From 1 April, councils are legally obliged to procure on the basis of best value. This is great news for contractors – if councils are up to making the change. But are they?
First the good news. Councils across the country are about to embark on a major cultural overhaul. After years of claims, cut-throat bids and overruns on the £16bn worth of construction services procured by local authorities every year, councils are finally being dragged into the Egan era. From 1 April, they will be legally obliged to buy their services on a best-value basis rather than picking the lowest price. Partnering, long-term deals and prime contracts – all of which are allowed by best value criteria – are what contractors have been craving for years.

The bad news is that it is unlikely to be an overnight transformation. Councils will need to re-educate their procurement managers and one-off clients, such as school headteachers, to adopt best value. Under the old compulsory competitive tendering rules, most deals involved contractors having specifications forced on them that prescribed every last nut and bolt. There was neither the incentive nor the flexibility to allow them to introduce changes to increase efficiency – ironically, one of the principal selling points of CCT when the policy was introduced. However, shifting from the “you do what I say” approach to a “let’s see how we can work this out together” mentality will take time.

One council that has already set out on the road to best value is Hackney in east London. The housing department has an annual budget of £80m to spend on repair, maintenance, refurbishment and some new build. For the past 12 months, the housing department has been preparing to introduce partnering under the tutelage of its comprehensive estates initiative procurement manager, Noel Foley. The largest deal is for two prime contracts, worth £35m in total, to repair and maintain the borough’s entire housing stock.

The deals still have to be ratified by the council, but getting them this far has involved a huge amount of work for Foley and his department. He has had numerous consultations with local residents, attended several Egan conferences and given stage-by-stage presentations to the council – not to mention spending time with external consultants to discuss the best way to implement partnering. Foley has also taken advice from contractors such as Balfour Beatty and Higgins for their views on the best way forward. And his conclusion from all of the above? “We were not allowing contractors to do what they are best at.”

What best value will mean in practice

Allowing contractors to do what they are best at is just one step. Firms working for local authorities must be prepared for the rigorous benchmarking of their service. Each service will be measured against services in other local authorities. The firms will need to fill in exhaustive documentation that proves to the district auditor, the housing inspectorate or the best-value inspectorate that the council’s choice of service provider is the best use of taxpayers’ money. This includes demonstrating year-on-year improvements.

Despite facing extra paperwork, contractors feel this approach is the most efficient way to control their business. Willmott Dixon Construction has landed one of the first best-value contracts to be let, to build a new school in St Helens (see box, below right). The firm welcomes the new approach with open arms because of its emphasis on consultation with the private sector. “Under CCT, it was more difficult to put ideas forward and more difficult for the other side to evaluate them,” explains John Frankiewicz, the firm’s chief operating officer.

True love or lip-service?

I see repair teams in vans with mobile phones and computers

Noel Foley

But the transition to listening to contractors’ ideas will not work unless local authorities are wholeheartedly committed to a more equal relationship. The fact that some councils may only pay lip-service to the new regime is something that concerns Stelio Stefanou, chief executive of contractor Accord and chair of the CBI’s local government procurement panel.

“Some local authorities are beginning to embrace a new culture, but with others, the people at the top are sold on partnership but those putting the contracts together are producing CCT-style contracts under another name,” he says.

To ensure that the best-value message filters down to every local authority officer, the government has set up a new agency, the Innovation Development Agency, that will offer seminars as well as a series of best practice case studies and guidelines. Councils that have already taken steps to introduce best value have been badged “beacons”. The idea is that less innovative councils can learn from the achievements of the more forward-thinking authorities.

But is it enough? There is no systematic national training programme, and the services of external advisers have to be paid for out of councils’ revenue budgets. There are concerns that, despite beacon councils and the IDA, some authorities will not have the resources to move out of a lowest-price mindset. Local government adviser Professor Christopher Bovis fears that the lack of training will lead to the collapse of the whole initiative as some councils find they cannot cope with the burden of proving that they are offering best-value services. Bovis, who is professor of law at the University of Central Lancashire, says: “CCT was a complicated system that didn’t have the back-up it needed, which was why it failed. It will happen again. Best value will be chaos and local authorities will be hard-pressed to pull it off. They’ll then be accused of not doing it properly.”

Bovis may be envisaging a worst-case scenario. Large local authorities such as Hackney and St Helens are clearly committed to cultural change. But even in the private sector, Egan is taking its time to filter through to every nook and cranny. For those firms working with less progressive local authorities, it could be business as usual for some time to come.

Hackney leads the way

Noel Foley is being bombarded with phone calls from contractors. The reason is that word has got round the contracting fraternity that Foley, comprehensive estates initiative procurement manager at Hackney council’s housing department, is creating the kinds of deal contractors love: long-term partnering arrangements.

With some authorities, people are producing CCT-style contracts under another name

Stelio Stefanou, CBI

Foley has an annual repair and maintenance budget of £35m for the borough’s 33 000 housing units. Repairs are currently carried out, largely by the direct labour organisation, under 15 separate contracts covering things like responsive repairs and lighting. Foley wants to hand the borough’s housing stock over to two partners for 15 years, in deals that will be worth about £17.5m a year.

By creating two partnering deals, Foley hopes to drive out the waste caused by the disparate contracts. Under the current system, if a resident calls the council to report a fault, it can take three or four visits by any one of the 15 contractors to find the cause of the problem. The two partners will have more expertise at hand so hopefully it need take only one visit. Foley expects to see the 15 contractors being replaced by a high-tech repair service. He says: “I see repair teams in vans with mobile phones and computers and the residents will ring the contractor’s call centre directly.”

Foley is realistic; he does not expect his partners to make the shift overnight. The contracts will start in April 2001, once they have been given the final go-ahead from the council. The two contractors will then have a three-year transition period to get to know the stock and customers.

Foley is excited about the innovations the partners could introduce once the transition period is up. “Concrete repairs are a high risk area, so we’ll be able to show them where the risks are. They may well say, let’s do all the concrete repairs up front,” he says, visions of beautifully concreted east London estates appearing in his mind.

The benefit for the contractors is more than just long-term work. Foley is keen to introduce financial incentives that do not put a strain on the public purse. For example, the council is regularly sued by its tenants for not carrying out work requested, and the legal costs can be huge. If the contractor could obviate those costs, the two parties could share the savings.

Foley admits that the implementation of this new arrangement will not be cheap. Although no figures have been set in stone, when pushed he admits that he expects to spend about £750 000 over the next 18 months implementing the partnering contract for repair and maintenance. On the other hand, he also believes that, over five years, the housing department could cut its current spend by 10-30% – money that will be fed into further repairs.

If it works, everyone will be happy. The contractors will have a 15-year contract, and the council can improve its housing stock. For their part, the residents, who will have a large say in whether best value is working, will have better quality housing.

St Helens’ priceless contract

When Iain Beaton, assistant chief executive at St Helen’s Borough Council, decided to build a new school in the town, he took the unprecedented step of leaving price out of the negotiations. The question of how much a contractor would get paid did not arise until the contract was awarded. It might sound foolhardy, but Beaton wanted a top quality product, and questions of price only interfered. The search began with an advertisement in a trade magazine inviting firms to apply for a prospectus. Interested firms then submitted an application that covered how they would add value, and a questionnaire designed to tease out whether they were really embracing change. The 53 applications were shortlisted to four. Beaton was looking for examples of how firms had improved the programme on other projects. Willmott Dixon, the successful contractor, felt that this gave it a chance to impress with its supply-chain management and the introduction of an innovation team. “We didn’t find the experience uncomfortable because some of our other customers work like that,” says John Frankiewicz, chief operating officer for the firm. “We were all on a bit of a journey.”