Burness NHS Procurement Seminar - 30 March 2010


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How does the NHS ensure that it obtains best value when procuring its construction needs? No doubt this will be a question that will increasingly concern the NHS should they be called upon to bear a share of the widely anticipated cuts in public spending.

Over the last 18 months, the NHS has sought to achieve best value through the application of Frameworks Scotland. HFS Frameworks Scotland operates on a design and build basis along with a target cost payment mechanism. Will HFS Frameworks Scotland always be the most appropriate way to procure the construction needs of the
NHS? Can local frameworks be used to procure projects for which Frameworks Scotland is not suitable? Burness, with the assistance of procurement specialists within the NHS and the private sector, will be offering answers to these questions.

Frameworks are no longer the only option for the NHS and a new era of the hub is now dawning. How will hub operate and how will it interact with national and local frameworks? Burness, as legal advisors to the hub South East Territory, is ideally placed to offer views of these important issues.

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Burness NHS Procurement Seminar - 30 March 2010

  2. 2. TRADITIONAL FAILINGS No predictability of Cost Budget Overshoots (Inevitably) Late Delivery Functionally unsatisfactory Operationally expensive Adversarial culture
  3. 3. SOME REASONS FOR SHORTFALLS IN THE PROCESS Commercially astute market Abundance of private sector work Lack of prescriptive documentation by clients Polarisation of contractor / client positions Perception in the market that public sector will accept second best Too much focus on capital rather than whole life costs Fee Competition / Resource
  4. 4. BACKGROUND Sir Michael Latham and Sir John Egan “Achieving Excellence and Rethinking Construction” The traditional view of public sector procurement:- “… seeking tenders for each stage in a construction project such as design, selection of the main contractor and specialist sub-contractors and awarding contracts on the lowest price will guarantee value for money” NHS in England responded with “Pro Cure 21” NHS in Wales responded with “Designed for Life”
  5. 5. EMERGENCE OF FRAMEWORKS SCOTLAND Scottish Government Health Directorate / HFS Strategy Construction Framework for NHS Scotland Four year operation with option to extend for 2 years - £1m threshold To deliver time and cost efficiencies ”One stop shop” design and construction covering Scotland Integrated supply chain - long term Collaboration / partnering Minimum 3 maximum 5 Principal Supply Chain Partners (Main Contractors!) NEC3 Contract VALUE FOR MONEY
  6. 6. KEY ELEMENTS OF FRAMEWORKS Stage 1 - Initial Agreement Stage 2 - Outline Business Case Stage 3 - Full Business Case Stage 4 - Construction Principal Focus is the Acute Sector
  7. 7. MAIN COMPONENTS OF STAGE 3 (FULL BUSINESS CASE) NEC3 Form of Contract Pain share / gain share mechanism Intensive “front end” of the process (6 - 8 weeks) - activity schedules - affordability reviews / checks - NEC3 workshops - team understanding Open book accounting strategies - Pre Agreed %ages Develop procurement schedule Market testing Develop / agree target price Develop works and site information Risk / Value Engineering workshops Contracts concluded
  8. 8. SUPPLY CHAIN FEATURES Competitive (Sub contract) bids Market-wide Scope for innovation Price Benefits? Single Source supply chain Inclusive role of sub contractor Expertise / experience of PSCP Better management capability Arguably more expensive
  9. 9. BENEFITS OF HFS FRAMEWORKS Realistic Forecasts / Predictability of Costs Programme Deliverability Collaboration / whole team involvement Information sharing / transparency “Ownership” of the process Innovation Whole-life / operational efficiencies Performance measurement Quality VALUE FOR MONEY Information sharing / transparency
  10. 10. SOME CONCLUDING THOUGHTS AND COMMENTS .... HFS Framework is maturing in Scotland - over 30 projects to date Potential to out-deliver traditional procurement Real engagement with PSCP and the market Requirement for more flexibility? Evidence of framework achievements - Pro Cure 21 - 200 Schemes - £3.7bn Programme - over 90% on time and budget - no litigation on any scheme “Success stories” in Scotland - Royal Victoria Building - St John’s Hospital
  11. 11. GEORGE CURLEY Associate Director of Facilities NHS Seminar - 30th March 2010
  12. 12. INTRODUCTION National Framework • Positives & negatives • Helpful features • Limitations • Need to procure outwith?
  13. 13. WHY LOCAL FRAMEWORKS? •Benefits of a framework approach • Local versus National • Policy discretions to have both
  14. 14. THE NHS LOTHIAN EXPERIENCE • Cost effectiveness • Flexibility – procurement routes • Flexibility – approach to payments • Compensation events • Development of internal expertise • Development of external expertise
  15. 15. IS IT WORKING? • Summary of Experience to date Any Questions?
  16. 16. The hub initiative The SE Territory Pilot Tuesday 30 March 2010 Chris Mackay Partner Direct Dial: 0131 473 6151 Email: chris.mackay@burness.co.uk
  17. 17. 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?
  18. 18. 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”!
  19. 19. 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
  20. 20. 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.
  21. 21. Corporate Structure of Hubco
  22. 22. 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.
  23. 23. 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
  24. 24. Hubco Board • 3 Directors appointed by PSDP • 1 Director appointed by SFT • 1 Director appointed by public sector Participants • 1 Non-voting Chairman
  25. 25. 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
  26. 26. 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
  27. 27. 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).
  28. 28. 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.
  29. 29. 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;
  30. 30. 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.
  31. 31. 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;
  32. 32. 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.
  33. 33. 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
  34. 34. Contact Us • Chris Mackay • Partner • +44 131 473 6151 • chris.mackay@burness.co.uk
  35. 35. Questions