For the last year the Highways Agency has been steadily revolutionising its procurement process. Mark Hansford explains how to win work and influence.
With the Highways Agency this week continuing plans for a new performance specification that will strip price considerations from its tenders, the revolution in procurement is almost complete.
No longer will the Agency use price to influence its choice of contractor. Instead it will rely on quality factors alone, with contractors bidding entirely on their ability to deliver scheme objectives (NCE 29 January).
Without question this is a bold move, and is only possible now because of the absolute confidence the Agency can place in its procurement method. And it owes this confidence to the rigour of the process. Winning work and influencing people at the Agency is now a sublime skill and nothing can be left to chance.
Throughout the development of the procurement system the mantra has been clear and simple:
'The Highways Agency delivers most of its services through contractors and consultants. It is essential therefore that we fully understand the capability of our supply base and engage with those organisations that are best suited to deliver our requirements. The process has been designed to reward the most capable and best performing.'
There are three parts to the new system: prequalification, shortlisting of tenderers, and selection of contractor. All traditionallyfinanced work uses early contractor involvement (ECI), and all major works use the ECC Option C - target cost.
The process begins with prequalification - a pass or fail assessment of a firm's financial standing and technical capacity including its health and safety policy. 'This is the 'gateway', where we look at a company's overall resource and workload and make sure that they are going to be able to put in top level teams, ' explains procurement director Steve Rowsell. 'It's as simple as that.'
From this long-list of pre-qualified suppliers a tender shortlist is drawn up - and this is where things hot up. The shortlist is made up of the five firms with the highest 'vendor rating', a rating calculated by combining two independent assessments of the firm's corporate and past performance.
After a six month process of self assessment and independent validation consultants and contractors will this week receive official confirmation of their CAT score - a mark out of 72 for corporate performance.
But it does not end there, with the same firms now going through a similar process to assess past performance (NCE 4 March).
Initially firms will identify three reference contracts which they will use to assess performance against set criteria that echo the Agency's own key performance indicators.
These two scores are then combined to get the vendor rating.
Initially more emphasis will be placed on the CAT, with an 80/20 weighting, but this will move to 50/50 over three years as past performance data builds up.
'What the CAT is doing in a very open and transparent way is setting out how we want to work and finding companies that we have confidence can perform and sustain that performance over a long period of time, ' says Rowsell.
'If we have chosen the right attributes to assess what we will see is that a good CAT score leads to good performance, ' he adds.
So, with the tender list made up of suppliers that the Agency can have absolute confidence in, the challenge in the tender itself is for firms to demonstrate how they will meet the requirements of the specific project.
ECI aims to bring in contractors well ahead of public inquiry and, in some cases, before draft orders have been raised. There is considerable scope to innovate.
'Before ECI what happened was that at public inquiry we would build in a lot of commitments which the contractor was then obliged to meet. This took away leeway to develop innovative proposals, ' says supply chain manager Gary Wright. 'With the old design and build, contractors were often left tinkering with something cast in stone. ECI allows us to have a more complete D&B.
'Our aim therefore is to appoint an integrated team with all the skills and competencies to work up all aspects of the scheme, ' says Wright. 'At selection stage we are looking at how tenderers are going to bring the team together, how they are going to deliver the scheme objectives and maximise our KPI objectives.'
This assessment will be aided by a new performance specification which, unlike existing specifications that give detailed instructions on how work should be carried out, will define what is to be delivered rather than how it is to be delivered (see news this week).
'We will still specify absolute constraints in areas that are health and safety critical, but in other areas we will be more open and receptive to new ideas, ' explains Rowsell.
Price only comes into play once the ECI contractor is appointed, when his first task will be to draw up a formal target price for the scheme.
The Agency will have a price in mind - indeed new Treasury rules mean that the DfT will have already fixed a maximum budget for the job. If the budget is considered to be unrealistically low, then the ECI contractor will help the Agency make a case to the DfT for more funds or find ways of reducing the scope of the scheme.
The ECI contractor will then be heavily incentivised to find ways of reducing the target cost, meeting that target cost during construction and bringing in the entire scheme - including cost of land, design and moving utilities - under budget.
Incentives will be offered on a sliding scale with caps to prevent windfall payments, but the essence is that the contractor gets the maximum return for setting the most accurate, but competitive, target cost estimate.
'For example, a scheme with a budget of £120M may have a target cost of £100M. If the contractor says it can do it for £90M it could collect a 30% share of the savings, paid over the course of the contract. But if it can't meet its revised target it will pay 50% of the overruns.
'If it then beats £90M it could share a further 15% of those savings, ' explains Wright.
But the biggest rewards are for price certainty - pleasing the Treasury is a prime objective. 'The contractor gets the maximum return for getting the target right and delivering to the target. So we are encouraging innovation through design, and then just want them to build it, ' says Wright.
'And if it can beat the overall budget, perhaps by providing a design that requires less land, it can share 30% of those savings, ' adds Wright. 'This is so they don't become one-dimensional.'