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Price sensitive

There has been fierce competition to win the Highways Agency’s first two Asset Support Contracts. Mark Hansford talks to winner of the latest contract to be awarded about what the experience has been like so far.

First up, Mott MacDonald transportation director David Tarrant wants to be clear: “We have not bought this contract.” Tarrant’s firm is the 30% joint venture partner in the BBMM JV with Balfour Beatty that has just won the Highways Agency’s Area 10 Asset Support Contract (News last week).

BBMM JV will earn £300M over five years for maintaining 500km of motorway and trunk route carriageway including 2,500 structures across Greater Manchester, Cheshire, Merseyside and southern parts of Lancashire.

The contract starts in November.

But that £60M a year deal is significantly below the £100M a year the Agency thought it might have to pay, at least according to its tender documents. In fact, it is somewhat nearer the £50M a year that was at the bottom of the Agency’s price range.

“We have adopted a business model that we think can provide what the Highways Agency wants at a price we can sustain”

David Tarrant, Mott MacDonald

But Tarrant and Balfour Beatty managing director of highways services Tony Gates are clear.

“We’ve adopted a business model that we think can provide what the Highways Agency wants at a price we can sustain,” says Tarrant. “Would we buy ourselves in? No.”

“In awarding the contract to Balfour Beatty Mott MacDonald, the Highways Agency has recognised both the value for money we offer and our excellent track record built up in a decade of managing key parts of the strategic road network,” adds Gates.

That there is such a difference between BBMM’s price and what the Agency appeared willing or was prepared to pay is in a way testament to what the Agency was trying to achieve when it decided to replace the tried and tested Managing Agent Contractor (MAC) contracts with the new-look Asset Support Contracts (ASCs).
ASCs were expected to deliver substantial savings over MAC contracts by allowing contractors more flexibility about how and when they do work, with outcome based ­maintenance standards replacing the existing prescriptive output-based approach.

As Highways Agency chief executive Graham Dalton told NCE last September, when the first ASC was just going out to tender, for Area 2 in the south west: “A little bit of the thinking behind ASCs is that since I joined the Agency three and a half years ago, contractors have been saying to me “let us get on with the work in our own way”. Well, this is a little bit of calling their bluff. Here is their chance.”

Flexibility

Dalton added that giving this degree of flexibility would lead to a widely differing strategies and prices; and this appears to be being borne out. Atkins/Skanska won the contract for Area 2 with a £61.4M a year bid that was not wildly below the £80M that was the maximum the Agency expected to pay.

Of course, BBMM was the front-runner for this deal, and it will likely never be a matter of record what price they may have offered as their bid was ruled out because of a pricing anomaly. But what is clear is that BBMM believes its price for Area 10 is competitive and deliverable.

“The key issue has been to look at the requirement and go back to first principles to look at what is necessary to meet that requirement,” says Tarrant. “The cost of bidding this was high, and that was because we looked at the processes involved from first principles.

The devil is, as always in the detail, and this detail is something Tarrant and Gates are keen to keep close to their chests - after all they are set to fiercely bid two more ASCs including - probably - the one covering the mega Area 3 which takes in a large swathe of south and south east England and for which the Agency is expecting to pay £100M to £140M a year.

“We’re not going to discuss our strategy,” states Tarrant. But he will give a hint as to where the savings are coming from: “It’s in the processes, in standardising design and in the people required,” says Tarrant.

“If you believe that this is just repairing crash barriers and relaying surfacing then you won’t find the savings”

David Tarrant, Mott MacDonald

And although again, he won’t be drawn, it’s clearly in the processes where the savings are really coming. “The ASCs will require a very different mindset for all involved,” he notes.

“If you believe that this is just repairing crash barriers and relaying surfacing then you won’t find the savings. But if you look past that, and at the processes involved, then you will find them,” he says.

Of course, as with all contracts, there is an element of risk that something has been overlooked - and this is particularly true of highways maintenance deals where new bidders are always up against an incumbent. Which makes BBMM’s win in Area 10, against the incumbent AOne+ consortium of Colas, Costain and Halcrow, all the more notable.

But Tarrant is unperturbed. “Yes, the incumbent looks like it is at an advantage - it has established relations, knows the network and has local knowledge. But very often it can actually be at a disadvantage as it may not necessarily see a way of doing things differently. It may, in effect, know too much,” he says.

But he is aware of the risks. “The issue is, when you get in there, you will have to deal with some things you didn’t know at tender,” says Tarrant.

This is something Dalton alluded to in September. “We are probably expecting variable results,” he said at the time. “Some will shine and make money, but some will not get it,” he said.

BBMM is confident it is very much the former. Time will tell.

 

ASCs explained

ASCs replaced managing agent contractor (MAC) contracts and enhanced managing agents contractor (EMAC) contracts this year.

The new contracts aim to ensure motorways and major A-roads are maintained to high standards while delivering substantial savings to help the Highways Agency meet its contribution to reducing the budget deficit.
The Area 10 ASC covers 500km of motorway and trunk route carriageway including 2,500 structures across Greater Manchester, Cheshire, Merseyside and southern Lancashire.
The contract runs over the next five years and adds to Balfour Beatty Mott MacDonald’s current portfolio which includes the Area 4 contract in the South East.

Key features of the new contracts include:

  • maintenance standards which are “outcome based” and less prescriptive about how and when work is delivered
  • affordable levels of service, with appropriate quality but no reward for over-delivery
  • incentives for innovation and efficiency, including the opportunity for contract extensions

simplified pricing mechanisms with a schedule of rates and year on year cost reduction mechanism

  • a higher cost threshold for works (up from £1M to £5M), to allow more procurement through the ASC rather than by separate tender
  • managing technology maintenance and improvement works through the main contract, for more efficient delivery

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