HFS FRAMEWORKS HFS FRAMEWORKS -- OPERATION AND USEOPERATION AND USE

RON THOMSON RON THOMSON

DIRECTOR DIRECTOR -- THOMSON GRAY PARTNERSHIPTHOMSON GRAY PARTNERSHIP

TRADITIONAL FAILINGSTRADITIONAL FAILINGS

No predictability of CostNo predictability of Cost

Budget Overshoots (Inevitably) Budget Overshoots (Inevitably)

Late DeliveryLate Delivery

Functionally unsatisfactoryFunctionally unsatisfactory

Operationally expensiveOperationally expensive

Adversarial culture Adversarial culture

SOME REASONS FOR SHORTFALLS IN THE PROCESSSOME REASONS FOR SHORTFALLS IN THE PROCESS

Commercially astute marketCommercially astute market

Abundance of private sector workAbundance of private sector work

Lack of prescriptive documentation by clientsLack of prescriptive documentation by clients

Polarisation of contractor / client positions Polarisation of contractor / client positions

Perception in the market that public sector will accept second bPerception in the market that public sector will accept second bestest

Too much focus on capital rather than whole life costsToo much focus on capital rather than whole life costs

Fee Competition / ResourceFee Competition / Resource

BACKGROUNDBACKGROUND

Sir Michael Latham and Sir John EganSir Michael Latham and Sir John Egan““Achieving Excellence and Rethinking ConstructionAchieving Excellence and Rethinking Construction””The traditional view of public sector procurement:The traditional view of public sector procurement:--

“…“… seeking tenders for each stage in a construction project seeking tenders for each stage in a construction project such as design, selection of the main contractor and specialistsuch as design, selection of the main contractor and specialistsubsub--contractors and awarding contracts on the lowest price willcontractors and awarding contracts on the lowest price will

guarantee value for moneyguarantee value for money””

NHS in England responded with NHS in England responded with ““Pro Cure 21Pro Cure 21””NHS in Wales responded with NHS in Wales responded with ““Designed for LifeDesigned for Life””

EMERGENCE OF FRAMEWORKS SCOTLANDEMERGENCE OF FRAMEWORKS SCOTLAND

Scottish Government Health Directorate / HFS Strategy Scottish Government Health Directorate / HFS Strategy

Construction Framework for NHS Scotland Construction Framework for NHS Scotland

Four year operation with option to extend for 2 years Four year operation with option to extend for 2 years -- ££1m threshold1m threshold

To deliver time and cost efficienciesTo deliver time and cost efficiencies

””One stop shopOne stop shop”” design and construction covering Scotlanddesign and construction covering Scotland

Integrated supply chain Integrated supply chain -- long termlong term

Collaboration / partneringCollaboration / partnering

Minimum 3 maximum 5 Principal Supply Chain Partners (Main ContraMinimum 3 maximum 5 Principal Supply Chain Partners (Main Contractors!)ctors!)

NEC3 Contract NEC3 Contract

VALUE FOR MONEYVALUE FOR MONEY

KEY ELEMENTS OF FRAMEWORKSKEY ELEMENTS OF FRAMEWORKS

Stage 1 Stage 1 -- Initial AgreementInitial Agreement

Stage 2 Stage 2 -- Outline Business CaseOutline Business Case

Stage 3 Stage 3 -- Full Business CaseFull Business Case

Stage 4 Stage 4 -- Construction Construction

Principal Focus is the Acute SectorPrincipal Focus is the Acute Sector

MAIN COMPONENTS OF STAGE 3 MAIN COMPONENTS OF STAGE 3 (FULL BUSINESS CASE)(FULL BUSINESS CASE)

NEC3 Form of ContractNEC3 Form of ContractPain share / gain share mechanism Pain share / gain share mechanism Intensive Intensive ““front endfront end”” of the process (6 of the process (6 -- 8 weeks)8 weeks)-- activity schedulesactivity schedules-- affordability reviews / checks affordability reviews / checks -- NEC3 workshops NEC3 workshops -- team understanding team understanding Open book accounting strategies Open book accounting strategies -- Pre Agreed %agesPre Agreed %agesDevelop procurement scheduleDevelop procurement scheduleMarket testing Market testing Develop / agree target price Develop / agree target price Develop works and site information Develop works and site information Risk / Value Engineering workshopsRisk / Value Engineering workshopsContracts concludedContracts concluded

SUPPLY CHAIN FEATURESSUPPLY CHAIN FEATURES

Competitive (Sub contract) bidsCompetitive (Sub contract) bidsMarketMarket--widewideScope for innovationScope for innovationPrice Benefits?Price Benefits?

Single Source supply chain Single Source supply chain Inclusive role of sub contractor Inclusive role of sub contractor Expertise / experience of PSCPExpertise / experience of PSCPBBetter management capabilityetter management capabilityArguably more expensiveArguably more expensive

BENEFITS OF HFS FRAMEWORKSBENEFITS OF HFS FRAMEWORKS

Realistic Forecasts / Predictability of CostsRealistic Forecasts / Predictability of CostsProgramme Deliverability Programme Deliverability Collaboration / whole team involvementCollaboration / whole team involvementInformation sharing / transparency Information sharing / transparency ““OwnershipOwnership”” of the processof the processInnovationInnovationWholeWhole--life / operational efficiencies life / operational efficiencies Performance measurementPerformance measurementQuality Quality VALUE FOR MONEYVALUE FOR MONEYInformation sharing / transparencyInformation sharing / transparency

SOME CONCLUDING THOUGHTS AND COMMENTS .... SOME CONCLUDING THOUGHTS AND COMMENTS .... HFS Framework is maturing in Scotland HFS Framework is maturing in Scotland -- over 30 projects to dateover 30 projects to datePotential to outPotential to out--deliver traditional procurement deliver traditional procurement Real engagement with PSCP and the marketReal engagement with PSCP and the marketRequirement for more flexibility?Requirement for more flexibility?Evidence of framework achievementsEvidence of framework achievements-- Pro Cure 21 Pro Cure 21 -- 200 Schemes200 Schemes-- ££3.7bn Programme3.7bn Programme-- over 90% on time and budgetover 90% on time and budget-- no litigation on any schemeno litigation on any scheme““Success storiesSuccess stories”” in Scotlandin Scotland-- Royal Victoria BuildingRoyal Victoria Building-- St JohnSt John’’s Hospital s Hospital

GEORGE CURLEYAssociate Director of Facilities

NHS Seminar - 30th March 2010

National Framework

• Positives & negatives

• Helpful features

• Limitations

• Need to procure outwith?

INTRODUCTION

• Benefits of a framework approach

• Local versus National

• Policy discretions to have both

WHY LOCAL FRAMEWORKS?

• Cost effectiveness

• Flexibility – procurement routes

• Flexibility – approach to payments

• Compensation events

• Development of internal expertise

• Development of external expertise

THE NHS LOTHIAN EXPERIENCE

• Summary of Experience to date

Any Questions?

IS IT WORKING?

The hub initiative

The SE Territory Pilot

Tuesday 30 March 2010Chris MackayPartnerDirect Dial: 0131 473 6151Email: chris.mackay@burness.co.uk

Introduction

• What is hub?

• How will it interact with national and local frameworks?

• How will hub operate?

• How much support is there for the new hub model?

Introduction

Burness role:

• Acting for 9 Public Sector Participants

• Reviewing Hub suite of documents

• Drafting Public Sector Participants Agreement

• Advising in relation to the Competitive Dialogue process to select the Private Sector Development Partner

• Advising in relation to the evaluation of bids

• Advising on EU Procurement and State Aids

• Supporting SE hub team “close the deal”!

What is Hub?

• “The aim of the hub initiative is to improve the effectiveness of the existing community planning process by providing a vehicle (hubco) for more effective planning, procurement and delivery of community based facilities in support of local services”

(ITPD for SE Hub)

• Community services and community-based facilities –

ie. non acute

• Partnership among local public bodies

• Partnership with the private sector

Objectives of Hubco

• Provide enhanced local services by increasing joint service working;

• Deliver a sustained programme of investment into community based

facilities;

• Establish a more efficient, quicker and sustainable procurement

methodology for Participants;

• Deliver public sector policy objectives for design quality and sustainability;

• Facilitate and improve stakeholder engagement in the planning of services

and development of facilities.

Corporate Structure of Hubco

Example – SE Territory – the Players

• PSDP – one of 3 private sector consortiums who have completed the Dialogue (Robertson, Miller or Galliford Try);

• Scottish Futures Trust (SFT)

• Participants (public sector stakeholders): NHS Lothian; NHS Borders; City of Edinburgh Council; Scottish Borders Council; East Lothian Council; West Lothian Council; Midlothian Council; Lothian and Borders Police Board; Scottish Ambulance Service; and Lothian and Borders Fire Rescue Board.

Tender Evaluation of PSDP

Non price – 55%- Approach to partnering- Establish and operate hubco- KPI’s and continuous improvement

Price – 45%- Quantitative (20%) pricing pro-formas- Qualitative (25%) including 5 Year Business plan and

DBFM funding

Hubco Board

• 3 Directors appointed by PSDP

• 1 Director appointed by SFT

• 1 Director appointed by public sector Participants

• 1 Non-voting Chairman

Qualifying Projects: (QP)

(a) Identified Projects – see SE Territory Projects Pipeline slide

(b) All Major Capital Projects defined as all new build projects having a capital value in excess of £750K (Index Linked) where:(i) NHS Participant providing primary and community based health services in

the Territory(ii) NHS Participant and other Participants doing (i) and

NHS is lead Participant

(c) Capital projects identified by one or more Participants re provision of Community Services in the Territory identified as a QP in the Territory Development Plan (TDP)

(d) FM Services expressly designated as a QP in the TDP

SE Territory Projects: Pipeline

• Westerhailes Partnership Centre (QP) £12M

• Blackburn Partnership Centre (QP) £12M

• Drumbrae Library and Community Hub (QP*) £5M+

• Firhill Partnership Centre (QP) £9M

• Gullane Surgery and Day Centre (QP) £4M

• Dalkeith Community Hub £2M

• Muirhouse Partnership Centre (QP) £35M

• Borders Roxburgh (C) £2.3M

• 3 Primary Schools (part of the SFT schools delivery programme)

* Not automatically covered by Exclusivity

TPA – Exclusivity granted to Hubco by Participants

• Exclusivity under TPA exists for the first 10 years;

• Participants are required to give Hubco first opportunity to bring forward proposals

for Qualifying Projects;

• If Hubco fails to satisfy the Participant(s) requirements, then Participant(s) may

procure through other means (i.e. not use Hubco and go elsewhere)

• Approved Projects (where Hubco do satisfy requirements) will then be procured via

a contract between the Participant(s) and hubco/subhubco who will then subcontract

to the Supply Chain (envisaged to be the PSDP’s preferred contractors/designers

and FM providers).

TPA - Exclusivity cont..

• Exclusivity may be withdrawn if Hubco fail to meet track record tests – linked to Key Performance Indicators;

• Significant performance failures can lead to termination of TPA;

• Exclusivity will be subject to variation by applicable EU/Competition law!

• Participants of course have the option to request Hubco to procure other projects not listed above, including FM delivery.

Territory Partnering Agreement (TPA)

• Entered into among Hubco and the Participants (as individual entities);

• Sets out the rights and obligations including provision of “Partnering Services” by

Hubco to the Participants and “exclusivity” granted to Hubco by the Participants;

• Establishes a Territory Partnering Board (“TPB”) consisting of Participants and

Hubco to monitor performance of Hubco;

• TPA has a term of 20 years with an option to extend to a further 5 years with one or

more Participants – key driver is to realise benefits of partnering (continuous

improvement, economies of scale, added value etc) via long-term relationship;

On-going Partnering Services

• Hubco are to effectively deliver the Territory Development Plan (“TDP”)

demonstrating value for money;

• Build up long term relationships with Participants;

• Develop and take a lead in the Territory Partnering Board;

• Demonstrate value for money across delivery of services – demonstrate

continuous improvement and market test supply chain etc.

• Review and update TDP to ensure TDP is practical, deliverable, meets

needs of and is supported by Participants.

Project Development Partnering Services

• Hubco prepare Stage 1 Submission for New Project – essentially an information

gathering exercise (site location, future flexibility of a site, design of facilities (stage

C), operational requirements etc);

• If a New Project receives Stage 1 approval from a Participant, Hubco then provides

Stage 2 Submission – more in-depth design (stage E), outline planning

requirements etc) hoping to achieve a Stage 2 approval and thereafter establish a

[subhubco] to enter into contract with Participant;

• Supply Chain Management – establish, manage and demonstrate value for money;

• Funding – Hubco to secure funding for New Projects if required;

Strategic Partnering Services

• Strategic Estate Planning – which includes review by Hubco of estate development options for the Participants prior to identification of new projects + practical & affordable proposals for improvement of Participants’ joint estate;

• Community Services – Hubco to support Participants in the planning of community services across the SE Territory to help identify opportunities to improve efficiency and cost effectiveness of services and achieve sustainability aims and targets in the delivery of community services.

SG Funding Support to SE Territory

• Revenue funding of £1.4M over 5 years

• Capital enabling funding of £6.5M split across projects with geographical spread

• Equity contributions say £1K per Participant = £9K

• Working Capital Loan £100K - £300K at same rates as Private capital loan injected by Private Sector Development Partner

Contact Us

• Chris Mackay

• Partner

• +44 131 473 6151

• chris.mackay@burness.co.uk

Questions