Agenda Item No 13
Resources Board
19 September 2005
Procurement of Contracts –
Housing Improvement Schemes
Report of the Assistant Director
(Housing)
1
Summary
1.1
A review has been undertaken of the process by which Housing Maintenance
contracts are procured in order to look at delivering procurement savings and to
develop partnering options. This report considers alternative procurement methods
and looks to establish longer-term contracts with contractors and suppliers to help
ensure efficiency savings are achieved.
2
Recommendation to the Board
a
That the principle of negotiation of contracts, as set out in
this report, is approved;
b
That subject to further reports on the outcomes of
negotiations and details of proposed contracts, negotiated
contracts be pursued for Decent Homes works, Gas
Infrastructure and refurbishment of Piccadilly and Hill Top,
Arley; and
c
That the requirements of contract standing orders 4 to 7 be
waived to enable these contracts to be negotiated
3
Background
3.1
Contracts let for Housing Maintenance works currently use traditional methods of
procurement. These are based on either single stage (price submission only) or two
stage (price and quality submissions) selective tendering. This is a time consuming
and costly method of procuring works, which needs to be repeated at the end of
each contract period. It involves costs to both client and contractor, which could be
reduced.
3.2
As previously reported to this Board, efficiencies have been delivered on
procurement by negotiation of some contracts with existing contractors who have a
proven track record with the Council, having demonstrated the ability to perform and
deliver contracts on time and within costs.
.
3.3
In order to produce the efficiencies sought by Government under the Egan report
and Gershon Savings it is proposed that consideration be given to greater use of
negotiation of contracts to include the introduction of supply chain management (i.e.
the co-ordination of all parties to a contract – e.g. external suppliers, main
contractors, sub-contractors, and the client – in delivering inputs, outputs or
outcomes to meet a specified contract requirement) and to look to establish longer
term contracts and relationships with contractors and suppliers to gain savings.
13/1
3.4
Although following this route will require a waiver of certain contract standing orders,
processes are proposed to ensure probity within the process, an audit trail and the
achievement of value for money. In addition, any contract with a value in excess of
£3,800,000 would still be subject to EU rules relating to contracts.
4
The Negotiation Process
4.1
The use of negotiation as opposed to tendering would involve selection of
contractors from our current approved list or other contractors who are currently
working for the Council having been awarded work through competitive tendering.
They would be chosen following interview and reality checks on site by members and
maintenance staff alongside tenants so there is still an audit trail on contractor
selection. Advice will be taken from Internal Audit to ensure value for money was
being achieved under the selection criteria, and that there was a proper audit trail.
4.2
The use of contractors who have already won contracts via a tendering route shows
some value for money has been achieved previously. It is anticipated that by
negotiating further contracts, there would be a reduction in costs.
5
The Benefits of Negotiated Contracts
5.1
The savings that can be gained through using negotiated contracts would be time
and process related. There would not be a need to prepare pre qualification
questionnaires or quality submissions or undertake interviews on these, saving time
and cost for both client and contractor.
5.2
Some contractors have also stated their willingness to gap fund works where there is
long term commitment, thus where work runs across financial years, there would be
no need for the work to cease towards the end of the year if the budget were
exhausted. The contractor would gap fund the work until the budget of the new
financial year was available to pay him.
5.3
Unit cost reduction can be obtained because workflow increases whilst the contract
preliminaries remain fixed for the contract term but spread over a greater number of
units.
5.4
Contractors with long-term contracts are also willing to look at the local employment
initiatives that can be incorporated.
5.5
These contracts would include supply chain management and therefore suppliers are
also given longer-term contracts which helps reduce costs as work is guaranteed
and therefore prices and continuity is fixed.
5.6
Risk is reduced due to more favourable work conditions and guaranteed supply. This
will not affect tenant choice, which will be maintained with suppliers.
5.7
These contracts could be used as a basis for developing partnering options. The
Council would work with contractors to utilise their expertise to develop schemes
jointly. The main contractor would work with the Council and tenants to develop the
scheme and contract documents, in accordance with Egan principles of engaging
contractors and suppliers at the front end of the process and incorporating their
views and requirements as well as those of the clients.
13/2
5.8
Contractors would also bring in design expertise and supplier knowledge to enhance
a scheme and drive down costs over the term of the contract. These costs are
covered by the contractor.
5.9
Performance monitoring on the contract is supported by agreed development of Key
Performance Indicators (KPI’s) for the works
6
Report Implications
6.1
Financial Implications
6.1.1 Market testing has been carried out with certain main contractors to see what level of
savings can be achieved with the establishment of longer term contracts (3 – 5 year),
these have shown savings ranging from 16% – 18.34% over the life of the contract.
This would be in addition to procurement savings gained by negotiation. These
savings are achieved by establishing unit costs in year one and then working on
these each and every year to establish where savings can be made and agreeing
these for the next round of works.
6.1.2 Current unit costs for the kitchen and bathroom type contracts are showing an
average of £4800. On an assumption of 486 properties over a three year period
(162 properties per year), the following is an example of the savings which could be
expected:
 Year 1 – unit cost as per contract tender/negotiation = £4,800
Completions 162 x £4,800 = £777,600
 Year 2 – unit cost £4,800 – 8% = £4,416
Completions 162 x £4,416 = £715,392 (savings on year 1 of £62,208)
 Year 3 – unit cost £4,416 – 8% = £4,062
Completions 162 x £4,062 = £658,044 (savings on year 2 of £57,348)
This gives total savings of £181,764 a 7.79% overall saving compared with all
properties being completed at the original unit price.
6.1.3 Previous negotiations for contracts for kitchens and bathrooms, electrical works and
window renewals have shown savings in procurement of £9755. These have been
offered as part of the Gershon savings but not included, as they were one off savings
at that time. If savings such as these can be made year on year then they may be
used to help the Council achieve its Gershon targets.
6.2
Crime and Disorder Implications
6.2.1
None.
6.3
Legal and Human Rights Implications
6.3.1
Requirements of Contract Standing orders and EU procurement rules are covered in
the body of the report
6.4
Sustainability Implications
6.4.1
Well Informed investment decisions are pivotal to the sustainability of the Authority’s
housing stock.
6.5
Personnel Implications
6.5.1
None
13/3
...
6.6
Portfolio Holder and Ward Members Consultation
6.6.1
The Portfolio (and Shadow Portfolio Holder) for Housing (Councillors Powell and
Winter) are being consulted and their comments will be reported at the meeting
6.7
Risk Management Implications
6.7.1 This is covered by risk assessments previously carried out. (Appendix A)
The Contact Officer for this report is John Broadhurst (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
None
13/4
Date