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Prices tumble for Highways Agency maintenance deals

Prices for Highway Agency maintenance contracts are tumbling as contractors vie to win hard-fought deals, the latest contract award reveals.

Prices for Highway Agency maintenance contracts are tumbling as contractors vie to win hard-fought deals, the latest contract award reveals.

The winning bid for the Area 10 asset support contract came in at £300M over five years which was at the low end of what the Agency expected to pay. It had estimated that it would pay between £50M and £100M a year for the service.

A Balfour Beatty/Mott MacDonald joint venture was last week confirmed as winner of the Highways Agency’s Area 10 asset support contract (ASC), as predicted by NCE in March (NCE 29 March).

From November the joint venture 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 starting in November.

The low bid for Area 10 comes four months after the Atkins/Skanska consultant/contractor partnership won the Area 2 contract in the South West with a £61.4M a year bid.

Agency expectation

The Agency had expected to pay £30M to £80M for this contract, which covers 1,100km of motorways and trunk road.

The Balfour Beatty/Mott MacDonald alliance was understood to be in the running for that contract but lost on a pricing anomaly.

It is understood that the Agency is having difficulty understanding contractors’ bid pricing methods since it reintroduced a schedule of rates against which contractors work was priced.

The managing agent contractor (MAC) contracts that ASCs replace were priced on whole scheme cost estimates, known as sample schemes.

As a result there is far greater emphasis on pricing individual elements of work in the ASC contracts.

In April, Highways Agency ASC manager Graham Bowskill confirmed that there was “very much a focus” on the financial element of bids, with the award made on a 50/50 split between cost and quality. Previously the Agency had been moving towards awarding contracts based 100% on quality.

Balfour Beatty managing director of highways services Tony Gates suggested that the focus on price was key.

“In awarding the Area 10 ASC 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,” he said.

“These are challenging times for all providers with a requirement to deliver more for less, in line with the country’s economic climate. But at Balfour Beatty/Mott MacDonald we have anticipated and met this challenge through constant dialogue and engagement with our customer.

“The award of this contract demonstrates our ability to adapt to the requirements of our customer and offer them an excellent service at all times.”

Winning contractors face intense pricing pressure throughout the contract life, with the schedule of rates reduced year on year. In theory, contractors can make up for lower revenues income by offering more innovative solutions, as the Agency moves towards “outcome” based standards.

Less prescriptive

This means it is less prescriptive about how and when maintenance is carried out.

Highways Agency network development and delivery director Derek Turner said the approach will not lead to a dip in standards.

“I believe that these new contracts deliver the best possible value for money without compromising safety,” said Turner.

“This is because we are selecting only the most capable and best performing suppliers through competitive, effective and timely commercial procurement.

“The contracts may have changed, but our essential requirements remain the same - a safe and well maintained road network.

“Our winter fleet will work as usual to keep the network open during periods of severe weather.”

ASCs in other regions are due to go out to tender later this year, starting with the delayed Area 3 contract that covers a large swathe of south and south east England. The Agency is expecting to pay £100M to £140M a year for this contract.

Readers' comments (1)

  • CHARLES ROBERTS

    The Highways Agency estimated it would pay between £50M and £100M per year for Area 10 ASC and between £30M and £80M for Area 2 ASC? Really?
    it is difficult to understand how there possibly can be such a wide variation; the materials, labour and plant (all contractors rent their plant nowadays don't they?) costs should be estimated pretty accurately and the overheads/profit in the bids is surely not in excess of 100% of the M, L & P costs.
    It would appear that if the HA estimators worked in the private sector they would soon be out of a job and/or their companies would be out of business.
    Why don't the HA publish in detail all the bids received, after a public opening, so that there is transparency with taxpayers funds? It is done with all government funded contracts in the USA; why not here?

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