracts Steering Group

VFM

Value For Money

ITN

Invitation To Negotiate

C. Legal implications

1. The proposed CDP procurement process is fully compliant with procurement regulations and all relevant EU and UK Government Directives.

2. At this stage of the procurement process the contract and terms and conditions are still subject to Clarification, but the drafts reflect the standard MPA terms and conditions.

3. The OS Programme draws on specialist technical and legal advice to minimise or manage any risks that may emerge during negotiations.

4. The ITT documentation includes all the usual commercially appropriate terms and no unduly onerous terms.

D. Race and equality impact

1. The procurement process will ensure that contracts are let to organisations that fully support the MPA’s equality and diversity policies.

2. Property Services’ Outsource Action Group has been set up to co-ordinate the consultation processes with MPS staff in regard to future outsourcing requirements. In addition, the OS Programme Director holds bi-monthly meetings with trade union representatives to provide regular updates on outsourcing procurement programmes.

E. Financial implications

1. The financial implications related to the re-tendering of the FMS contracts will be reported following the completion of the Competitive Dialogue and Tender Process in a future paper to this committee seeking Contract Award approval.

2. The current FM Supply Chain costs are circa £95m per annum and the expectation is that the new supply chain costs will be reduced as a result of the new FMS contracts.

F. Background papers

• Paper to October 2003 MPA Finance Committee entitled “Property services outsource contracts and commercial strategy beyond their initial expiry date of 1 January 2004”
• Paper to November 2003 MPA Finance Committee entitled “Consultancy services to manage delivery of the annual major maintenance works programme”
• Paper to November 2003 MPA Finance Committee entitled “Management of the facilities services contractor”
• Paper to July 2004 MPA Finance Committee entitled “Proposed Sourcing And Packaging Strategy For The Future Provision Of Facilities Management Services”
• Paper to April 2005 MPA Finance Committee entitled “Approval to issue the Invitation To Negotiate (ITN) for the re-tendering of Property Services Facilities Management Information Centre “

G. Contact details

Report author: Alan Croney – Director of Property Services, MPS

For more information contact:

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

Appendix 1

Property Services FMS Timetable

The timetable showing key PS FMS services procurement milestones is detailed below:

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