One year ago, the government ordered councils to abandon "lowest price wins" procurement and start buying buildings on best value. Now bolder councils have taken on the challenge
in the past year, pete harris has watched Russell Construction's local authority partnering work soar. Last year, these contracts accounted for only 20% of the Bristol-based firm's work – this year, the proportion has risen to 60%. This means that Harris, Russell's business development manager, can look forward to high workloads and secure margins on its £7m-a-year turnover.

And this is no nine-day wonder. It has come about because a year ago local authorities were freed from the straitjacket of compulsory competitive tendering, which dictated that the lowest bid invariably won out. Its replacement, best value, incorporates a more complex formula for assessing bids that permits councils to break out of traditional adversarial procurement when they spend their £14bn-a-year construction budget.

Local government now has a duty to provide the best quality service within its means, measuring performance throughout. In construction terms, best value is synonymous with Egan. This means that it offers contractors incentives to improve and provides long-term deals. "We consider it is the future. Our margins are more secure, the supply chain is better managed and there is a better prediction of work. It is more open and there is less conflict," says Harris.

The partnering ethos is not exactly sweeping through the corridors of local government, but bolder councils are showing the way. Last year, local government minister Beverley Hughes called for 100 best value demonstration projects: so far there are about 80. These range from large schemes, such as Schal's £71m construction management contract to refurbish 22,000 houses for Barking and Dagenham Borough Council, to Gosport's £650,000 five-year deal with Connaught Property Services to repair its housing stock (The magnificent seven, below).

Local authorities experimenting with Egan procurement methods are enthusiastic. Last year, Gosport ran a pilot evaluating a partnered maintenance contract and a traditionally tendered deal. The partnered scheme was 11% cheaper and the council signed on for a five-year partnered deal.

Ian Gould, property officer at Cheshire County Council, which is going down the same road, says: "It is something that, as an authority, we thought we should be doing. We have not been happy with the quality and cost of capital projects." This view is echoed by Chris George, Gosport's head of operational services. "This process gives us the opportunity to explore different options and to be more creative with our services," he says.

Pricing and financial transparency are central to a number of schemes. Dorset County Council and Buro Happold have agreed an open-book account system under which the client sees how much the contractor spends on overheads and can work out how much it should make.

West Wiltshire Council and Russell Construction have gone one step further by installing an ISDN link between client and contractor so the council can access the construction firm's accounts whenever it wishes.

This openness on costs and prices means that the contractor can concentrate on the project instead of talking to lawyers about claims.

Keith Carey, business development manager with Laing Partnership Housing, admits that this system does not lead to vast profits. "What it is doing is ringfencing margins. Because we are not spending time arguing with clients on delays and contract issues, we have a better chance of achieving those margins," he says.

Hackney is looking at options including construction management. The key is to become an intelligent client, as I know there is a weakness in public construction clients

Noel Foley (left), Hackney council

Fears that best value would lead to sweetheart deals settled after a few whiskies at the golf club have proved unfounded. Strict monitoring procedures and the fact that there is no contractual promise of work on many long-term deals means contractors are being kept on their toes. Buro Happold group manager Martin Duffy says the Dorset deal is on a project-by-project basis. If the consultant did not come up to scratch, it didn't get the next job. "There is no way it can become a comfy relationship as we are only as good as the last job," says Duffy.

There's room for small builders, too
The jury is still out, however, over fears that small builders would be frozen out of bread-and-butter work as small jobs were rolled up into multimillion-pound long-term deals.

Clearly, small builders have lost out in some cases. But North Tyneside Council is using a local contractor as part of its capital works team and Gloucestershire County Council has also included local contractors on its long list for capital works after a best value review, which found that clients such as headmasters and librarians preferred Joe Bloggs Roofing from around the corner to a national contractor.

Federation of Master Builders director-general Ian Davis remains undecided about the impact of best value on small builders. He says: "Gloucestershire is the sort of change our members will be looking for, but it is difficult to get a clear picture. Best value is still relatively new and there can be 400 different approaches in 400 different councils." Some of these approaches resemble compulsory competitive tendering. Phil Cusack, northern business development manager for Moss, says there has been little action on the partnering front in North-west England.

His firm has five tenders on its books for council jobs worth between £250,000 and £3m, and all are being tendered traditionally. Hugh Roberts, WS Atkins' director of property design in the South-east, says there are a number of best value success stories, but these are outweighed by those that are floundering. "Good partnering arrangements are a bit like truth and beauty: you know it when it is there, but not what constitutes it," he says.

Constructors Liaison Group chief executive Rudi Klein believes that best value is still fighting an uphill struggle against the adversarial tactics of compulsory competitive tendering, in particular the use of retention. Klein says: "Some councils are doing quite radical things and partnering is de rigueur, but generally we haven't seen a radical change. Changing the mindset is going to be a hell of a job." The greatest obstacles are the regulations established within councils to ensure that they are acting properly. Standing orders dictate the number of tenders that must be looked at and financial regulations dictate the point at which the contractor can negotiate with the council.

Authorities that have introduced partnering have successfully waived regulations in standing orders. As Cusack says, with disappointment: "When I tell local authorities that where we can bring benefit is getting involved with the job early, many say, 'That's great but standing orders don't allow it'." The process of transforming the mindset of local government was never going to be rapid. But there is a tremendous amount of information-sharing going on among councils that does bode well for the future.

Contractors are also eager to give local authorities a push. Willmott Dixon has employed Jim Marler as head of partnering to deal with local authorities and best value. The firm has also taken Marler on a roadshow with company chairman Sir Michael Latham and has organised workshops with a number of councils. The firm has picked up about 12 partnering contracts since it started doing this.

One year on, it seems that there are enough good examples of partnering schemes to raise the profile of best value.

The magnificent seven: Councils that are leading the switch to best value

Barking and Dagenham Borough Council
Schal has a four-year management partnership contract worth £71.5m to build 22,000 houses. It has nine full-time employees based at the council’s office. Targets are to reduce cost 20% in the first year and 5% each year thereafter. It also aims to develop partnering arrangements with the supply chain. Cheshire County Council
Two partnering contracts worth £1m each are out to tender. The council set a guide cost with the actual price to be discussed at preferred bidder stage – including life-cycle cost. The project team will get together at preferred bidder stage to thrash out design, costs and savings. There are no retentions. The contracts will be let in June. Gosport Borough Council
A five-year, £650,000 partnering contract for housing refurbishment was let last month to Connaught Property Services. There are no retentions and key performance indicators are used to measure work. Profit is agreed at the start and cost savings are shared between the contractor and the council. City of Sunderland Council
Consultant WSP reviewed the council’s stock of 38,000 homes before its transfer to a registered social landlord. The consultant started in December and finished last month. Its contract was based on value, not lowest price. North Tyneside Council
The council has a partnering arrangement for up to £10m of alterations and extensions to schools. The three partners involved were: Ballast, local firm Gordon Durham and the council direct labour organisation. The deal was signed last July and extended in March. The partners operate open-book accounting, bring subcontractors on board early and share staff. This means that if Gordon Durham needs two plasterers for one of its jobs, Ballast or the Construction Group will supply them. Profits were agreed at the beginning and there are no retentions. The council won an award from BT Vision 100 for its innovative partnership. There is no binding contract and savings are shared between partners. West Wiltshire Council
Russell Construction is building 21 houses in Holt. The contract is worth £1.3m, with profit fixed upfront, open-book accounting and shared savings. There is an ISDN link between the council and Russell Construction so the council can inspect Russell Construction’s books whenever it wants. Dorset County Council
Buro Happold and Dorset Engineering Consultancy formed a partnership for highway project design. Jobs are let on a project-by-project basis and measured using KPIs. The partners use open-book accounting and profit is agreed at the start. Dorset Engineering Consultancy staff help out on Buro Happold schemes.

Why Hackney’s best laid plans were delayed

Even with the greatest commitment to introducing best value, local authorities are not immune from financial hiccups. Noel Foley, local government taskforce member and procurement and partnering manager for Hackney council’s housing department, found his plans crashing around his ears last year when a £40m deficit was found in the east London borough’s coffers. Since then, the council has appointed a new chief executive and restructured the housing department – but the estimated £500m backlog of repairs is still there. And now Foley has rethought his original plan. “We are looking at options including construction management under a fee arrangement,” he says. The council will deal directly with subcontractors and develop relationships with them. Foley predicts 30% savings in the fourth year of operation. The pilot project will be advertised in the European Union’s Official Journal next month with a contractor appointed in the autumn. If the pilot is successful, the winner will work with the council for up to 15 years, placing staff in the council’s offices to teach staff the sort of technical and project management skills that they lack. “The key is to become an intelligent client, as I know there is a weakness in construction clients in the public sector,” says Foley.