Tender and Affordability Report for Lots 1-3, 4–6, and 10-12 of the Lambeth Housing Procurement Programme (LHPP) Part ii Submissions

Reason for Exemption from Disclosure

Annexes 1, 2 and 3 to this report are exempt from disclosure by virtue of the following paragraphs of Schedule 12A to the Local Government Act 1972. Paragraph 3 "Information relating to the financial or business affairs of any person (including the authority holding that information)." is exempt from publication.

• Annex 1: Tender and Affordability Report on Lots 1-3 covering Decent Homes, Responsive Repairs, Voids, Planned and Cyclical Maintenance, Cleaning (including the Concierge Service ) and Grounds Maintenance;

• Annex 2: Tender and Affordability Report on Lots 4-6 covering Door Entry Systems and CCTV;

• Annex 3: Tender and Affordability Report on Lots 10-12 covering Lifts.

The reasons for confidentiality are that these Annexes contain commercial and confidential information relating to the details of the costs and prices of the different tenderers.

For Information

Approval Decision

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Prepared by: Title: Phone:

David Gilles/EC Harris Procurement Programme Manager/Technical Consultants 020 7926 5251/07765 254090

Summary

This report recommends the acceptance of tenders for 9 of the 12 Lots (contracts) that make up the LHPP. The tenders for the remaining 3 Lots (lots 7-9) will be presented to a subsequent meeting of the Board.

Agenda item

Meeting Board: 17 March 2010 Lambeth Council Cabinet: 22 March 2010

Date

Risk Mitigating Action Failure to develop a high quality partnership and governance structure with all stakeholders leading to vision not being met/desired outcomes not being achieved

• Early development of the governance structure, including partnering framework and core group meetings during the mobilisation process;

• Regular quarterly core group meetings that consider strategic and developmental issues;

• Good quality performance and benchmarking data to inform future developments; • Partnership development targets that are stretching; • Working governance structure (organisational structure/contract management framework) by start date.

• Effective performance management process

Inadequate resourcing of and preparation for mobilisation

• Full Mobilisation Plan and programme; • Adequate mobilisation resources (people and money); • Involvement of all stakeholders; • Clear speedy decision making; • Implementation of new staffing and clienting arrangements. • Development of new controls, procedures processes etc; • Appropriate training and development.

KPI/PI system and IT Developments for Dynamic Job Scheduling System (DJSS), Sx3 and asset Management Data Base not operational at Commencement date

• Implement agreed IT proposals for new contracts re Schedules of Rates, contractor interfaces and performance management framework (ie Key Performance Indicators);

• Procure Dynamic Job Scheduling System using Framework; • Negotiate with Strategic Client on Asset Management database; • Robust and comprehensive Project Mobilisation Plan (February 2010) involving all stakeholders with clear milestones and responsibilities;

• Training and development for staff in the range of IT software and reporting;

Not managing restructuring process and staff impact effectively

• Restructure to create Area based Client side; • Consult fully against predetermined timetable; establish key issues clearly in advance;

• Identify staff skills gap and implement programme of training and development; use opportunities created by reorganisation to the full;

• Appoint Area Contract managers and staff teams ASAP;

Key risks

Implementation time scales not achieved

Strong Project Management including:

• Robust and comprehensive Project Mobilisation Plan (February 2010) involving all stakeholders with clear milestones and responsibilities;

• Achieve buy in of all parties to evaluation process; • Involve contractors asap; • Well organised s20 Landlord and Tenant Act 1985 consultation and mobilisation processes;

TUPE implications

• Implement TUPE Regulations, Workforce Code and Best Value Authorities Staff Transfer (Pensions) Direction 2007 in full;

• Ensure full and proper consultation with staff and Trade unions; • Ensure that incoming contractors have all information required to take over and manage the contracts;

• Scrutinise staffing and resourcing proposals carefully; • Effective mobilisation planning;

S20 Landlord and Tenant Act 1985 Compliance

• Full adherence to statutory framework in respect of Notices etc; • Break down tender prices to estates and blocks where needed; • Good procedures and training for staff in both HOS and Client areas re legislation and the new contracts;

Financial Implications

Based upon the rates submitted an analysis of the prices submitted by the recommended tenderers indicates that the rates and prices tendered are affordable.

Lots 1 – 3 Decent Homes, Responsive Repairs, Voids and Planned & Cyclical Maintenance and Estate Services

Decent Homes: Decent Homes expenditure is likely to consist of only capital and parts of the planned maintenance programme and therefore is dependent upon the size of the programme and the funding available.

Responsive Repairs: The cost of repairs is based on a new schedule of rates so the cost of this service is obviously dependant on the volumes of job orders raised. On average it appears that the new rates are lower than the current rates. However, it must be noted there are a number of rates that are higher (e.g. carpentry) which are offset by lower rates (e.g. brickwork and blockwork) elsewhere.

An exercise has been completed which has compared the current rates to the new rates by taking a sample of jobs carried out over the three Areas and recalculating the costs as if those jobs had been on the new rates. This has shown that under the new rates there would have been a cost reduction.

Central Area Based upon the rates submitted by Morrison the analysis indicates that the rates and prices tendered by Morrison are affordable and could notionally provide savings of 48% compared with the existing Schedule. In practice this level of saving may not be achieved but a prudent approach would be to expect outturn costs in the order of 25% below historic costs or circa £0.8m. North Area Based upon the rates submitted by Mears the analysis indicates that the rates and prices tendered by Mears are affordable and could notionally provide savings in the order of 9% compared with the existing Schedule. In practice this level of saving may not be achieved but a prudent approach would be to expect outturn costs in the order of 5% below historic costs or circa £0.2m.

South Area Based upon the rates submitted by Apollo the analysis indicates that the rates and prices tendered by Apollo are affordable and could notionally provide savings in the order of 8% compared with the existing Schedule. In practice this level of saving may not be achieved and a prudent approach would be to expect outturn costs to be in the order of the existing costs.

EC Harris have been able to directly compare between 35% and 45% of the new schedule of rates with the historic schedule used by Lambeth Living. The analysis suggests that the prices submitted by the tenderers are broadly affordable across the Borough with the potential for major savings in the Central area.

A prudent approach would be to expect outturn costs for Responsive Repairs in the order of 10% below historic costs or circa £1.0m across the three areas.

It therefore appears that the prices received are, on average, affordable. It should be noted however that Responsive Repairs are needs driven and therefore affordability is also a function of stock condition, contract management and other variables such as weather conditions in any year.

Voids

Lots 1-3 Voids have been tendered on the same basis as repairs. An exercise to reconcile the new schedule items with those in the historic Schedule of Rates has been undertaken. This exercise indicates that typically the unadjusted prices included in the NHF schedule are in the order of 4% -16% less than the current schedule of rates.

In addition, an exercise has been carried out in respect of long cycle voids that compares the prices submitted by Morrison with those received historically. The analysis indicates that where schedule items are comparable Morrison rates vary between 5% and 30% less than the current Schedule with a typical reduction in the order of 20%. On this basis it appears that the rates submitted by Mears are still likely to be less than those currently in use and those submitted by Apollo appear to be comparable to current rates.

It therefore appears that the prices received are, on average, affordable. It should be noted however that voids are needs driven and therefore affordability is also a function of stock condition, contract management and other variables.

Estate Cleaning and Grounds Maintenance

The table sets out the indicative budgets for Estate Cleaning (including Concierge) and Grounds Maintenance. The 2009/10 revenue budget is £8.75m. For revenue, the above table shows £8.75m so compared to the current budget this is a neutral position.

2009/1

0 2010/1

1 2011/1

2 2012/1

3 Estate Cleaning & Grounds Maintenance £000s £000s £000s £000s Area Summary Capital

Element

£m £m £m £m

Estate Cleaning 0% 7.45 7.45 7.45 7.45 Grounds Maintenance 0% 1.30 1.30 1.30 1.30 Indicative Budgets 8.75 8.75 8.75 8.75 Revenue Indicative Budgets 8.75 8.75 8.75 8.75

Lots 4 – 6 CCTV and Door Entry Systems

The table below sets out the indicative budgets for the installation and maintenance of CCTV and Door Entry Systems. The 2009/10 revenue budget is £0.9m. For revenue, the above table shows £0.7m so compared to the current budget there is a saving of £0.2m in a full year.

2009/10

2010/11

2011/12 2012/13

CCTV & Door Entry £000s £000s £000s £000s Area Summary Capital

Element £m £m £m £m

Installations 100% 0.60 0.60 0.80 1.00 Responsive Repairs 0% 0.30 0.30 0.30 0.30 Planned Maintenance 0% 0.40 0.40 0.40 0.40 Indicative Budgets 1.30 1.30 1.50 1.70 Revenue Indicative Budgets 0.70 0.70 0.70 0.70 Lots 10 – 12 Lifts.

The table below sets out the indicative budgets for the installation and maintenance of lifts. The 2009/10 revenue budget is £1.24m. For revenue, the above table shows £1.37m so compared to the current budget there is an estimated increase of £0.13m in a full year.

Lots 10 – 12 2009/1

0 2010/1

1 2011/1

2 2012/13 LIFTS £000s £000s £000s £000s Area Summary Capital

Element

£m £m £m £m

Installations 100% 0.30 1.00 2.00 4.00 Responsive Repairs 0% 0.72 0.72 0.72 0.72 Planned Maintenance 0% 0.50 0.50 0.50 0.50 Stair Lifts/ Hoists 0% 0.15 0.15 0.15 0.15 Indicative Budgets 1.67 2.37 3.37 5.37 Revenue Indicative Budgets 1.37 1.37 1.37 1.37

These contracts will need to be closely monitored through the Clienting arrangements reflected within this report.

Potential Savings Against Indicative Budget Provision The rates and prices submitted by the recommended tenderers for Lots 1-3, 4-6 and 10-12 have been compared to budgets which are based upon historic rates and prices with the exception of Decent Homes where historic rates and prices are not available; in this case EC Harris have used the Building Cost Model submitted to the DCLG as a comparator. Based upon the prices received and extrapolating prices submitted on comparable work items, a saving in the overall budget in the order of 10% could be achieved with effective contract management. Based on the budget of circa £140 million over the first three years of the Programme this equates to around £ 14 million. The actual savings achieved may be higher or lower than these savings dependent upon a number of factors including the effectiveness of contract management, annual expenditure levels and the relative values of the different work types (workstreams). The potential savings generated could be extended over the 7 year term of the contract although there are inherent risks generally. On the basis of the Building Cost Model value of circa £ 500 million the 10% saving could result in a total saving of £ 50 million.

Recommendations for the Award of Contracts

Lots 1-3

1. Mears is awarded the contract for Lot 1 (North Lambeth). 2. Morrison is awarded the contract for Lot 2 (Central Lambeth).

3. Apollo is awarded the contract for Lot 3 (South Lambeth). Lots 4-6

4. Mears is not awarded a Lot for the reasons set out in Annex 2.

5. Cartel is awarded the contract for Lot 4 (North Lambeth).

6. Alphatrack is awarded the contracts for Lots 5 & 6 (Central Lambeth and South Lambeth).

Lots 10-12

7. Apex is not awarded all 3 Lots for the reasons set out in Annex 3.

8. Connaught is not awarded a Lot for the reasons set out in Annex 3.

9. Precision is awarded the contract for Lot 10 (North Lambeth).

10. Apex is awarded the contracts for Lots 11 & 12 ( Central Lambeth and South Lambeth)

Other recommendations

11. The contracts for Lots 1-3, 4-6 and 10-12 start as soon as is practicable given the requirements under the Public Contracts Regulations 2006 for notification of unsuccessful tenderers and a standstill period, the requirements under s.20 for consultation with leaseholders and the need for an adequate mobilisation period. This will probably be 01 October 2010.

12. The recommendations in the EIA for the LHPP be agreed and implemented.

1. Background

1.1 Tenders for the LHPP were invited on 18 May 2009 and after two extensions of time they were received on 25 August 2009. Following a review of all the tenders for their compliance with the requirements of the Instructions to Tenderers (“ITT”) and after taking advice from Leading Counsel, it was decided that there were insufficient compliant tenders to ensure competition. In accordance, therefore, with Regulations 13 and 14 of the Public Contracts Regulations 2006 as amended (“the 2006 Regulations), the Restricted Procedure under the 2006 Regulations was discontinued on 9 October 2009. The procurement process then continued using the Negotiated Procedure under the 2006 Regulations with an Invitation to Negotiate (“ITN”) being issued on 21 October 2009 to all the tenderers.

1.2 Under Regulation 13 of the 2006 Regulations the terms of the original contract offered in the discontinued Restricted Procedure cannot be substantially altered in the Negotiated Procedure. The scope of the negotiations was accordingly restricted and the basis of the negotiations with each tenderer was, therefore, the tender previously submitted by it.

1.3 The Method Statements submitted by the tenderers were subject to clarification in the negotiations. An evaluation of the Method Statements by residents and officers began in September 2009 and was concluded in November 2009. Clarification of the tenders was sought via specific queries for each tenderer that were raised in each ITN and the results were fed into the evaluation process in November/December 2009.

1.4 The tenders were subject to modification by agreement in the negotiations. The effect was to remove from the tenders contractual changes proposed by the tenderers which if remaining in the tenders would result in the tenders having to be rejected under Regulation 13 as non compliant. One tender, which the tenderer concerned would not so modify, was rejected in accordance with Regulation 13 of the Procurement Regulations.

1.5 9 tenders were received for Lots 1-3 (Decent Homes etc), 3 tenders for Lots 4-6 (DES/CCTV) and 5 tenders for Lots 10-12 (Lifts).

1.6 The ITN provided in the case of Lots 1-3 that progression to the site visit and interview stage would be restricted to the 6 highest scoring tenders only in each Lot as clarified and modified in the initial round of negotiations. In Lots 4-6 and 10-12 where the number of tenderers was 3 and 5 respectively, all tenders went forward to the site visit and interview stage.

1.7 Site visits to the remaining tenderers as set out in the ITN took place before and after Christmas 2009.

1.8 Interviews took place in the period 20 January – 04 February 2010. Further detail on the procurement process and the results of the tenders as clarified and modified in the negotiations is set out in the body of the Tender and Affordability Reports attached to this report as follows

• Annex 1: Tender and Affordability Report for Lots 1-3 covering Decent Homes, Responsive Repairs, Voids, Planned and Cyclical Maintenance, Cleaning (including the Concierge Service ) and Grounds Maintenance;

• Annex 2: Tender and Affordability Report for Lots 4-6 covering Door Entry Systems and CCTV;

• Annex 3: Tender and Affordability Report on Lots 10-12 covering Lifts.

1.9 Each of the Annexes 1-3 contains a full description of tenders received for each Lot and their evaluation through to a discussion of their affordability and the recommendations set out above. The tender report for Lots 7-9 could not be finished in time for this report because of the need for further financial modelling and will, therefore, be brought to a subsequent meeting of the Board.

2. Vision and Objectives

2.1 The vision and objectives of the new contracts are:

• To help achieve the Council’s vision; • An effective/efficient delivery of works and services based on partnering principles

and therefore improved outcomes for residents; • To move from responsive to planned work; • A holistic, joined up, approach to the provision of works and services; • Better resident satisfaction and more resident involvement; • Collaborative working; • Better planning; • Flexibility and innovation; • More effective clienting of the new contractors • Continuous improvement

2.2 Lambeth Living currently manages over 40 services and 60 works contracts, which

tend to be old fashioned and based on specifying inputs rather than focusing on outcomes. Residents are largely dissatisfied with the current services they receive. The existing services contracts have all now expired and while they have been extended, this extension period expires on 30th September 2010.

2.3 The LHPP was established to provide a structure for the long term delivery of works and services to the housing stock. This includes both capital works and revenue expenditure. The overall aim of the procurement process was to establish new, long term relationships, based on a partnering approach with shared cost savings and a high quality, holistic approach.

2.4 The benefits of the new contracts will include:

• An increase in the number of Decent Homes in Lambeth; • A more effective use of existing resources and a move from responsive to planned

work; • Education and training opportunities for disadvantaged groups and more residents in

employment, education, training and increased educational attainment; • Greater resident empowerment and improved resident satisfaction / satisfaction with

their homes; • Improved street/environmental cleanliness; • Stronger neighbourhoods/communities.

3. Compliance Issues

3.1 These are briefly outlined in paragraph 1.1 above and in each tender report.

4. Alcatel Period

4.1 Subject to the recommendations set out above being accepted by Lambeth Council Cabinet, as required by Regulation 32 of the 2006 Procurement Regulations (as unamended because this procurement process commenced before 20 December 2009) letters will be sent by email or fax to all companies who returned a Pre-Qualification Questionnaire. This letter will inform them of the identity of the tenderers to whom it is proposed to award a contract, the criteria for the award of a contract, the scores of tenderers to whom it is proposed to award a contract against those criteria and the score of the recipient of the letter against those criteria.

4.2 No action can be taken to implement the Cabinet decision until at least ten days have expired following the dispatch of those letters (“the standstill period”). If a recipient of a letter asks for the reasons why it was unsuccessful by midnight on the second working day after the day on which the letters were sent then the Council must inform it of the characteristics and relative advantages of the successful tenders.

4.3 If the Council does not provide this information at least three working days before the expiry of the standstill period, then the standstill period is extended until at least three working days after the date on which the information is provided by the Council. If there has been no judicial intervention preventing the Cabinet decision being implemented as a result of an application to the Courts by a recipient of one of the letters alleging a breach of a duty owed to it by the Council under the 2006 Regulations, then the Cabinet decision can be implemented.

4.4 Once a contract is awarded (as this process began before the 2006 Regulations were amended to implement the new Remedies Directive 2007/66 EC) the contract cannot be terminated by the Courts but the Council could still be subject to a claim for damages if begun by an unsuccessful company on the basis of an alleged breach of the 2006 Regulations within 3 months from the date on which the ALCATEL letters were sent.

4.5 If a recipient of a letter asks for feedback no later than midnight on the second working day after the letters were sent out, then the Council must provide it within 15 days.

5. Section 20 of the Landlord and Tenant Act 1985

5.1 Section 20 requires a landlord to consult leaseholders on proposals to seek tenders for a long-term agreement prior to their issue and also following receipt of tenders. Once the standstill period has expired and assuming that there has been no judicial intervention preventing the award of a contract, then the next step will be to consult leaseholders on the proposed contracts.

5.2 Leaseholders were sent a Stage 1 Notice of Intent in the summer of 2008. The main issues raised in the responses were:

• What are these contracts for and why do we need them;

• The work proposed does not apply to my home;

• The work is not affordable for leaseholders;

• This is not consultation and the details cannot be understood;

• Why will the contracts be for seven years – this is too long;

• What will be the safeguards against poor monitoring/contract management by Lambeth living and poor work by contractors;

• What will be the safeguards for listed buildings;

• Current maintenance standards are poor – why should I pay my current let alone an increased charge;

• Comments on specific contractors.

5.3 All responses were individually answered in writing.

5.4 Following contract award and the Alcatel period each leaseholder will be given notice of the proposed contracts which will affect his home including details of the rates for work under the proposed contract. The leaseholders then have 30 days to make observations to the Council, to which it must have regard.

5.5 Within 21 days of the entry into a contract the Council must inform the leaseholders of the entry into the contract and the reasons for entering into the contract together with a summary of the observations by leaseholders and the Council’s response to those observations.

5.6 Subsequently when it is proposed to commission work under one of the contracts, the Council will have to consult all the leaseholders affected by the proposed work, if the contribution towards the cost of the proposed work by any one leaseholder would exceed £250.

6. Mobilisation Issues

6.1 Following the award of contracts Lambeth Living will undertake a number of activities to prepare for the commencement of the new contracts. This is known as the mobilisation period and will run from contract award through to the early stages of contract ‘Go Live’. A timetable of mobilisation dates is attached at Annex 4.

6.2 Activities within the mobilisation period are vital to the successful management of the contractors in the short, medium and long term and include:

• Partnering Charter and Core Groups development - The starting point of the mobilisation process will be the development of a Partnering Charter (vision and objectives covering key issues and developments for the contract period), and governance structure of core groups which is agreed by all stakeholders. This will have associated contract management arrangements for each series of Lots. Links and joint activities will need to be developed with Lambeth First, the Local Strategic Partnership and other bodies.

• Client structure – Developing and implementing an organisational structure within Housing Property Services that can effectively manage the new contracts; ensuring that contract management takes place at a local level, with the co-location of contractor staff; enabling effective resident engagement;

• Contract management– Developing and implementing the contract management structure Lambeth Living will adopt which focuses on the 3 key areas of: Service Delivery, Relationship Management and Contract Administration;

• Commercial management – Developing and implementing the invoicing and payment processes, including authorisation and quality assurance procedures;

• Resident Engagement - formalising the structure and approach to resident engagement and aligning it with the contract management approach;

• Processes and procedures – Mapping and documenting the new processes and procedures for the new ways of working including the identification of interdependencies, linkages and process measures;

• IT – Procuring and/or developing and implementing the IT systems necessary to effectively manage the contracts. This includes: Setting up the new Schedules of Rates (SORs) on Sx3; Asset Management software to record improvements to properties as they are carried out; a dynamic scheduling system to manage the scheduling of responsive repairs and improve the service to residents; Developing real time IT links with contractors and; implementing performance reporting systems. See also Section 9 below.

• Management Information and Reporting – Developing a standard approach to capturing, collating and analysing performance information (KPI’s and PI’s). Establishing the linkages with, and the roles and responsibilities of, the contractors

• Service Level Agreements – Working with other Council services, such as the Lambeth Service Centre (LSC), who supply services to Lambeth Living, to identify transitional issues and embed the new ways of working;

• Contractors – Supporting contractors as they prepare for ‘Go Live’. Providing the necessary information and supporting the TUPE transfer of staff from existing to new contractors;

• Training & Development – Developing and delivering a training plan and programme that will provide Lambeth Living staff with the skills necessary to successfully manage the new contracts;

• Communications – Developing and implementing a communication strategy and plan to support the mobilisation period;

• Governance – Establishing a project management structure for the delivery of all mobilisation activities using the OGC Project Management methodology PRINCE 2;

• Reporting - Production of a Gateway 4 report (which will set out the readiness of Lambeth Living to go live with the new contracts) for the Client prior to the end of August 2010 so that this can be reviewed by Lambeth Living and the Client in time for the start of the new contracts and any further measures that the Client requires can be put in place. This will be accompanied by regular reports throughout the mobilisation process. Development of the ongoing reporting arrangements to the Client and residents.

6.3 There will be further reports to the Board and Cabinet on the details of the mobilisation plan.

7. Programme and Timetable Issues

7.1 A more detailed Programme and Timetable is set out at Annex 4. A summary is:

• Contract award by Cabinet: 22 March 2010;

• ALCATEL standstill period: 23 March – mid April 2010;

• Section 20 Stage 2 Consultation: Mid April – End May 2010;

• Issue of Letters of Acceptance: Beginning of June 2010;

• Mobilisation period by contractors (see above): June-September 2010;

• Mobilisation period by Lambeth Living (see above): June-September 2010;

• Start for all Lots except 7-9; 01 October 2010;

• (Start for Lots 7-9 01 April 2011).

7.2 Some mobilisation activities will continue after the new contracts start on site.

8. Clienting Issues (How the new contracts will be managed)

Managing Agent

8.1 Lambeth Living will act as the Managing Agent for Lambeth Council. As Managing Agent Lambeth Living will manage all of the contracts on behalf of the Council and be responsible for all decision making relating to the management and delivery of the contracts.

8.2 Lambeth Living will report on contract performance to Lambeth Council through the Housing, Regeneration and Environment Directorate (HRE), who will act as the Strategic Client. Monthly meetings will be held between Lambeth Living and the Strategic Client to monitor performance and discuss improvement activity through the mechanisms set out in the Delivery Plan for the management of Lambeth Living as a whole.

Contractual Terms

8.3 The Contracts are based on the NEC3 Engineering and Construction/Term Service Contracts which contains easy to understand Industry Standard Modern Contract Forms designed to achieve consensus. The NEC3 contract form has been incorporated into the Contracts which allows for target prices and a sharing of in-contract savings. There is an aim to move to Open Book pricing as soon as possible, and no later than year four when adequate performance data is available.

8.4 The NEC 3 Term Service Contract mechanism by which the contractor only begins to carry out a Task when it is instructed to do so by a Task Order has been applied to all the activities to be performed under the Contracts, whether works (mainly capital expenditure) or services. As mentioned below it is intended that Task Orders will be issued annually or more frequently to each contractor for the work to be carried by that

contractor. Any Task Order which involved the transfer of Lambeth Living staff to a contractor would be brought to the Board and Cabinet for approval

Resource Allocation

8.5 In the context of the annual planning process the Council and Lambeth Living should develop a three year budget envelope for planning purposes within which annual financial allocations will be made to Lambeth Living by the Council. This will allow the agreement of annual programmes of capital and delegated revenue services to be undertaken through the Delivery Plan process and monitoring framework. This forward planning process is important to enable Lambeth Living to move away from the current uncertainties around the allocation of each year’s budget to a situation where longer term and more stable financial planning is possible.

8.6 This is an essential pre-requisite to the full development of the long term partnering arrangements and relationships that the new contracts envisage and the realisation of the benefits that they will be able to deliver for all stakeholders. The contractors will need the certainty of being able to see the stream of resources for several years ahead to enable them to plan the delivery of the service improvements and efficiencies required.

8.7 The new contracts provide for work to be commissioned annually for each workstream. This will be on the basis of an annual agreed budget and activity schedule which will vary from the list of homes receiving a new kitchen, bathroom, heating or rewiring upgrade each year through to the areas to be cleaned and maintained in the workstreams for cleaning and grounds maintenance.

8.8 In the case of Decent Homes the specification states that the Council will provide indicative budgets and activity figures at least a year ahead of the start of the contract year in which the works will take place. This will allow full consultation, pre start on site survey work, the preparation of individual plans for each home receiving work and the development of target costs all of which will take place prior to the start of the financial year in which the work takes place.

8.9 In discussions with contractors about annual budgets, target costs and the work contained within them negotiations will take place on standards and costs with the objective being one of continuous improvement.

Technical Assistance

8.10 During the initial stages of the new contracts Lambeth Living will procure specialist technical expertise to support the client structure and contract management approach. The areas this will cover are primarily the determination of target costs, cost control (eg quantity surveying advice), project and contract administration and contract audit.

Performance Indicators

8.11 The new contracts contain a reward framework that has been designed to drive performance. The reward framework is based around a set of Key Performance Indicators (KPI’s). Each workstream in Lots 1-12 has a set of 6-8 KPI’s which are measured monthly. Targets for each of the KPI’s and additional performance indicators will be agreed on an annual basis. The Key Performance Indicators are:

• Tenant and leaseholder satisfaction;

• Quality;

• Time;

• Cost/Budget;

• Sustainability;

• Annual Review of Performance;

• Planned vs. Responsive (Some work streams only);

• Appointments made and kept (Responsive Repairs only);

• Turn round time (Voids only).

8.12 As part of the tendering process bidding contractors were required to identify an amount of their tendered sum (minimum 2.5% for each work stream with the maximum offered being 5%) that would be retained till year end and added to the Performance Profit ‘reward pot’. At the Annual Review of Performance, after year end, a review of the KPI performance throughout the year will be undertaken.

8.13 The performance profit will be paid to the contractor to the extent that the targets are achieved. E.g. if the median level to be achieved for a KPI is 95% and the range is 93% - 97%, a contractor achieving 93% or less will receive nothing; if the contractor achieves 97% or more, they will receive 100% of that element of the performance profit. The different elements are weighted.

Performance Monitoring

8.14 The monitoring of contractor performance will be undertaken at a number of levels:

• Strategic – The core groups, with representatives from all stakeholders including residents, will meet regularly to set the strategic direction; monitor performance and identify potential issues and new developments. Discussions will be needed with stakeholders, and in particular the contractors, early on, to agree the precise nature of these arrangements.

• Operational – Area Contract Managers will hold monthly meetings with the contractor(s) to review the previous month’s performance; agree improvement activities and; discuss the delivery of continuous improvements. In addition Area Contract Managers will meet monthly, as a group chaired by the Director of Property Services, to review performance across the contracts, identify common themes and agree the management approach going forward. Benchmarking information from other social housing organisations will also be reviewed on a regular basis to measure other areas such as Value for Money (VFM).

• Local – Area Contract Teams will review the performance of contractors on an ongoing basis, quality reviewing the delivery of estates services; sample reviewing completed repairs; monitoring the standard and timeliness of void completions; and manage the delivery of Decent Homes projects.

• Resident – Residents will be involved in performance monitoring at all levels and contractors will be required to attend meetings with members, officers and residents and carry out joint estate walkabouts.

Escalation & Penalties

8.15 Through contract monitoring and management it may be necessary to escalate or penalise poor performance by the contractors. The Invitation to Tender outlined the escalation and penalty processes that will be available to Lambeth Living. These are:

• KPI reward framework retains a minimum 2.5 % of contractor tendered prices with the range offered being 2.5 – 5.0% payable after the year end based on in year performance against KPIs;

• Benchmarking activity to measure contractor performance against similar organisations (with the ability to reduce contract prices where appropriate);

• Default mechanisms (Minor/Substantial/Critical);

• Ability to withhold payments for work that is not completed;

• Ability to impose extra reporting and remedial work at the contractor’s expense;

• Reallocation of Work – Decent Homes work can be allocated to other contractors;

• Step In Rights – Work is completed by a third party and charged to the contractor;

• Supervision Rights – Contractor pays for extra supervision of their work;

• Termination of part or all of the services delivered by the contractor – in conjunction with Lambeth Council.

Timescales

8.16 The development of the client structure and the implementation of the contract management approach will take place in the Mobilisation Period. The Mobilisation Period will commence following contract award and will continue into the early stages of contract ‘Go Live’.

• A number of activities are included within the Mobilisation Period and a number of these, such as the implementation of supporting ICT systems, are crucial to the successfully implementation of the client structure and contract management approach.

9. Client Side Structure and Related Change Management Issues

Client Structure

9.1 Subject to budget agreement with the Council, a client structure will be established to enable the effective management of the new contracts and maximise their benefits. This will be an integrated service with housing management and property management staff reporting to one local manager and with contract management lead by the Director of Property Services

9.2 The client structure will consist of centrally based teams carrying out overall contract planning, performance management and monitoring functions at a strategic level.

There will also be locally based teams responsible for the project management, delivery and monitoring of works and services at a neighbourhood level.

9.3 The Contract Teams will be responsible for managing the contracts on a day to day basis and include Decent Homes, Planned Maintenance and Responsive Repairs works and services. It is an objective for the new client structure that contractors will co-locate side by side with Lambeth Living Contract Teams to promote collaborative working, foster good relationships and deliver a holistic service to residents.

9.4 The centrally based teams will be responsible for asset management activities such as: developing the Asset Management Strategy; the development and monitoring of the Decent Homes road map; the creation of annual work packages; monitoring and recording asset improvements; the monitoring, analysing and reporting on contractor performance; providing support the Contract Teams.

9.5 This will involve a substantial reorganisation of Housing Property services with new roles, job descriptions and competency frameworks being developed. This work is already well underway.

Change Management Strategy

9.6 A change management strategy will be developed to support the mobilisation period and will consist of 3 elements: The Change Approach; Communication & Engagement and; Training Plan.

The Change Approach

9.7 This will involve creating a Managing Change Toolkit and establishing a governance structure to manage the change. The Managing Change Toolkit will contain protocols and policies for managing the change that are fit for purpose (e.g. Redundancy; Reorganisation; Redeployment; TUPE). The governance structure will be based on the OGC PRINCE 2

9.8 The Key Activities are:

• Plan for Change;

• Stakeholder Engagement;

• Impact/ Risk Assessment (Equalities, Technology, Job Role);

• Transition and Stabilisation Plan;

• Benefits Realisation.

Communication and Engagement

9.9 A communication strategy and plan will be created. This will identify: key messages; stakeholder management activities and; staff and trade union engagement activities including formal consultation requirements.

9.10 Communication and Engagement Key Activities will be:

• Big picture vision, ambition, values for Lambeth Living;

• Communication objectives;

• Stakeholder Engagement/ Consultation Framework;

• Wider audience communications.

Training Plan

9.11 A detailed Training Plan and programme has been developed to support the change. The audience for the training will be staff, contractors, residents and the Client.

9.12 Initial scoping has identified a series of training themes which will be incorporated into the Training Plan. Additional themes will be added to the training plan as the Mobilisation Period develops. The training themes include:

i. Contract Management Training; ii. Contract Structure Training – NEC 3;

iii. Project Management Training; iv. ICT Training (Hardware/Software);

v. Resident Engagement; vi. Leasehold Issues;

vii. Partnership Working; viii. Conflict Resolution;

ix. Processes & Procedures; x. Budget Management;

xi. HR Policies and Procedures.

9.13 The Training Plan’s key activities are:

• Training Needs Analysis (TNA);

• Training Development ;

• Training Delivery Schedule;

• Training Evaluation;

• Establish New Behaviours;

• Establish New Performance.

Changing the Culture

9.14 To manage the new contracts Lambeth Living and in particular Housing Property Services will need to change its approach to contract management and that means a change in the culture of the organisation.

9.15 Organisational culture is made up of the values, beliefs, underlying assumptions, attitudes and behaviours shared by a group of people. These are difficult to change. People are required to change their behaviour, to unlearn their own way of doing things and start performing the new behaviours consistently. Persistence, focus, employee involvement, understanding, organisational development work and training assist in culture change.

9.16 To promote and support the change in culture a series of focused activities will be undertaken over a sustained period of time. These activities include:

• Creating the Vision – Developing the new vision, values and behaviours;

• Leadership – Lambeth Living Leaders demonstrating the vision, behaviours and values of the organisation; Leaders will promote, recognise and support the demonstration of the new behaviours and values by staff;

• Communication – Work with staff to develop a common understanding of the new behaviours and values; Keep staff informed during the change; Communicate what is expected of staff;

• Review the Organisational Structure – Align the organisational structure and individual job descriptions with the desired culture;

• Training & Development – Ensure staff have the right skills to work in the new organisation; Teach the new behaviours; Communicate expectations;

• Processes - Review all processes and procedures to ensure they align with the desired culture; Develop performance management systems to support the new processes and procedures;

10. Information Technology

10.1 There are three strands to the IT developments required to successfully manage the new contracts. They are:

• Establishment on Sx3 of new Schedules of Rates; the KPI system for performance management and performance reports. This work has already started;

• Procurement of a Dynamic Job Scheduling System (DJSS) for Repairs and Voids in the first instance, to provide a seamless allocation of work from the LSC to an operative’s PDA with the completion of jobs and customer satisfaction surveys taking place in real time as well, thereby updating both Sx3 and the LSC. Procurement is now underway using an OGC Framework;

• Procurement of a new Asset Management Data Base which is a slightly lower priority than the previous two points at the request of Corporate IT. Because of ongoing discussions between the HRE Client and Lambeth Living as to who will lead on this work, it has not yet started but is required as soon as possible. Current Asset Management Data Base arrangements are unsustainable in the long term as they do not provide a basis for Lambeth Living obtaining 2 stars.

11. Resident Consultation and Involvement

11.1 Residents were widely consulted through the HMRIP process in drawing up the standards for the new contracts prior to their going out to tender.

11.2 Each of the Area Fora nominated one resident to take part in the evaluation process who were joined by 2 resident representatives from the Lambeth Living Board. This group has met regularly throughout the tendering and evaluation process to consider all material issues.

11.3 8 evaluation groups were established to look at and score the method statements that were submitted by the tenderers. Five of these groups were for Lots 1-3, and one each for the remaining 3 groups of Lots. The residents involved in the process decided to concentrate on the Lots 1-3 evaluation groups and were therefore represented on all 5 of these groups but not on the 3 groups for Lots 4-12.

11.4 The residents played a full role in the evaluation of all aspects of the method statements for lots 1-3, took part in the subsequent site visits and interviews and were present at the final round up meetings of the evaluation process. They met independently on several occasions during the evaluation process to consider their input to it and how this could be most effective. Their involvement and input was invaluable throughout.

11.5 The resident group has expressed a wish to remain involved in the mobilisation process and officers will therefore continue to consult and work with them in the run up to start on site.

11.6 The new contracts provide for the contractors to work with and consult residents at an individual, estate, Area and Borough wide level. There are detailed protocols on eg resident consultation for major works and customer care in the new contracts. As part of the mobilisation process officers will produce papers for Tenants and Leaseholder Councils and the Board on future resident involvement in the management and operation of the new contracts.

12. TMOs

12.1 At the outset of the LHPP the TMOs were invited to take part and join the new contracts. This message was repeated at a recent meeting with the TMOs. TMOs can, therefore, chose to be part of LHPP (establishing their own contract monitoring meetings and reporting arrangements etc if desired) or make their own separate arrangements. Lambeth Living will also work with TMOs and contractors to facilitate the development of individualised KPIs. If a TMO chooses to be part of the LHPP then it will need to accept the contractual arrangements agreed between the Council and the contractor concerned. Lambeth Living will also facilitate transitional arrangements for any TMO which wishes to make its own long term arrangements.

12.2 In general terms, the TMOs do not deliver a capital programme, so the option to opt in or out would largely apply to Responsive Repairs, Estate Services and the range of mechanical and electrical services contracts. Many TMOs already carry out these duties as part of their Management Agreement with the Council, a summary of which is set out below.

Management Responsibility

Angell Town

Cowley

Ethelred

Myatts North

Cetra

Metra

Holland Rise

Wellington Mills

Thorlands

Cottington Close

PACCA

Day-to-day repairs û ü ü N/A ü ü ü ü ü ü

Individual gas servicing û ü û N/A ü ü û N/A ü ü ü

Communal boilers û ü N/A N/A ü û û ü ü ü

Lifts N/A ü û N/A N/A N/A û û û ü ü

Entry Systems û N/A ü N/A N/A û ü ü ü N/A ü

Pressurised water drain jetting û û ü N/A ü ü ü ü ü ü ü

Void security N/A ü ü N/A ü ü ü ü ü ü ü

Out of hours emergencies û û û N/A û û û û ü û ü

Estate cleaning ü ü ü N/A ü ü ü ü ü ü ü

Grounds maintenance ü ü ü N/A ü ü ü ü ü ü ü

13. Employment, Training and Other Matters Related to the Council’s Vision

13.1 The recommended contractors for Lots 1-3 have offered a number of commitments some of which remain to be quantified and worked through. These commitments are set out in Annex 5.

13.2 The commitments are taken from the “headline” offering of each contractor and therefore material mentioned in one but not the other contractors lists of commitments does not necessarily mean its absence from the others.

13.3 The Lots 4-6 and 10-12 contractors have offered similar commitments though to a lesser extent and commensurate with the value of the Lots concerned.

14. Sustainability

14.1 All appointed contractors must:

• Comply with the requirements of the Site Waste Management Plan Regulations 2008;

• Have and update throughout the Contract an Environmental Management Policy that is acceptable to Lambeth Council;

• Implement an ISO 14001 Site Specific Environmental Management System (EMS) at the start of the new contracts;

• Provide an effective and responsive system to control the impact of all works and services on the local and global environment;

• Maintain ISO 14001 accreditation throughout the life of the Contract;

• Comply with the Council’s Sustainable Construction Policy, Sustainability Charter and Sustainable timber policies;

14.2 The following minimum compliance standards also apply:

• All timber, boarding and purpose made joinery shall be obtained from sustainable sources that are certified by the Forest Stewardship Council or equivalent approved and shall be validated with a Chain of Custody Certificate;

• ‘A’ rated energy efficient products, as classified by the Seasonal Efficiency of Domestic Boilers in the UK (SEDBUK) rating or European Union (EU) Energy Rating;

• Use of LOW VOC rated paint and related products.

14.3 There is also sustainability KPI for each workstream which is the percentage of recyclable waste expressed as a proportion of total waste and as recorded by Waste Transfer Notices.

14.4 In their method statements on sustainability tenderers were also asked to set out how they would meet the above requirements and reduce vehicle emissions and the use/waste of water.

14.5 Key commitments on sustainability from the Lots 1-3 contractors are set out in Annex 5. Other recommended contractors have made similar commitments.

14.6 There will be regular reporting on and monitoring of sustainability requirements and commitments through the performance management system

15. Equalities Issues

15.1 An updated EIA for the policy aspects of the LHPP has been produced and is attached at Annex 6. The recommendations arising from this EIA are set out in its text and will be implemented by Lambeth Living.

16. Legal implications

16.1 The procurement of these contracts is governed by the 2006 Regulations. A Contract Notice (Number 205-249075) was dispatched to the Official Journal of the European Union (“OJEU”) on 23 October 2007. That Contract Notice sets the scope of this procurement exercise.

16.2 Selection of those companies to be invited to tender took place in 2008/2009 in accordance with Regulations 23 to 29 of the 2006 Regulations, which require that the selection is made on the basis of financial and economic standing and technical and professional ability following advice from the Council’s external solicitors and Leading Counsel.

16.3 The ITT was prepared following advice from Lambeth Living’s/the Council’s external solicitors and Leading Counsel.

16.4 As mentioned at paragraph 1.1 above insufficient tenders compliant with the requirements of the ITT were received to ensure proper competition. Under the Restricted Procedure (Regulation 16) these non-compliant tenders could not be considered, which for the great majority of Lots would have resulted in there being no tenders and in the remaining few Lots only one possibly compliant tender.

16.5 However under Regulation 13 (a) the Negotiated Procedure can be used if the Open Procedure or Restricted Procedure or Competitive Dialogue Procedure has to be discontinued because of irregular (non-compliant tenders) but only if the terms of the

contract originally offered in the discontinued Procedure are not substantially altered in the Negotiated Procedure.

16.6 Accordingly if a tender is irregular because the tenderer has proposed contractual changes which are a substantial alteration to the contract terms proposed in the ITT, then unless the tenderer withdraws those changes the tender cannot be accepted in the Negotiated Procedure. Tenderers which proposed contractual changes were asked in the negotiations to withdraw them and with one exception did so.

16.7 Regulation 14 (1) (a) (i) provides that the Negotiated Procedure can be used under Regulation 13 (a) without publication of a fresh contract notice in OJEU if all the organisations that submitted tenders in the discontinued procedure are invited to negotiate. The use of the Negotiated Procedure enables the non-compliance of tenders to be disregarded subject to the prohibition of substantial contractual change by Regulation 13 (a).

16.8 In its Invitation to negotiate the contracting authority must specify the criteria for the award of a contract. In the ITN the criteria for the award specified in the ITT were specified subject to amendments to:

• Avoid the need to reject tenders for non-compliance with the procedural requirements of the ITT;

• To correct an ambiguity in the text relating to the financial evaluation model; and

• To change a requirement for tenders to achieve a minimum average score in the evaluation of their method statements to one wherein the case of Lots 1-3 and Lots 7-9 the six highest scoring tenders would progress to the site visit and interview stages.

16.9 The tenders in the Negotiated Procedure were subject to clarification and modification as mentioned in paragraphs 1.3, 1.4 and 16.6 above and in the tender reports.

16.10 The Council can only award a contract by applying the criteria set out in the ITN. To use any other criterion for the award of a contract would be a breach of the 2006 Regulations. If the Council does not want to accept the recommendation in respect of a Lot in the relevant tender report then no contract can be awarded for that Lot.

16.11 Section 105 of the Housing Act 1985 requires the Council as a landlord authority to maintain such arrangements as it considers appropriate to consult those of its secure tenants who are likely to be substantially affected by a matter of housing management to which this section applies such as these proposed contracts.

16.12 Section 20 of the Landlord and Tenant Act 1985 requires the Council as a landlord to consult leaseholders in respect of qualifying works (works where any one leaseholder’s contribution towards the works will exceed £250) and qualifying long term agreements (a contract for works and/or services for a period of more than 12 months). The specific consultation requirements are set out in the Service Charges (Consultation Requirements) (England) Regulations 2003.

16.13 The Race Relations Act 1976 (Statutory Duties) Order 2001, the Disability Discrimination (Public Authorities) (Statutory Duties) Regulations 2005 and the Equality Act 2006 require the Council to publish Race, Disability and Gender Equality Schemes setting out how it intends to comply with its statutory duties under section 71 (1) Race Relations Act 1976, section 49A (1) of the Disability Discrimination Act 1995 and

section 21 A (1) of the Sex Discrimination Act 1975. The Equality schemes shall state what arrangements have been made for assessing and consulting on the likely impact of the Council’s policies on the promotion of race, disability and gender equality and the arrangements that have been made for publishing the results of that consultation.

16.14 The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) applies where there is a transfer of an economic entity or on a service provider change. In the case of a change of service provider, employees who are members of an organised group (which can be one person only) whose primary purpose is the provision of the service will transfer to the new service provider. As under these contracts the contractor does not start to provide a service or carry out works until that service or those works are commissioned by a Task Order, then any such employees (whether of an incumbent contractor (including its sub-contractors and agency employees) or Lambeth Living) will not transfer under TUPE until the service or works are commissioned by a Task Order.

16.15 Dismissal of such employees is automatically unfair, unless there are valid economic technical or organisational reasons. Any changes to the terms and conditions of those employees will be invalid unless the changes are made for economic, technical or organisational reasons entailing changes to the workforce. These Regulations impose requirements to inform and consult with the employees affected by the transfer and trade unions representing them. These Regulations also impose duties on existing employers to provide information concerning the employees to their new employer.

16.16 ODPM Circular 03/2003 Annex C imposes requirements on a local authority proposing to out source services with regard to consultation with its workforce and trade unions representing its employees. This and the requirements under TUPE with regard to the Council’s position as an employer will be dealt with in a separate report, which is to be considered after decisions have been made on the recommendations in this report. Taking such matters into account in making decisions on whom to award contracts would be a breach of the Council’s duties under the 2006 Regulations.

16.17 ODPM Circular 03/2003 Annex D (“The Workforce Code”) imposes requirements for provisions to appear in local authority services contracts to avoid a two tier workforce among transferring staff and any new employees recruited after the transfer to work alongside these staff in the delivery of the Services. The Best Value Authorities Staff Transfers (Pensions) Direction 2007 imposes requirements concerning pension entitlements for former local authority employees, with the aim of ensuring no diminution in pension rights. The proposed contracts comply with both these requirements.

16.18 Section 17 of the Local Government Act 1988 provides that in making decisions concerning selecting contractors a local authority shall not have regard to non-commercial matters. Sections 17 and 18 provide that other than for measures required for the Council to fulfil its duties under section 71 (1) of the Race Relations Act 1976 non-commercial matters include the terms and conditions of employees. The other non-commercial matters set out in section 17 are whether individuals who are sub-contractors are to be self employed, any involvement of contractors in defence or foreign policy matters, conduct of the organisation in industrial relations, nationality, political, sectarian or industrial affiliations, financial support to bodies not supported by the authority and use or not of the Authority’s Building Control Service.

16.19 The European Court of Justice held in Case C-346/06 Dirk Ruffert v Land Niedersachsen that a requirement that public contracts could only be awarded to employers who paid their employees the minimum wage prescribed by a collective

agreement in force at the place where the contract was to be performed was incompatible with the freedom under the EC Treaty to provide services and hence was unlawful. Following this judgement the Office for Government Commerce issued guidance to all UK public bodies advising that whilst national legislation relating to the minimum wage was not affected, requirements, for example, to pay the London Living Wage were rendered unlawful by this judgment.

16.20 The Board is advised that the decision on to whom to award contracts under LHPP cannot be made taking into account any matters other than those set out in the evaluation criteria and applying the evaluation mechanisms set out in the ITN. Otherwise the Board and Council are at risk of being in breach of the requirements of Directive 2004/18 EC and relevant ECJ case law and the Public Contracts Regulations 2006 and relevant UK case law. Therefore, the consideration of the recommendations in this report and the attached Tender Reports, which have been arrived at and which are strictly in compliance with the evaluation criteria and mechanisms set out in the ITN should not include consideration of any other matters which are not included in those criteria.