Agenda Item No 8
Resources Board
8 October 2007
Report of the
Director of Resources
1
Summary
1.1
This report requests that Members in light of more detailed information review
a decision made in July 2007 regarding the number of contractors to be
procured for Decent homes / Bronze standard work.
2
Recommendation to the Board
a
That only one contractor is selected from the procurement
process to undertake the Decent Homes/Bronze standard
programme for the next three years, subject to a final decision
being made by the Director of Resources, in consultation with
the Chairman of the Board once full consultation has been
undertaken with tenants; and
b
That Members note the proposals made regarding the contract
conditions.
3
Background
3.1
In briefing notes to tenants and Councillors in July 2007, the issue of how
many contractors should be procured to undertake the capital programme for
the next three years was discussed. An extract of the briefing note dealing
with the risks and benefits of using one or two contractors to deliver the work
is attached in Appendix A. A report was presented to the Resources Board at
the 30th July 2007 meeting, advising that two contractors would be selected
through the tendering process. The decision was made on the sum of
£14 million being split between the two contractors.
4
Number of Contractors
4.1
Since the report was produced, further work has been undertaken on
quantifying the amount of work, detailing the number of properties and value
of the contract. Following recent decisions by the Resources Board, certain
items contained in the Capital budget have now been given to other
contractors. These include budgets for Disabled facilities grants and
electrical upgrade works which are now included in the Housing Direct Works
business plan. The gas mains installation project will be awarded to a
specialist contractor and the planned budget for the refurbishment of Hilltop
are also not included in the procurement package. The table also identifies
the level of contingencies allowed for in the original budget estimation. The
contingency is an allowance made in the budget setting for unidentified works
...
...
Procurement of Contractors for
Decent Homes/Bronze Standard
Works
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which could arise in the next three years. However, as these works are
unidentified and therefore unquantifiable, they cannot be included in the
tender. The contingency will be kept in the budget to be used if needed.
4.2
With all the costs for the works to other contractors taken out, the total budget
comes down to £13,216,000. Deducting the contingencies gives a sum of
£12,051,000 of identified works.
4.3
The ethos of the partnering contract is that a main contractor will be
responsible for all works and subcontract out specialist works, namely: flat
roofing, windows, doors and central heating. Sub-contracted work constitutes
50% of the work to be undertaken and leaves a total of £6,275,000 of work to
be carried out by the main contractors. Divide this by two contractors over
three years results in an annual value of £1,045,833.00.
4.4
To put this into context, the kitchens and bathrooms contract for this year,
2007/08 is £1.4 million undertaken by a single contractor on a traditional
contract.
4.5
To meet our objectives we are aiming to create a partnering arrangement,
which will require a high level of involvement from the contractor to ensure
good communication and involvement for residents, good working practices,
including employment and environmental policies, and good financial working
methods to provide detailed cost information and efficiency savings.
4.6
The low value of the directly undertaken works means we will lose some
economies of scale and may result in the contractors having to increase their
costs to recover the overheads that they will incur in providing all the quality
measures we require in the partnering contract.
4.7
The decision was taken to involve two contractors to mitigate the risk of one
contractor being unable to deliver the programme or the partnering
relationship not working. The risk of this is some what mitigated by the high
level of subcontracted works. If the main contractor did default then we could
still continue relationships with the sub-contractors to continue. We would
lose the opportunity to benchmark contractors against each other to drive
efficiencies. However, the low annual value limits the scope of the
contractors to do this. The detailed procurement process involved in
selecting a contractor will ensure that the selected contractor is the quality of
contractor with which we wish to build a relationship.
4.8
A briefing paper has been prepared for the Borough-wide Tenants’ Forum for
their meeting to be held on 10th October 2007. To enable tenants’ views to
be fully represented, we would ask that the Board defer the final decision to
be made by the Director of Resources in consultation with the Chairman of
the Board.
5
Update on the Process
5.1
Following the report to the 12 June 2007 Resources Board, progress has
been made in procuring a contractor to undertake capital works for the next
three years. A Pre Qualification Questionnaire was produced, an advert was
published in on the official website of the European Journal and also adverts
were placed in local newspapers.
An Industry Day was held on
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11 September 2007, and a presentation and question and answer session
provided contractors with additional information about the type of contractor
we are looking for and level of work to be undertaken.
5.2
The closing date for the Pre Qualification Questionnaires was Tuesday,
2 October 2007, and a panel consisting of tenant representatives and staff
from Housing, Finance and HR is scoring the submissions, with a shortlist of
six contractors being produced by Friday, 5 October 2007. Specifications and
programmes are being produced in readiness for the Invitations to Tender
being sent out during the week commencing 15 October 2007 to the
contractors identified through the short listing process.
6
Key Decisions
6.1
The form of contract which has been selected is the Public Sector Partnering
Contract, Option 6, with contractor design and target cost with cost
reimbursable. This form of contract allows for a target cost-pricing model to
be used to encourage contractors to make efficiency gains. Within the tender
documents the contractor will price a schedule of rates. These rates will then
be used to produce a target cost for each house type or group of properties.
An agreed maximum price will also be set at a level of 10% above the target
cost. The contractor will then undertake the work and provide details of costs
on an open book arrangement, and NWBC staff will validate the costs
involved. Any cost savings that the contractor makes below the target costs
will be shared 50/50 between the client and the contractor. Also any
additional costs above the target cost and up to the agreed maximum price
will be split on a 50/50 basis. If the costs go above the 10% limit, then the
contractor will pay all of the additional cost. The diagram in Appendix C helps
to explain this model.
6.2
Defects liability and retentions will only apply to work done in the last six
months of the partnering contract, where the defects period will fall outside
the period that the contractor will be engaged in the agreement. Service
standards for rectifying defects will be set with the contractor during the
contract period and will be in line with tenants’ expectations.
6.3
Inflationary costs will be allowed at a rate stipulated by the Building Materials
Indices and will be agreed at the anniversary of the contract.
6.4
Cost for damages for late completion has been left blank in the contract.
Damages can only be claimed for proven loss and with this type of work it is
very difficult to prove that the Authority has lost money due to the late
completion of a kitchen or bathroom and therefore it becomes unenforceable.
Programmes and completions will be closely monitored and addressed with
the contractor under the terms of the agreement.
6.5
Any warranties offered by suppliers and subcontractors will be issued in
NWBC’s name so that we have direct recourse with the subcontractor/
supplier for early component or design failure. Length of warranties will be as
follows:
...
Injected DPC
External Doors
UPVC windows
Double glazed units
20 Years
10 Years
10 Years
10 Years
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External Cladding systems
20 Years
Cost will be requested for extended warranties, if available.
7
Report Implications
7.1
Financial Implications
7.1.1
Selection of two contractors to undertake the Capital Works programme could
result in increased costs, as the contractors may need to increase costs to
recover their overheads.
7.2
Risk Management Implications
7.2.1
Not carrying out these housing capital improvements will mean that there is a
high risk of the Decent Homes Standard not being met.
The Contact Officer for this report is Peter Collins (719308).
Background Papers
Local Government Act 1972 Section 100D, as substituted by the Local Government
Act, 2000 Section 97
Background Paper No
Author
Nature of Background
Paper
1
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Date