Local heroes of Best Value

Perhaps the most striking feature of the Best Value regime, which came into effect for local government just over a year ago, is its obvious parallel with Rethinking Construction.

The new regime releases local authorities from the straightjacket of the old CCT system, cause of many a frosty stand-off between contractors and councils, and instead obliges them to procure services based on a mixture of continuous improvement, whole-life cost and all-round quality. The construction industry will immediately recognise this as the language of Egan.

The government has also spotted the parallel - and has been anxious to drum this home to local authorities. Only last May, former local government and construction minister Beverley Hughes opined: "Local authorities can achieve so much more added value for their organisations and local communities if they apply Rethinking Construction principles more rigorously to their procurement practices... Rethinking Construction and Best Value go hand in hand."

Hughes was speaking at the launch of the Rethinking Construction Implementation Toolkit - one of a series of government-commissioned reports that aim to guide local authorities through the procurement of construction services under the Best Value regime.

With some £16bn spent annually by local government on construction services, the scope for savings and improved performance is considerable. But is Best Value starting to have an impact on local authorities' approach to procuring construction services? And in turn, is this having an effect on the strategies of contractors?

So far, the evidence is that the more progressive local authorities are beginning to recognise the opportunities the new regime offers, with a number of councils negotiating planned term contracts with construction firms that embrace the Egan principles of partnering and collaboration.

The relationship between Gosport Borough Council and Connaught provides a good example.

Chris George, head of Gosport's housing operational services, explains: "In 1998, we carried out a review of our repairs and maintenance services - and it was clear we weren't really delivering the service to our tenants that we would have liked. On top of that, we were having problems with the traditional form of procurement anyway."

Influenced by Rethinking Construction, Gosport decided to run a two-year pilot study, evaluating a partnered maintenance contract against a traditionally tendered contract of almost identical size, value and type of work.

The pilot, managed by Connaught, proved a storming success - for example, just 0.2 defects per dwelling were reported, compared to almost two per dwelling for the traditionally tendered contract, and the pilot was also 11% cheaper.

Unsurprisingly, Gosport was an instant convert to partnering, and advertised its next maintenance contract on the same principles. Connaught emerged triumphant and secured a five-year deal worth £650,000 for around 130 properties a year, based on the same partnering principles as the pilot.

"The Best Value environment has given us enormous scope to look at how we deliver our services and how we can improve," says George. "Increasingly, we're moving away from using traditional tendering for all services."

St Helen's Metropolitan District Council (MDC) is another local authority that has embraced partnering. After a successful arrangement with Willmott Dixon saved the council 15% of projected costs on the building of the Bleak Hill primary school, a two-year £5.5m partnering contract was awarded to Mansell last year for the refurbishment of around 250 council houses.

And according to St Helen's MDC's assistant chief executive Mike Foy, one of the biggest advantages of partnering is the improvement in customer service.

"The houses are tenanted throughout - so health and safety and customer care were major factors in the choice of contractor," he says. "We've been able to involve the tenant groups more, ensuring that certain tasks are carried out at agreed times which minimise inconvenience."

Another benefit of partnering that local authorities welcome is the atmosphere of openness and improved communication between client and contractor.

For example, Russell Construction has a contract with West Wiltshire District Council for the building of 21 council homes in Holt, worth £1.3m. Profit has been agreed up front, accounting is open-book, and there is an ISDN link between the council and Russell Construction so the client can view the contractor's books whenever it wants.

"It's able to go into the balance sheet and read costs for each project," says Pete Harris, Russell Construction's business development manager. "If we say we've had to use X bags of sand for the project, it can go in and check that we've bought precisely that number."

At Gosport, Connaught is developing a web-enabled communication system, which will allow suppliers, subcontractors and client to access details about its maintenance work on council homes.

Connaught's regional director for property services Mike Roberts says: "The system will allow everyone to monitor the progress of our work in real-time. In theory, tenants will eventually have access to details of the work happening on their property."

One problem councils invariably face when procuring construction services is a lack of in-house expertise. According to St Helen's MDC's Foy, this is another issue that partnering helps to address.

"We only have a small in-house design team because the work load is variable. But partnering enables us to utilise the contractor's expertise while under the supervision of our in-house design team."

However, for planned term contracts, in which the contractor is generally engaged for less than five years, the expertise disappears once the contract ends. But negotiating long-term deals, when the workflow is likely to vary over the duration of the contract, would infringe EU procurement law.



That is why some councils are looking at construction management (CM). Barking and Dagenham Borough Council has a £71m contract with Schal for the refurbishment of 23,000 houses (see p16-17), while the London Borough of Hackney is also considering this option (see p14-15).

As Noel Foley, Hackney London Borough Council's procurement and partnering manager, points out: "With a traditional contract, or a design and build, we wouldn't be able to achieve as flexible a relationship as with CM. Under CM, we can develop longer-term partnering arrangements with suppliers and subcontractors, as well as developing joint training initiatives which would help bring our people up to speed with modern procurement techniques."

As the more progressive local authorities explore the opportunities presented by the Best Value system, a number of construction firms are beginning to reap the benefits of a boom in local government business.

Connaught, as we have seen, has enjoyed a healthy relationship with Gosport Borough Council, and local authority work has now become central to the contractor's strategy.

The growth of outsourcing in local government under the Best Value regime has helped Connaught's forward orderbook grow to £125m, some £50m higher than a year ago. Maintenance contracts similar to the one with Gosport, such as a £10m partnering deal with Sunderland Housing Group, now account for 60% of the group's turnover.

Little wonder that Mike Roberts, regional director for property services, now describes social housing as a "core business area for us".

Russell Construction has seen its turnover double in the past 18 months to £8m, and local authority work now accounts for 60% of all business, compared to just 20% two years ago. "Undoubtedly the advent of Best Value is the main reason for that change," says business development manager Pete Harris.

Consulting firm Mouchel has also expanded into local government in the past couple of years. "We definitely see it as a market of growing opportunities," says James Measures, director of local government. "As local authorities undertake their Best Value reviews, there is more outsourcing and more engagement of the private sector."

Mouchel recently signed a five-year, £12.5m partnering contract with Kent County Council for buildings maintenance services, and its local government business is worth around £30m annually.

For contractors moving into local government work, the longer-term deals, and more sustainable nature of the business are the main attraction.

But Measures believes the sector calls for a different, more sensitive approach from contractors used to working for private sector or central government clients.

"The political processes have much greater proximity," he explains. "For example, if a local resident complains about a window not being repaired or a pot-hole not being filled in, the come-back for the contractor is very quick.

"That is why getting the partnering approach right is so important," he continues. "It is important that both sides are understanding of the others' pressures."

As local authorities consider outsourcing more and more of their services, some construction and consulting firms, Connaught and Mouchel included, have attempted to turn themselves into one-stop shops.

This approach has paid off for Mouchel so far, but Measures is not sure how many local authorities will be willing to outsource all their services to one firm.

"We have a deal with Bedfordshire to provide estate management services, maintenance services, education services - all bundled up into one contract," he explains. "But in Buckinghamshire, those contracts have been separated out by the local authority."



For every authority that goes for the all-in-one approach to outsourcing, it seems that there will be another that is anxious to separate out the contracts. As Measures observes: "Many authorities will want a partner with whom they can have an equal partnership rather than be dominated. They may also think they will get better value from a company that is a specialist in one particular area than one which spreads itself across several."

There is also the question of the larger contractors becoming all-dominant. "If you allow the mega-corporates to take the big deals, does that have an adverse affect on smaller contractors? Most councils will feel they have an obligation to preserve the robustness of local business," believes Measures.

The recent Institute of Public Policy Research report into the use of the private sector to provide public services, Building Better Partnerships, also warned against "the danger of the emergence of 'one-company towns' where local authorities become too subservient and too dependent on a single private contractor".

Perhaps more significantly, the report also identified a worrying lack of procurement skills within local authorities, a theme that was picked out by the Department for Transport, Local Government and the Region's recent Review of Local Government Procurement in England.

This latter report described local authority procurement as "undeveloped, poorly staffed, and too often seen as mere 'paper-clip buying' rather than the sophisticated purchasing of strategic services to save millions of pounds". The report also urged councils to integrate procurement expertise into Best Value reviews.

This probably highlights the greatest barrier to widespread adoption of Rethinking Construction principles under the Best Value regime - the lack of in-house skills among local authorities. But if this can be addressed, be it through increased resources and training, or through CM-style deals such as Barking and Dagenham's arrangement with Schal, then a more progressive approach to procuring construction services may begin to emerge in local government.

At the moment though, there are at least enough positive examples of local authorities building successful relationships with contractors under Egan principles to suggest that others may follow. Watch this space.