Property procurement strategy for the delivery of construction projects and associated services

Report: 10
Date: 3 May 2007
By: Acting Director of Resources on behalf of the Commissioner

Summary

This report sets out the procurement strategy for the delivery of construction projects by Property Services included within the Capital Programme. Approval of this strategy is sought together with approval to use the South East England Centre of Excellence (SECE) Framework Agreement for significant construction works. Approval is also sought to commence the OJEU process (issue OJEU notices and Invitations to Tender (ITTs)) place a number of OJEU notices to to commence procurement action for supporting services.

The proposals do not commit the MPS/MPA to any expenditure. They replace existing procurement methods and establish a structure through which the MPS can ensure that contracts are let in an efficient and lawful manner. The SECE Framework Arrangement is available to use immediately and is available for four years. The additional frameworks are expected to run from January 2008 to January 2012.

MPA Officers and Estates Modernisation Group (EOG) have been fully briefed on the proposals contained within this paper.

A. Recommendations

Members are asked to:

1. Approve the outline strategy and subsequent procurement procedures, namely:
   1. The utilisation of the SECE Major Works Framework Arrangements for major construction works over £1,000,000, and authorise the MPA Chief Executive to enter into a Partnering Agreement with Hampshire County Council (Lead Authority for SECE). (Estimated total value of projects between £20m pa and £120m pa).
   2. The commencement of the OJEU process for setting up Framework Arrangements for Employer’s Agents for all construction projects. (Estimated total value of contracts between £1m pa and £8m pa).
   3. The commencement of the OJEU process for setting up Framework Arrangements for construction projects for values up to £1,000,000. (Estimated total value of contracts between £6m pa and £20m pa).
   4. The commencement of the OJEU process for design and feasibility consultants. (Estimated total value of contracts between £1m pa and £8m pa).
2. Note that this paper does not seek approval to let any contracts or commit to any expenditure. Further submissions will be made to members seeking approval at individual contract committal stage.

B. Supporting information

1. The MPS Framework Agreements for the delivery of construction services and projects have expired (August 2005). Property Services has, therefore, had to individually competitively tender irrespective of value or strategic importance all construction services, projects and programmes of work. The lowest price tender is almost always chosen which can result in the quality of service being compromised and the erosion of best value considerations. Property Services has also on occasion, due to the nature of work or service required, issued Single Tender Actions which have been reported in accordance with MPA requirements.

2. This traditional approach of serial tendering for individual and unique construction projects is slow and cumbersome and therefore wasteful of resources for all parties. Further, under the existing traditional forms of construction procurement, the contractual arrangements have been found to drive a wedge between the MPS and its suppliers. This is widely accepted in the construction industry and is detailed within the Egan Report, 1998. Specialist sub-contractors and suppliers who possess the detailed knowledge of products and solutions are precluded from the design process as a result. This position is widely acknowledged in the public sector and the construction industry (i.e. it is no longer regarded as best practice).

3. In order to provide maximum scope for innovation and identification of optimal solutions, the detailed knowledge of the supply side needs to be fed into the development of projects as soon as possible. The whole supply chain needs to be integrated in a seamless manner and incentivised to contribute innovative ideas, which lead to better value and outcomes.

4. The current approach using traditional forms of construction contract and letting contracts in isolation means there is currently no real performance management approach in place. Neither is there any real incentive for the contractors and/or consultants to perform exceptionally well/innovate as each new project is tendered with little regard to previous performance. They tend to aim to cut costs to a minimum to maximise profits rather than look for innovative approaches or continually improve. Also, the piecemeal way in which contractors and consultants are awarded contracts does not encourage training and recruitment of local people into the construction industry.

5. In summary, the existing procurement routes for project delivery result in the following problems:

• Higher procurement costs through serial tendering
• Lengthy procurement periods
• Inadequate cost control
• Inadequate mobilisation time
• A process that works against best practice and innovation (e.g. partnering and “Design & Build”)
• Lack of best practice adoption as detailed in The Egan Report 1998.

6. Property Services has a large programme of work and therefore recognises the need to embrace the recommendations of the Egan report ‘Rethinking Construction – Accelerating Change’ and adapt a partnering approach through strategic Framework Arrangements for the delivery of its construction and construction support services. The Egan Report 1998 states - “The industry must replace competitive tendering with long term relationships based on clear measurement of performance and sustained improvements in quality and efficiency”.

7. Full appreciation has been given whilst preparing this outline strategy to the fact that MPA/MPS procurements are required to comply with the Public Contracting Regulations (“The Regulations”), which are the European Union’s Public Procurement Directives and the UK’s enabling legislation, together with the MPA’s current standing orders and regulations.. The purpose of the Regulations is to ensure competitions for public contracts are open and fair.

8. The benefits that the MPA/MPS requires from strategic partnering frameworks are:

• Ensure best value for the Authority and all stakeholders, this will be measured by including a series of Key Performance Indicators (KPIs) within the Framework Arrangements. These will be reported on by the relevant members of the supply chain and will be reviewed to demonstrate performance improvement to support the efficiency goals of the Framework. This needs to include outcome measures and ongoing “cost in use [1]”. Cost in use can equate to some 80% of the project life cycle costs
• Add value to the whole life of a project by engaging all parties in joint ownership and collaboration seeking out opportunities in design, procurement and construction
• Meet the Audit Commission’s key lines of enquiry for good practice in procurement.
• Achieve the efficiency gains advocated in The Gershon Review and National Procurement Strategy
• Require the OJEU process to be followed only once for each Framework Arrangement
• Seek out gains through aggregation, leverage discount for economies of scale, and to avoid bespoke procurement, thereby reducing procurement time and costs. This can be achieved, as even though mini-tenders will be required amongst the Framework suppliers, the process will not be commencing from the beginning, i.e. there will be no requirement to place OJEU notices etc
• Provide continuous improvement through developed long-term relationships and robust performance measurement
• Give better value and investment in the community
• Ensure efficient delivery of construction and associated services.

9. Property Services will follow the good practice guidance on Programme and Project Management as laid out in the “Office of Government Commerce’s (OGC’s) Successful Delivery Toolkit” and Achieving Excellence in Construction”. This will enable Property Services to ensure good supply chain management and also achieve Value for Money as detailed in Section E below.

10. Property Services will promote continuous improvement by ensuring that its contractors and their sub-contractors transfer into and take on board lessons learnt from one project to the next similar project.

11. For each project or cluster of projects, the Gateway Review TM process will provide a regime for health checks throughout the life of a project at key decision points. Property Services is already well advanced in adopting this approach.

12. To follow best practice as defined for project delivery, Property Services has identified the need to set up new procurement arrangements for the following:

• Professional Construction Services
• Construction Services.

13. Property Services has also recognised that additional support and, potentially, a new approach may be required to successfully implement the Estate Modernisation programme. The MPA Estate Strategy involves substantial modernisation and replacement of the estate over the next 5 – 10 years. This will include a new format for Territorial Policing with the creation of Custody Centres and Patrol Bases and replacement of old police stations with modern local contact points. This is a large scale and complex Estate Modernisation programme and will need to be implemented alongside the ‘business as usual’ Property Services work. Scoping of this work is currently being undertaken and will form part of a further paper to MPS Investment Board and the MPA later in the year.

14. A further paper will also be required for the procurement of professional estate services, such as valuation, planning advice etc. This will form part of a further paper to MPS Investment Board and the MPA later in the year.

Proposed project delivery solution

Professional Construction Services

15. For professional construction services consultants it is proposed to set up a Framework Arrangement following the OJEU process for a multi disciplinary consultant, with a number of providers / partners. The selection will be based upon capacity and quality of the firms, their expertise and availability of security-cleared resources.

16. The Framework Arrangement will include the following services:

• Quantity Surveying
• Feasibility; and
• Cost Planning Services, Architectural, Engineering and Programme / Project Management.

Construction Services

17. Projects up to a value of £50,000 will be managed through the FMS (Facilities Management Suppliers) contract in accord with already approved strategies agreed by the MPA.

18. For projects in excess of £50,000 and up to £1,000,000, it is proposed to set up two Framework Arrangements following the OJEU process with a number of providers/partners for mechanical and electrical works and for relevant building works.

19. For projects in excess of £1,000,000, it is proposed to use the South East Centre of Excellence (SECE) Framework Arrangements, which have been set up following the full OJEU process. Programmes of works, such as the Safer Neighbourhoods programme could also be undertaken using the SECE Framework Arrangements if the value of the authorised and funded programme exceeds £1m.

20. SECE was initially established in late 2004 as one of the nine regional centres to develop more effective procurement arrangements in local government. The remit was subsequently enhanced to meet the potential opportunities that the Gershon agenda created and search for wider efficiencies with central and local government.

21. The benefits of utilising the SECE framework arrangements are:

• Low cost entry to collaborative and integrated working arrangements;
• ‘Ready to Go’ frameworks
• Provision of scarce expertise and resource
• Capacity that allows the MPS/MPA to retain control
• Larger economies of scale
• Arrangements developed around proactive performance management.

22. The SECE framework comprises 10 principle contractors or consortia through which the MPS/MPA projects or programmes of work will be developed, procured and implemented.

23. The collaborative frameworks are built upon greater involvement with the supply chain in the design process to leverage better value. By rationalisation of the supply chain, design time can be reduced through repeat use of products and solutions.

24. Utilising the SECE Framework Arrangement allows a much earlier contractor appointment than conventional tender through a separate OJEU process. A potential saving of about 90 days could be achieved. This is achieved as the OJEU notice and initial contractor selection process has already been undertaken in the setting up of the Framework Arrangement.

25. Earlier involvement of the Contractor releases construction intellect into the preliminary design stages, eliminating waste from the design review cycle, and giving safer, more predictable construction.

26. To assess the impact of the new forms of procurement on project outcomes, detailed analysis has been undertaken on a sample of projects worth £100m through different arrangements. Headline results are included within Appendix A.The conclusion was that projects procured through the Framework Arrangements performed significantly better on all criteria; cost, contractor performance; supply chain; health and safety; quality and customer satisfaction.

27. Property Services also propose that a Framework Arrangement is set up following the full OJEU process for Employer’s Agents. The Employer’s Agent role is to protect the MPA’s interest and to act as contract administrator.

28. The use of SECE is recommended as they are significantly further advanced than the London Centre of Excellence and offer a better property related, “fit” in terms of scale and project type. A number of the SECE arrangements are already in place and can be used immediately whereas the London arrangements are still some considerable way off.

29. Procurement Services has undertaken a due diligence exercise on the SECE Framework Arrangement and, in summary, confirmed that it is legal to use the SECE Framework. This has also been supported by external legal advice. Procurement Services has confirmed they support the use of this arrangement subject to the appropriate controls and recommendations being implemented.

Framework controls

Value for money

30. Whilst a basic test that Value for Money (VfM) has been achieved is that a competition has been held, the MPS/MPA is not seeking, and acknowledges that VfM does not mean, in every case, the lowest price. Whilst the final VfM decision is taken at contract award, the non-financial issues, including sustainability, must be aligned with other business requirements from the outset of procurement.

31. Property Services along with advice given by MPA Officers, including Internal Audit and will implement VfM and will seek to:

• Reduce costs associated with the purchasing effort by streamlining procurement and finance processes
• Improve on Programme and Project management skills
• Drive better VfM by sharpening negotiating skills to improve deals with designers, contractors and suppliers, either by reduced costs, improved quality, efficiency savings, aggregating demand for greater leverage or volume discounts
• Better reflect life cycle costs
• Improve contract management on a continuous basis and
• Manage assets particularly at the end of the contract.

32. Property Services will seek further VfM improvements in the following ways.

• Openness and Supplier Interface:
  • Ensuring that bidders appreciate and are fully briefed on the full nature of the MPA/MPS business requirement, increasing the likelihood of realistic bids and deliverable solutions;
  • Behaving as an intelligent customer, discussing openly all elements of the requirement;
  • Seeking to dispel the misconception that bids will be won on lowest price alone. By challenging these perceptions the procurement process will improve the competitiveness of suppliers; and
  • Reducing the project by project cost of the procurement process (including delays and wider cost impacts).
• The Business Requirement:
  • Testing each Business Case critically for continued business need and related cost
  • Ensuring the full requirements are specified and met, without ‘justifiable ‘add-ons’
  • Specifying the requirement in outcome terms so that designers, contractors and suppliers can recommend the most cost-effective methods and in order to encourage innovative solutions that meet the need
  • Ensuring that change control is rigorous at the client/user stage as well as the construction phase and
  • Ensuring that cross cutting programmes/projects (non Property) are properly reflected and appropriately managed (including risk management).
• Contract Award:
  • Ensuring at contract award, that the supplier is identified which has met the specified requirements offering the best VfM;
  • Optimising this cost of delivering a service or goods over the full life of the asset rather than minimising the initial contract price; and
  • Contracting for (where possible) continuous costs and quality improvements throughout the duration of the contract.

33. Once operational, it is anticipated that Property Services will manage the frameworks. The frameworks will be monitored for supplier performance, spending per supplier, overall spending and other criteria. Contracts issued through the framework will be subject to the same procurement requirements for MPS/MPA scrutiny and approval as apply to all non-framework contracts.

Programme

34. The programme for the setting up of Framework Arrangements for minor works and consultancy services is as follows:

• Prepare brief - May 2007
• Issue OJEU notice - July 2007 (37 days)
• Tender Documents - September 2007
• Review, interviews & scoring - November 2007
• Selection of Framework Partners - December 2007
• Sign Contract - January 2008

35. Further approval will be sought from MPA members prior to the selection of Framework Partners and letting of contracts. Letting of contracts using the SECE Framework will follow the governance procedure as defined in the current MPA standing orders/regulations.

36. The SECE Framework Agreement is immediately available for use and whilst the supporting Frameworks are being tendered it is proposed to continue with tenders or the use of the OGC framework (where suitable suppliers are available).

Wider issues

37. 36. The arrangement with SECE will not be exclusive and we will continue to monitor other London centric progress in this area. The approach suggested is in line with HMG sponsored reports in the property and construction area and indeed the report to the MPA on Estate strategy dated November 2003.

38. The proposals contained within this paper are based upon the current standing orders/regulations. Whilst certain aspects of the proposed approach are dependant on the MPA review of current standing orders/regulations but they are supported by external advice (Constructing Excellence). Property Services is engaging with the joint MPS/MPA working group preparing the revised standing orders/regulations in the preparation of these proposals. In the interim (i.e. until the revised standing orders/regulations are approved and adopted) MPA views are known) a sub set recovery plan will be developed and agreed with the MPA.

39. This report is submitted in advance of the report seeking approval of the wider MPS procurement strategy due to the specialist nature of property procurement and also the need to ensure projects previously authorised by the MPA, such as a number of Custody Centres and Patrol Bases can be undertaken in a compliant manner.

Abbreviations

FMS

Facilities Management Suppliers

HMG

Her Majesty's Government

ITT

Invitation To Tender

KPIs

Key Performance Indicators

MPA

Metropolitan Police Authority

MPS

Metropolitan Police Service

OJEU

Official Journal of the European Union

OGC

Office of Government Commerce’s

SECE

South East England Centre of Excellence

VfM

Value for Money

C. Race and equality impact

1. Property Services will promote equal opportunities, amongst diverse communities and across its supply chain and will undertake procurement in line with the MPA’s Equal Opportunities Policies.

2. The tender documents will include a section to cover the MPS’ commitment to promoting the wider social agenda, in particular with respect to the development of skills within the workforce and the mentoring of small and medium sized enterprise at a local level. The documents will clearly state that the MPA will welcome approaches that provide capacity for the MPA to contribute to the social agenda such as the development of skills (i.e. apprenticeships) and the promotion of local and growing businesses. The documents will also clearly promote diversity and will clearly state that the MPA takes diversity very seriously and is committed to developing a workforce that reflects the diversity of the community it serves. Service providers will be expected to have robust policies and operate in such a way that promotes a working environment that actively encourages non-discrimination on the grounds of race, gender, disability, sexual orientation, religion or belief, as well as for the new legislation for age discrimination.

D. Financial implications

1. There are no direct cost implications arising from implementing the recommendations within this report. Ensuring value for money is covered separately within the report.

E. Background papers

None

F. Contact details

Report author: Alan Croney, Director of Property Services and Anthony Doyle, Director of Procurement Services, MPS.

For more information contact:

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

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