Loosening the grip: local authorities and contractors forge new partnership to make savings

Contractors say they can make substantial savings for councils with new contracts that slim staffing. Philip Hoare, Atkins’ managing director for highways, speaking to LTT 's Lee Baker, responds to senior county officials’ push for efficiencies

As council budgets dry up, the impact on frontline local transport services could be minimised if it’s possible for fewer people to deliver them.

Contractors in the private sector say there is scope to slim down the number of council staff involved in managing contracts. A hurdle to be cleared, however, is the perception that some local authorities have that, if they reduce their manpower in this way, they will lose control of the work carried out.

Will, for instance, the council be able to effectively respond to residents’ concerns about potholes on their street? And how will the authority know that it is getting a good price for the work?

Of the £7bn that local government spends each year on maintaining and building the highways that all road users depend on, “one of the main costs is the people involved in providing the service”, says Philip Hoare, Atkins’ managing director for highways.

“If a member of the public reports a pothole, it is not uncommon for this to be first inspected by a council officer, who then specifies a repair, and passes this to a contractor; it is then inspected again by the council to make sure that it has been carried out properly – this can be time consuming and expensive,” Hoare says. “A smarter way of working would be for defects to be passed directly to trained gangs who can carry out the repair – proven by before and after photos from their mobile devices – and then a selection of repairs can then be audited for quality.”

“We have to move away from spending money on employing checkers to check the work of checkers,” he adds. “To make substantial savings, you have to move to a relationship of trust.” He says the Gloucestershire Highways bespoke partnership contract between the county council and Atkins fuses the traditional contractor, consultant and client roles into one team. At a stroke, this eliminated the duplication of effort entailed in having delivery and management of delivery separated.

Hoare says this saved £11.4m – nearly 10% of the highways budget – over the last three years, including a £1.1m reduction in staff costs in the first year alone. There is just one head of Gloucestershire Highways, who is half an Atkins employee, half a county council employee, responsible to the contractor for profitability and to the client for performance – objectives the partnership has aligned.

Hoare, who filled the role himself until 2007, says the innovative role has been “a real success story for the partnership, providing effective management and ensuring that the highways manager feels a major part of both teams”. However, an Atkins’ brochure on different procurement models says a key question for this particular partnership approach is: “who manages the manager?”

Hoare responds: “A supervisory board made up of senior officers of the council and senior people from the Atkins organisation as well as council members provides overall governance and sets targets each year.”

Hoare says there is not the lack of control that the Association of Directors of Environment, Planning and Transport (ADEPT) attributes to certain externalised contracts. ADEPT?has warned against contracts that do not retain an in-house intelligent client such as the Highways Agency’s arms-length managing agent contracts.

Some authorities have, or are considering, making a contractor responsible for strategy and policy, as well as for planning, designing and delivering schemes. But Hoare says, in his view, more strategic functions are best left with the highway authority. “Deciding what modal shift targets you’re going to adopt, or where in a county you will have housing growth, are matters best left with the client.”

Somerset County Council brought those functions back in-house five years after outsourcing them to Atkins in 1996 under the Conservative Government’s compulsory competitive tendering policy. “In the kind of partnering arrangement we have in Gloucestershire, you’ve a very thin client organisation, with very few people to administer the contract,” says Hoare. This means fewer jobs, he acknowledges. “We cannot afford to deliver resources in the same way we have in the past.” Overall, he says, there is no loss of day-to-day control for the council, and the council still has the ability to find out whether it is getting a good deal, he underlines. “Transparency and visibility are very important.”

At the start of the contract, there were monthly audits on the cost and value of the work for the council. As trust grew, these detailed audits were only carried out once a year. Last autumn, the contract was extended for a further three years.

Hoare emphasises, however, the other, more constant check on the contractor’s performance: what the customers – the road users – think about it. The contract includes outcome-based targets on customer satisfaction with carriageways and footways and with the maintenance service. Atkins will not receive any profits at the end of each year for the Gloucestershire contract unless these targets are met.

They achieved a 17% increase in satisfaction in the first year of the contract, as measured by a MORI survey. Hoare says that doing a job well will not, in itself, necessarily improve satisfaction: he says better communication with the public is also needed.

“We have to be clear about the service levels that can be expected, so the customer knows what can be done with the resources we have,” Hoare says. He acknowledges that there will always be variables outside the control of the contractor and the highways authority affecting the service provided to road users: over the last three years, severe weather has devastated Gloucestershire’s highways network.

Flooding in the summer of 2007 caused £25m of damage, and the fact that this winter has been the severest for nearly three decades means that currently 500 potholes have to be repaired each day, compared to an average of 150 daily last year.

Gloucestershire Highways’ response to the damage caused to the county’s roads has been to mount a planned maintenance programme called ‘Operation Road Rescue’ under a publicity drive backed by a logo and YouTube video. This makes clear that repairing the damage is “a mammoth task” and emphasises that the most dangerous potholes will be fixed first, which may mean that some potholes in a street will be repaired while others are left until later.

“Managing expectations is important to the customer having confidence in you,” says Hoare. He says that there is scope to go further, by not only being transparent about what can be achieved, but also asking the customers to get involved in making trade-offs.

“We could say, if you have £X,000 to spend, we could either fix a certain number of potholes, or we could resurface a certain number of carriageways, for example. That’d give greater visibility to the cost involved in achieving certain outcomes.” The problem, however, is that the industry lacks clarity on the typical unit cost of repairing or building something.

Senior county officials say it is difficult to compare the different prices that councils are given by contractors. Each council has its own, in-house standards on the detailing of pedestrian refuges, Matthew Lugg, the junior vice-president of ADEPT said.

Hoare agrees.

“There does need to be a greater push to get a better understanding of unit costs, so we can demonstrate year-on-year improvements across the industry by making better use of materials, and not gold-plating specifications. But only the client can bring this information together across the country – if contractors got together to compare prices, it would be collusion,” he says.

He hopes that whole-life costs can be taken into account, so effort is not only put into reducing immediate costs. “We need to use materials that we can get the longest life out of possible. But there’s still short-termism in local authority budgets, which makes it difficult to plan expenditure across a number of years, and difficult to justify spending money to save money.”

Atkins is keen to help set common standards for items that are routinely specified, like the proverbial pedestrian refuge. “It’s ludicrous that everyone has different standards. There’s a role for the Highways Term Maintenance Association here.”

In the meantime, Hoare says Atkins is driving costs down by including suppliers in partnerships like the one in Gloucestershire. “By involving suppliers of materials at the early design stage, we can ask: is this the most cost-effective way of achieving the desired result? They might say, ‘if you changed the design, and used steel instead of concrete, that could be procured more easily at the moment’”.

A client guaranteeing that they will take materials from certain suppliers for a number of years, as the 14 authorities on the Midlands Highway Alliance do, is another way of bringing costs down. “Continuity allows suppliers to reduce prices,” he comments. “If ADEPT could show the per unit saving, it’d help those making a business case for moving to such an arrangement.”

Hoare says that there may be scope to bring together the two approaches he sees as offering greatest scope for substantial savings: the collaborative procurement of the Midlands, and merging the contractor, consultant and client within an administrative area, as in Gloucestershire. “Why don’t we have collaborative delivery of the highways function, as well as collaborative procurement?” he asks, returning to his theme of reducing unnecessary revenue spending on manpower.

At the county level, Atkins has focused on carrying work out in a more planned fashion: managing work across a county rather than at a depot level, to ensure highways gangs do not incur more mileage than necessary in travelling by assigning jobs to them that are close to each other.

Atkins is now considering applying this less ad-hoc approach to the work across sub-regions: in South West England it has contracts with Somerset, Gloucestershire and Bath & North East Somerset councils. “It may be that you have a gang closer to one boundary that you could deploy across the boundary in a more effective way,” says Hoare. “This could lead to an overall reduction in gang numbers. Out of hours, fewer gangs could possibly cover a larger area. This is an area that could be explored within current contract arrangements through greater collaboration.” Moving to any new arrangements requires a lot of upfront investment of time and money in the procurement process, particularly if they involve more than one client, as Matthew Lugg, Leicestershire’s director of transport and environment, told LTT last issue.

In the short-term, Atkins will continue in its drive for “substantial savings” by reducing duplication at the county level. The contractor has been one of a number of bidders engaged in competitive dialogue with Oxfordshire County Council since last spring on its £30m per annum contract due to start in April 2010, which will include work on highways maintenance, design, construction and transport planning consultancy.

“Competitive dialogue is more costly to the private sector, and some of that cost will have to be passed on,” Hoare says. “But, used appropriately, it’s a good way of kick-starting a culture change in an organisation, because the client sits down with the tenderers to discuss how certain outcomes can be achieved.”

This is important, he says, because it can be difficult for council employees “used to an ‘us and them’ divide with the private sector to be told that they will be working closely alongside private sector employees in a new partnership”. Hoare says: “Procurement has been resource-intensive.”

This is the case for other innovative contracts, he says, adding: “After this process there’ll be less of a culture shock, because you’ve already started delivering a solution together.”

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