Meeting documents

1 THE ISSUE

1.1 This report presents the procurement options for the delivery of the main scheme of the Combe Down Stone Mines project. The procurement strategy will set the foundation for the procurement of services to deliver the main scheme. This is a gateway decision that will affect the project for the remainder of its life.

2 RECOMMENDATION

2.1 Independent project management/quantity surveying services are secured to deliver the Combe Down Stone Mines project on behalf of the Council, as outlined in paragraphs 4.1 - 4.4.

2.2 That the approach to the appointment of suitable contractors to execute the scheme and ensure Best Practice and Value for Money, be as outlined in paragraph 4.5.

3 FINANCIAL IMPLICATIONS

3.1 In April 2005, the Council accepted a funding offer from English Partnerships of £154m, including a £24m risk allowance. This funding award included budget provisions for the construction works and project management (Council costs and external consultancy support). Additional funds, however, will be required for the external project management appointment, and the project team will make a case to release the additional funds for the project management and quantity surveyor appointments from English Partnerships' risk allowance of £24million.

4 THE REPORT

4.1 Projects require a robust project structure which enables strong contractual links with effective communications and a co-operation between contractors, consultants and the client. Recent experience in the Council has reinforced the importance of clear and accountable contractual project structures to ensure successful project delivery and to protect the Council from unexpected risks. This is considered essential in the light of Best Practice/Council experience and requires efficient and appropriate management structure. The key issues need to be clarified and incorporated into a procurement strategy at the beginning of the project.

4.2 In the case of the Combe Down Stone Mines project, the recent acceptance of the funding offer from English Partnerships has enabled the Council to undertake preparatory work to begin the main phase of the project. It is essential that the project is completed on time and within the capped funding. This requires a commitment to the terms and conditions of the funding, including flexibility that allows sectional release of work contract packages and progressive underground investigation of the mine to increase the Council's knowledge and reduce the contract financial risk. These are all key management tasks. It is therefore important that the Council has strong project management to implement the scheme. It is considered that the best way to achieve this is to appoint an independent project manager. This would distance the Council from the actual project management and allow the council to act in the role of `intelligent client'. For its part, the council needs to ensure that it has sufficient skilled staff to act in this role.

4.3 In addition the unique nature of this project requires an ability to respond to any major hazards during the project. For example a major risk is contractual or financial concern about the possible risks associated with a single contractor being responsible for the complete works. To minimise the risk of poor performance by a single contractor, we are proposing the concept of individual work packages progressively awarded to one or more contractors as the project progresses (on a previous performance basis), or to more than one specialist contractor. This would ensure that the Council was not beholden to one large contractor.

4.4 Project Management and Quantity Surveying - a key contributing factor in the effective management of the project is strong project management and cost control. To ensure this, it is proposed to procure the services of an external project manager/cost consultant. This approach aims to facilitate strong project and cost management whilst building on the experience and technical knowledge gained from the last 3.5 years work. The opportunities and risks associated with the appointment of an independent project manager can be seen in Appendix 1.

4.5 Main Scheme Contractor - Emergency works have been ongoing for 3 ½ years with Hydrock Contracting Ltd undertaking the works. However, a new procurement process is required for the Main Scheme for legal reasons. The terms and conditions from English Partnerships anticipate staged release and sectional completion of work packages and so the chosen route will need to incorporate this approach. An overall cost for the main scheme contract is required at tender return stage along with a proposal for the work to be split into packages. How this is tendered will depend on the packaging of the works and this will be reflected in the wording of the contract documents. This will allow, for example, a mix of above ground enabling works, known mine volume infill, bat chamber construction, roadways, investigation and treatment of unknown areas and potential mine workings to be packaged and appropriately released on a sectional basis. This aims to minimise risk exposure to the Council. Contractor(s) would need to perform above agreed performance targets to be considered for the award of each consecutive package. Termination clauses will be written into contracts in order to allow the Council to withdraw from any package prior to sectional completion in line with existing funding terms and conditions.

4.6 The use of the NEC contract has been established within the industry as a standard form of contract for engineering and construction for reasons of clarity and ease of management and to date has been considered a success on the Combe Down project and it is intended to continue with this form of contract. The NEC contract recognises the need for strong project management. Within this suite of contracts it is possible to have different payment mechanisms for different work packages.

4.7 The project runs an active risk register, and the register identifies the need for strong project management and cost control as well as diversity of supply for the contracting.

5 RISK MANAGEMENT

6 RATIONALE

6.1 A well thought through procurement strategy can establish a framework for successful delivery of this project. An independent project manager/quantity surveyor will provide the strong management and cost control required. Packaging of the contracting will protect the council and fulfil the requirements of the funders

7 OTHER OPTIONS CONSIDERED

7.1 Four options were identified for Project Management:

1. Council manage the project in-house
2. Appoint independent Project Managers and Quantity Surveyors
3. Appoint a contractor on a design and build contract
4. Integrated team with Designer, Project Manager and Quantity Surveyor

7.2 Options 1 and 3 were not favoured for reasons of excessive risk. If managed in-house, the Council could be under-resourced and this approach would also retain risk to the Council with regards to liabilities and the recruitment of experienced personnel to run the project. An overall design and build contract was also discounted with regards to emergency events triggering a massive compensation event. This would result in unacceptable financial and political risks.

7.3 Option 4 is a scenario where the designers also carry out the PM and QS role. This would effectively combine the current designer, PM and QS under one roof. This model would allow no external accountability or visibility and not spread the risk of possible failure.

7.4 Option 2 was identified as an approach which achieves the minimum risk and effective independent management of the main scheme works. The QS could either be within the PM team or procured as a separate consultant (preferred for reasons of probity).

7.5 Based on the procurement strategies that have been explored it is proposed that an independent PM is chosen for the following reasons:

· Improved transparency within the project team and dissemination of best practice with regards to project management of the whole project
· Key roles are undertaken by experienced professionals best placed to carry out the works leaving the Council to simply oversee the works
· Transfer of day to day management of the project to accountable third party (PM/QS)
· The strategy fulfils Best Practice and Value for Money, the procurement criteria and the project objectives
· Utilisation of specialist project management consultancy skills allowing the client to manage the project by exception (minimizes liability and recruitment issues for client)
· This leaves the council in the role of client separate from the project management and the contract administration.

7.6 The main risk in this approach is the management of the interfaces between the various parties. This risk will be mitigated by a greater control over the implementation of the project. The contracts will need to be lined up in a suite of complementary contracts. The in-house council team will need the right skills to manage these interfaces.

7.7 4 options were identified for the procurement of the main scheme contractor:

Option 1 - The Council appoint one main contractor to carry out all the works.
Option 2 - Staged release of multiple packages with only one main contractor on site at any one time (each section awarded on a performance basis to minimise risk).
Option 3 - The Council appoint one overall main contractor to carry out a Design and Build solution
Option 4 -Specialist contractors carrying out specific works for which they are most skilled and able or in geographically distinct areas. Sectional contract award also applies as in Option 2 (depending on performance monitoring)

7.8 The opportunities and risks arising from the different options for the main scheme contractor appointment can be seen in Appendix 2.

7.9 Three realistic scenarios have been identified - options 1, 2 and 4. All have the effective completion of the project objectives as key features with the difference being the splitting of the work packages in options 2 and 4 to minimise risk of contractual obligation with a particular contractor following unsatisfactory work/performance.

7.10 In summary whichever option is chosen, the onus is on the project team to ensure that the agreed procurement process is robust, a suitable project management structure is created to administer the contracts effectively and the right consultants and contractors are chosen for the job at outset. This will come from comprehensive and clear tender documents, intelligent assessment, informed interviews and a thorough understanding of the short-listed contractors skills, technical ability, culture and approach. The procurement options proposed above intend that any contractual difficulties encountered (despite the above measures) will not derail the project's aims or overrun agreed budgets.

8 CONSULTATION

8.1 Executive councillor, Overview & Scrutiny Panel, Other B&NES Services, Stakeholders/Partners, Other public sector bodies, Section 151 Finance Officer, Chief Executive, Monitoring Officer

8.2 Overview and Scrutiny Panel have been consulted at the meeting on 5 July 2005 and any recommendations will be reported to Executive.

8.3 Public consultation is not thought appropriate for the procurement of a project of this size and complexity.

9 REASONS FOR URGENCY

9.1 Not urgent.