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Four share £2.8bn London highways maintenance deal

Joint ventures of Colas/Volker Highways/URS, Ringway/Jacobs, Enterprise/Mouchel and Conway/Aecom have each won an eight year highways maintenance contract from Transport for London (TfL) that could be worth a combined £2.6bn.

The winning consortiums beat off six other rival bids from Amey, Balfour Beatty, May Gurney/WSP, Skanska, Costain/J Murphy/Capita Symonds and Bam Nuttall/Hyder Consulting. All six were eliminated at shortlist stage, which was assessed on a 30:70 quality:price ratio earlier in the year.

But the winning contractors will have to work hard for the cash. Final bids were assessed solely on value, and an annual reduction in payment for services is built in; open-book accounting is to be used from day one and strict key performance indicators will have to be met or the duration of the contract will be cut.

The new contract frameworks, developed jointly by TfL and the London Boroughs, will cover both road maintenance and the design and construction of new schemes, and, for the first time, can apply to all roads across London.

TfL will use these frameworks for all TfL Road Network (TLRN) highway contracts from April 2013, which will be worth up to £1.2bn during the next eight years, and has also written into the Local Implementation Plan guidance that boroughs will be expected to use the new arrangements where they represent better value than existing arrangements.

It is expected that up to 12 London boroughs will use these contracts for a range of maintenance services from April 2013. As more borough’s individual contracts come up to renewal and TfL funds more major borough road schemes, more contracts are expected to be delivered through this framework, raising the total value of the contracts to around £2.6bn.

Each framework, which will run for eight years from April 2013 until the end of March 2021, will cover specific geographic areas of London. By using these contracts, TfL and boroughs could together save up to £450M pounds across the duration of the framework, through avoiding expensive tendering costs, better working practices, coordinated working and better use of resources, plant and fleet, which can then be reinvested into other services and developments.

TfL will make immediate savings. The tendered rates and prices represent a saving of 25% against its current highways maintenance contracts that were tendered in 2005/06. An 11% saving has already been assumed and incorporated into TfL’s business plan.

It will also make year-on-year savings through an annual efficiency challenge based on only uplifting rates and prices by 80% of inflation and through volume discounts when more boroughs join in.

Savings potential for boroughs will vary dependant on a number of factors including the type of works to be delivered. For the ten borough contracts that have been evaluated, efficiencies in the region of 15-30% have been shown.

Payment for core services, including cyclic maintenance and lower value reactive maintenance, will initially be based on a lump sum basis. In each case the lump sum is a tendered price which will be subject to inflation in accordance with the contract formula. This approach minimises transaction costs by removing the need to issue and agree orders for each piece of work.

But the contracts allow for delivery of core services to be moved from a series of lump sums to a single target cost within the first year or two. It is intended that the target cost approach will provide incentives for TfL and contractors to work collaboratively to control and reduce costs as the benefits and risks are shared. The target cost for core services will be based on a full open book analysis with data being made available from all four contractors from day one.

With four framework areas all under open book TfL will be able to benchmark each contractor against the others for the similar lump sum activities before setting any target cost. As a result, the target cost can be based on the actual spend on lump sum activities in the preceding 12 months, uplifted by inflation and the contractor’s tendered fee for profit and overhead. The target will be revisited annually.

The decision to move to target cost will be made only after careful analysis and if there is a good understanding of the risks involved.

Further incentives on contractor performance come through use of five key performance indicators. Performance against them will be reviewed annually and failure to achieve the indicator targets will result in the duration of the framework agreement being cut by six months. The contractor will have the chance to win back these six months by improving its performance against the failing indicators in the following year. But if the contractor fails again the following year TfL has the right to terminate the contract immediately.

TfL believes that this method of contractor incentivisation is effective because the loss of a six month period would reduce the contractor’s order book by around £20M and that the “very public declaration” of failure would “no doubt be highly embarrassing for the contractor and have a greater effect on their business than just the loss of revenue”.

The new contracts will also create hundreds of apprenticeship opportunities for TfL and London boroughs, helping to encourage young people into engineering and delivering a long lasting economic investment. TfL’s new contracts alone will look to take on 120 apprentices throughout the length of the frameworks from April 2013, building on TfL’s award winning apprenticeship programme.

The contracts will help deliver significant improvements in how contractors manage construction vehicles while working on the capitals roads. All contractors will be required to join TfL’s Fleet Operator Recognition Scheme (FORS) and all vehicles exceeding 3,500kg (including those used by subcontractors) will be required to have sideguards, close proximity sensors and prominent signage to warn cyclists about the dangers of passing on the inside of the vehicle.

The contractors will also be required to ensure that their vehicle fleet meets Euro standards for emission standards and regularly demonstrate how they are working to reduce the impact of their works on the environment.

The area based contracts have been awarded to the following contractors:

Central area (covering roads within Camden, City of London, Southwark, Tower Hamlets, Hackney, Lambeth, Wandsworth, Hammersmith & Fulham, Royal Borough of Kensington & Chelsea, Islington and Westminster)CVU is a Joint Venture (JV) between Colas, VolkerHighways and URS
North East area (covering roads within Havering, Barking & Dagenham, Redbridge, Newham, Waltham Forest, Haringey and Enfield)Ringway Jacobs
North West area (covering roads within Hounslow, Hillingdon, Ealing, Brent, Harrow and Barnet)CONWAY AECOM JV
South area (covering roads within Bexley, Greenwich, Lewisham, Bromley, Croydon, Sutton, Merton, Royal Borough of Kingston upon Thames and Richmond upon Thames)EnterpriseMouchel


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