Isle of Wight Council – Highways PFI Outline Business Case – December 2009 1
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Isle of Wight Council – Highways PFI Outline Business Case – December 2009 2
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Index
1. Executive Summary
1.1 Introduction
1.2 Background
1.3 Strategic Context
1.4 The Need
1.5 Scope
1.6 Benefits
1.7 Achieving Value for Money
1.8 Affordability
1.9 Programme Delivery
1.10 Member and Stakeholder Support
1.11 Conclusion
2. Strategic Case
2.1 Introduction
2.2 Pathfinder Project
2.3 Local Background
2.4 Strategic Policy Context
2.5 National Policy Context
2.6 Regional Policy Context
2.7 Local Community Strategy – Eco Island
2.8 The Isle of Wight Economic Strategy
2.9 Isle of Wight Council Corporate Plan – One Island
2.10 The Island Plan
2.11 Local Transport Plan 2006 – 2011 (LTP2)
2.12 Area of Outstanding Natural Beauty (AONB) Management
Plan
2.13 Historic Built Environment
2.13.1 Public Realm
2.13.2 Archaeological Heritage
2.13.3 Natural Environment – Species and Habitats
2.13.4 Historic Environment Action Plan (HEAP)
2.14 Transport Asset Management Plan
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2.15 The Network
2.15.1 Asset Inventory, Condition and Survey Data
2.15.2 Road Pavement Condition
2.15.3 Street Lighting
2.15.4 Traffic Signals
2.15.5 CCTV
2.16 Current Service Delivery and Performance
2.16.1 Current spend on Island Roads and Bridges
2.17 Drivers for Change
2.17.1 The Service Gap
2.17.2 Carriageways
2.17.3 Footways
2.17.4 Bridges and Other Structures on the Highway
Network.
2.17.5 Street Lighting
2.17.6 Traffic Signals
2.17.7 CCTV
2.17.8 Drainage
2.17.9 On and Off Street Car Parking
2.17.10 Major Works – Bouldnor Road
2.18 Project Description/Overview
2.19 Project Scope
2.19.1 Roads
2.19.2 Structures
2.19.3 Street Furniture
2.19.4 Footways
2.19.5 Traffic Signals
2.19.6 Street LIghting
2.19.7 CCTV
2.19.8 Grass Cutting and Street Cleansing
2.19.9 On and Off Street Car Parking
2.19.12 Bouldnor Road Improvement
2.20 Standards of the Project
2.20.1 Core Investment Period
2.20.2 Post CIP
2.21 Conclusion
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 5
3. Economic Case
3.1 Introduction
3.2 Options Appraisal
3.3 Service Improvements and Community Benefits
3.3.1 Time savings from higher traffic speeds
3.3.2 Changes in travel times
3.3.3 Vehicle operating cost savings
3.3.4 Reduction in the number of accidents
3.3.5 Reduction in the Council’s public liability payments
3.3.6 Reduction in accidents and street crime
3.3.7 Time savings from the removal of weight and width
Restrictions
3.3.8 Efficiency gains
3.4 Value for Money Assessment (TQAT)
3.5 NATA
3.6 Assessment of Funding
3.7 Preferred Investment/Service Delivery Option
3.8 Conclusion
4. Commercial Case
4.1 Introduction
4.2 Procurement Appraisal for PFI
4.3 Procurement Process
4.4 Competitive Dialogue (CD)
4.4.1 Evaluation Criteria
4.5 Output Specification
4.5.1 Performance Requirements
4.6 Project Agreement
4.7 Payment Mechanism
4.8 Derogations from SOPC4
4.9 Commercial Issues
4.9.1 Wharf Facilities
4.9.2 Isle of Wight Mineral Background
4.9.3 IWC Property Considerations
4.10 Market Soundings/Market Interest
4.11 Project Data
4.12 Encouragement of Competition
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4.13 Bankability
4.14 TUPE
4.15 Insurance
4.15.1 Current Insurance Arrangements
4.15.2 Insurance Arrangements under PFI
4.16 Conclusion
5. Financial Case
5.1 Introduction
5.2 PSC Base Costs
5.2.1 Core Investment Period (CIP)
5.2.2 Lifecycle, Operations and Maintenance Costs
5.3 Shadow Bid Model
5.3.1 Shadow Bid Costs
5.4 Affordability
5.4.1 Budgetary Contribution
5.4.2 Cash flows from PFI Credits
5.4.3 Interest on cash balances
5.5 PFI Credits and Calculation Methodology
5.5.1 Gap Funding
5.5.2 Revenue Abatement
5.5.3 PFI Credit Requirement
5.5.4 Sensitivities
5.6 Preferred bidder debt funding competitions
5.7 Value for Money
5.7.1 Pre and Post Optimum Bias
5.7.2 Quantitative & Qualitative Assessment
5.8 Initial View on Accounting Treatment
5.9 Financial Case Summary
6. Management Case
6.1 Introduction
6.2 Project Management & Project Governance Structure (Pre
& Post OBC)
6.2.1 Project Team Structure – to OBC
6.2.2 Project Team Structure – Post OBC
6.2.3 Contract Management Team – Post contract award
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 7
6.3 Expert External Advisors
6.4 Meetings
6.4.1 Internal
6.4.2 External
6.5 Project Delivery Plan and Timetable
6.6 Operational phase and contract monitoring
6.7 Project Interface and Dependencies
6.8 Stakeholder Consultations and Communications Strategy
6.8.1 Local Residents
6.8.2 Network Users
6.8.3 All Council staff
6.8.4 Statutory Undertakers
6.8.5 Local Suppliers
6.9 Sponsorship and Support
6.10 Risk Management
6.10.1 Risk Escalation
6.10.2 Current Risk Status
6.11 Data Management
6.12 Gateway Reviews/Independent Scrutiny
6.12.1 Gateway Reviews
6.12.2 Independent Scrutiny
6.13 Statutory Processes
6.14 Readiness to Proceed to Procurement
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 8
Appendix Number Appendix Name
1 Cabinet Report
2 Cabinet Minutes
3 Letter of Support from Southampton University
4 Inventory and Condition Data
5 Technical Modelling Process
6 Core, Non-Core and Retained Services
7 Justification of Scope Change from the EoI
8 Justification of Bouldnor Road
9 Traffic Modelling
10 Justification of CIP Duration
11 Non-Financial Options Appraisal
12 NATA
13 Time Savings and Network Improvements
14 Estimated Costs of Required Work
15 Draft OJEU Contract Notice
16 Project Plan
17 Key Aspects of the Output Specification
18 Derogations from SOPC4
19 Prior Information Notice (PIN)
20 Letters of Support from Soft Market Testing
21 A Basic Guide to TUPE
22 Admitted Body Status
23 Pension Rights
24 Shadow Bid Model
25 Annuity Based Affordability Model
26 Qualitative and Quantitative Assessment
27 Monte Carlo Results
28 Letters of Support from External Advisors
29 Communications Strategy
30 Letter of Support from Unison
31 Procurement Cost Breakdown
32 Risk Management Strategy
33 Risk Register
34 Gateway Review Report
35 Industry Day Report
36 Member Review Board Terms of Reference
37 Soft Market Testing Update
38 Section 151 Officer Letter
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 9
Glossary
AONB − Areas of Outstanding Natural Beauty AADT − Annual Average Daily Traffic BCS − Bridge Condition Score BV − Best Value BVPI − Best Value Performance Indicator CCTV − Closed Circuit Television CD − Competitive Dialogue CFT − Call for Final Tender CIP − Core Investment Period CLG − Communities and Local Government COPLR − Code of Practice for Litter and Refuse CSS − County Surveyors Society CVI − Coarse Visual Inspection DEFRA − Department for Environment and Rural
Affairs DfT − Department for Transport DNO − Distribution Network Operator DVI − Detailed Visual Inspection EoI − Expression of Interest EU − European Union FBC − Final Business Case FCI − Footway Condition Index GI − General Inspections GIS − Geographical Information System HEAP − Historic Environment Action Plan HGV − Heavy Goods Vehicle HMT HM Treasury HR − Human Resources IFRS − International Financial Reporting
Standards IoW − Isle of Wight ISDS − Invitation to Submit Detailed Solutions ISOS − Invitation to Submit Outline Solutions ISP − Island Strategic Partnership IWC − Isle of Wight Council LGPS − Local Government Pension Scheme LTP − Local Transport Plan MRB − Member Review Board MIS − Management Information System MOSLAR − Maintenance of Street Lights and Roads NATA − New Approach to Appraisal NCI − Network Condition Indicator NHS − National Health Service NI − Network Indicator NJUG − National Joint Utilities Group NPV − Net Present Value OB − Optimism Bias
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 10
OBC − Outline Business Case OJEU − Official Journal of the European Union PB − Project Board PFI − Private Finance Initiative PI − Principle Inspections PIN − Prior Information Notice PMS − Pavement Management System PQQ − Pre Qualification Questionnaire PUK − Partnerships UK PRA − Parapet Risk Assessment PS − Performance Standards PSC − Public Sector Comparator RCI − Road Condition Indicator RoW − Rights of Way RPIX − Retail Prices Excluding Mortgage
Payments RSS − Regional Spatial Strategy SAC − Special Areas of Conservation SCRIM − Sideways-force Coefficient Routine
Investigation Machine SEEDA − South East England Development
Agency SINC − Sites of Importance to Nature
Conservation SMT − Stakeholder Management Tool SoPC4 − Standardisation of PFI Contracts –
Version 4 SPA − Special Protection Areas SPV − Special Purpose Vehicle SRB − Single Regeneration Budget SRO − Senior Responsible Owner SSSI − Sites of Special Scientific Interest TA − Technical Advisor TAMP − Transport Asset Management Plan TQAT − Treasury Quantitative Assessment Tool TRIP − The Road Information Programme TUPE − Transfer of Undertakings (Protection of
Employment) Regulations UC − Unitary Charge UKPMS − United Kingdom Pavement Management
System UTC − Urban Traffic Control VFM − Value for Money
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 11
Foreword
It is with great pleasure and expectation that we endorse this Outline Business
Case. The condition of Island roads – and the need to improve them – is regularly
highlighted by residents as an issue of great, if not most, importance to them. That
in itself is reason enough to be progressing the Highways PFI. However, what is so
exciting about the Project is that it is a catalyst for much more far-reaching benefits
to the Island, its economy, its environment and for the opportunities we offer
residents.
This document sets out how we plan to maximise these opportunities through what
is the most comprehensive project of this scale ever undertaken on the Island.
Throughout its drafting, our PFI team has sought to identify and maximise every
possibility this huge investment to our community will bring. The Council sees the
PFI as a key project around which Council policy will be interwoven for years to
come. The Project will in some way touch the lives of all residents – the challenge
for us is to ensure it does so in ways that will benefit them most. That is why we
have placed such emphasis on complementing the aims of our Eco Island agenda,
on why we believe training and education is an integral part of the PFI and why we
believe the maximum economic benefit should be accrued from every single penny
of investment the PFI will bring to our Island.
Our challenge is to be fully inclusive - to ensure that the whole community not only
understands the implications of the PFI but also wants to engage with the Project,
understand its possibilities and enjoy a dividend from it. We should not lose sight of
the fact that the Project will help define our economic prospects for many years to
come. We must remember that those who perhaps stand to gain most from the
Project are the next generation, such is the longevity of opportunity, and such is the
scope of possibility. While we as Leader and Chief Executive put our names to this
document, we hope that our aspirations will be shared by the whole community.
Councillor David Pugh Steve Beynon
Leader of the Council Chief Executive
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1. Executive Summary
1.1 Introduction
The Isle of Wight Council has developed a holistic approach to delivering the
Highways PFI, seeking to bring all relevant aspects of highways services within
the single delivery PFI mechanism. The Highways PFI will upgrade the Island’s
adopted highway network between fence to fence along with associated assets
and streetscene and will maintain and operate that network throughout the life of
the Project. The PFI Project will raise the standard of the highway, offer a better
service, improve safety and enhance the street appearance.
1.2 Background
The Department for Transport (DfT) selected the Isle of Wight Council (IWC) as
one of three “pathfinder” Highways PFI Projects in March 2008. The Island’s
highway network has suffered from years of under investment and is badly in
need of significant investment to bring it to an acceptable standard. Without such
major investment, restrictions of the network will continue to grow to a point that
the highway network will not be operated in a safe manner. The approval of the
IWC’s Expression of Interest has therefore given the Council the impetus needed
to rehabilitate and operate a safe highway network.
1.3 Strategic Context
The Council’s and its partners’ vision is to make the Island a world renowned Eco
Island with a thriving economy and a real sense of pride where residents and
visitors enjoy healthy lives, feel safe and are treated with respect. The Island,
despite being part of the more prosperous South East region suffers from low
productivity, low wages and low skill levels. We are determined to improve the job
opportunities and create a sustainable economy whilst we address our failing
transport infrastructure. The Highways PFI has been developed to align itself with
the national, regional and local strategic objectives by placing sustainable
development at the heart of the Island’s regeneration plans. The Project, in
addition to offering a higher standard of highway services, will help to create a
significant stimulus to the local economy, offering an opportunity to regenerate
parts of the Island and create highway maintenance related industry on the
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 14
Island. With an improved transport network and a lower wage based economy,
the Island will also be better placed to attract inward investment.
1.4 The Need
The Island’s highway network has suffered from years of less than required levels
of investment. The condition of the roads, footways and street lighting has
reached a level where weight and width restrictions are now becoming a regular
feature. The Island’s roads condition has fallen to below the bottom quartile of all
the national highway condition indicators. The Island wide customer survey
indicates that the state of the roads is now the biggest concern for the residents
and visitors. The need to refurbish the Island’s highway network is therefore
overwhelming.
1.5 Scope
The Council has adopted the “fence to fence” approach to defining the Project in
order to achieve considerable synergies and efficiencies in the delivery of
highway related services. This approach also enables the Council to limit
contractual interfaces to the minimum to deliver a holistic service with single point
responsibility. The Highways PFI Project will deliver the upgrading and
maintenance of the roads, bridges, retaining walls, footways, cycleways, street
lighting, CCTV, traffic controls, on and off street car parking, street furniture,
grass cutting and street cleansing. The CCTV and off street car parking will be
funded by the Council. The Council has carried out soft market testing to
ascertain the market appetite for the scope and is pleased to receive
considerable support for the approach being taken.
1.6 Benefits
The Highways PFI Project will upgrade the Island’s infrastructure and provide a
much improved highways service to Islanders and tourists alike. These direct
benefits will be derived from smoother carriageways and footways, better lighting
and better quality cycleway for cyclists. The softer benefits of safer, clean, well lit
streets will have a major impact on building higher self esteem among the local
citizens and help to contribute towards shaping a community that is proud to be
part of a naturally beautiful island that has built a sustainable economy around a
major investment on its highways. The Council is working with organisations
such as the Isle of Wight Chamber of Commerce, Business Link and Solent
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 15
Innovation and Growth Network to develop the local industries to become ready
for delivering the works at sub contractor level. The Council is also developing its
strategy to work with local schools, Isle of Wight College and universities to build
the Island’s skills base to ensure there is enough capability and capacity to
support the Highways PFI over the 25 year period. This Council believes
developing the local industry and educational base can help to regenerate the
Island and retain a very high proportion of the PFI investment within the Island,
producing a multiplier growth effect for the local economy.
1.7 Achieving Value for Money
The Council’s holistic approach to delivering highway related services will help to
achieve significant synergies and scale benefits. In addition, the Council will be
using carbon footprint as a criteria to better utilise the Island’s mineral resources,
encourage efficient use of energy, promote the use of local labour, all of which
will have a significant impact on reducing the cost base. The Isle of Wight is
determined to produce a highway refurbishment solution that addresses some of
the major structural issues of the infrastructure but beyond that, it has taken a
pragmatic approach to raise the average condition by classification of road
usage. At the lowest level of usage, the level of upgrade is kept to a minimum to
deliver a less invasive treatment, appropriate for the Isle of Wight traffic
conditions.
The Council has demonstrated, using the DfT’s New Approach to Appraisal
(NATA), that the project delivers sound economic benefit. In addition, there are a
number of non-quantifiable, qualitative benefits which have been captured in the
appraisal. The Council has developed a shadow bid model in line with the HM
Treasury methodology and compared it with the Public Sector Comparator to
demonstrate that this Project delivers value for money.
1.8 Affordability
The Council has built up a robust inventory of all its assets and a comprehensive
database of asset condition. Using this, it has built a Cost Model which provided
the basis for the PFI Shadow Bid Model. The Council has taken the opportunity to
model the current financial market uncertainty and taken the worst market
conditions at the beginning of this year to calculate the PFI Credit requirements.
On the basis of this conservative estimate, the Council is seeking a PFI Credit of
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 16
£364.6 million. The Council has increased its contribution from previously
allocated budgets to £9.02 millions per annum including client side management
cots to deliver this Project.
1.9 Programme Delivery
The Council has put in place a robust governance structure, a dedicated
Programme Delivery Team led by a very experienced Programme Director,
supported by in-house professional engineers, accountants, procurement
specialists and lawyers to bring together the necessary local highway background
and experience. Supporting the in-house team is a strong group of external
advisors, who bring a wealth of PFI experience. The Council has paid particular
attention to building a single “integrated project team”, setting up a dedicated
office where advisors and the Council officers work in a single team.
The Programme Director has developed a deliverable programme and has
estimated the need for a procurement stage budget of £7.6million. The Council
has formally approved this programme and budget and has made a strong
commitment to making other shared corporate resources available. The Council
is increasing the full-time capacity of the in-house PFI Team, post OBC
submission to enter the procurement phase. The Council has further developed
the Contract Management structure post financial close. The post-OBC structure
will provide the foundation for building capability for the longer term Contract
Management team. Those who are involved in the competitive dialogue phase
will gain considerable insight into contract negotiations and the final contractual
terms agreed with the Service Provider.
The Council has built an excellent inventory and condition database and this will
be made available as part of the data room to bidders. This information is in GIS
format and a video of the full network is also available. The Council now has a
very high degree of confidence in its data. The condition assessment surveys will
now be repeated annually to maintain the robustness of the data.
With the combination of a strong governance framework, adequate resourcing,
experienced project leadership, deliverable time scales and an excellent asset
base, the Council now has all ingredients for successful Project delivery.
Moreover, it has a high degree of confidence in delivering a Project with an
appropriate commercial package suitable for the Isle of Wight conditions.
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1.10 Member and Stakeholder Support
The Highways PFI Project has strong all party support. The Project was initially
developed under Island First (a Liberal Democrat/Independent administration)
and has continued to progress under the Conservative administration. The
Project plays a vital role in supporting all party aims of creating sustainable
employment on the Island.
The Council cabinet approved the Outline Business Case on 11 August 2009.
The accompanying report and the minutes of the meeting are in Appendix 1 and
Appendix 2 respectively. Members have delegated appropriate authority to the
Project Board and the Project Sponsor to make all procurement decisions
following the approval of the OBC until the Preferred Bidder selection and
appointment.
The Project has wide support among the Island’s stakeholders, businesses,
community groups and partners who are aware of the significant social, economic
and regeneration benefits the Project will bring to the Island. The Council staff
who are likely to be affected by the Project are regularly briefed and the Highway
PFI Project’s own intranet site provides regular updates.
1.11 Conclusion
The Council values and protects the pathfinder status it gained following the
successful submission of the Expression of Interest. It has now developed the
Project taking a practical and pragmatic approach to developing an attractive but
challenging package for the market, in a sensible timescale backed up by a
strong delivery team. The ethos of this team is “partnership working” and that
spirit will continue, even through the dialogue period, with the ultimate aim of
delivering a “win-win” approach to this Project. The Council is now ready to
embark on the procurement stage of the Project, following approval of this
Outline Business Case.
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2. Strategic Case
2.1 Introduction
The Isle of Wight Council and its strategic partners have grasped the opportunity
to address some of the major challenges that are fundamental for the
regeneration of the Island. The Council is leading the way by implementing both
challenging internal reform and modernisation, and external service reforms in
the education and highways maintenance sectors. These reforms are driven by
the Island’s strategy, the Eco Island Vision 2008-2020, for a sustainable
community that thrives amidst the natural beauty and surroundings.
The Highways PFI forms an integral part of the strategic reform to increase the
capability and capacity of the Island and improve its attractiveness for inward
investment. The Highways PFI is seen as the significant catalyst not just for
improving the condition of the highway network, but also to create a road
construction and maintenance industry and its supply chain, using local natural
and physical resources. The Council and its Strategic Partners are working
towards an economic regeneration programme, underpinned by the Eco Island
vision, to derive significant economic benefits, for example through a multiplier
effect from the Highways PFI investment over the 25 year life of the project.
External Drivers for change stem from National, Regional and Local Policy.
These in turn relate to National Planning Policy Guidance, the special policies in
the South East Plan relating to the Isle of Wight, which underpins the Isle of
Wight Community Strategy, the Isle of Wight Economic Strategy, and AONB
Management Plan formulated and agreed with local partner organisations. Within
this context Internal Drivers are identified from the strategies and policies
developed by and within the Isle of Wight Council, including the Isle of Wight
Development Plan and Local Transport Plan.
The Council has a clear vision for the Highways PFI which is:
To create an efficient highway network and public realm, providing
sustainable, high quality, value for money service to residents and visitors,
whilst acting as a catalyst for social and economic regeneration of the
Island.
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Based on this vision, the Council has set the following Project Objectives:
• To ensure the provision of a high standard, fit for purpose highway
network to meet the needs and aspirations of residents, business and
visitors for the movement of goods and people.
• To promote sustainable transport options and initiatives by ensuring the
availability and maintenance of the whole physical highway and
appropriate traffic management.
• To provide a comprehensive and seamless service for all parts of the
highway, fence to fence, both in built up areas and the countryside with
appropriate standards and use of materials to reflect local
distinctiveness and character.
• To create a safe highway environment within the context of a well
managed public realm/whole street scene
• To create a highway maintenance industry that acts as a stimulus for
the economy.
The Project will be developed to deliver these objectives by designing an
appropriate contract structure defining the project which can be achieved within
the affordability envelope.
The Isle of Wight Highways PFI is a unique Project. In an Island context,
surrounded by water, there are no overlapping local authority boundaries with
neighbours or trunk road network that come under Highways Agency
responsibility. The highway boundaries, ownership and responsibilities are
therefore clearer in comparison to any other local authority on the mainland. As
one of the three pathfinder schemes, it is also well placed to provide valuable
knowledge, direction and lessons for future tranches of maintenance PFI
programmes. In particular, the Council intends to explore new opportunities,
innovative approaches, and future proofing to introduce advances in technology
during the life of the PFI. It also intends to build a locally based highway industry
with its partners in the education sector, industry and the PFI provider.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 21
2.2 Pathfinder Project
In technical terms, the highways on the Island are largely rural in nature, in an
area of outstanding natural beauty, with pockets of urban roads surrounding the
local towns. The pathfinder approach taken by the Council will provide a number
of opportunities to learn lessons for the future and share knowledge for the
benefit of the highway industry:
• The Council has built up a complete list of its highways inventory and condition.
Using this data, it is building a suit of condition indices using certain key
parameters. The Council is keen to reflect the island conditions in its
deterioration model and to ensure an affordable specification. Similarly it has
developed skid resistance policy and carriageway and footway condition
models. Standards appropriate to the Island needs will also be appropriate to
rural and semi rural communities elsewhere in the UK.
• The Council will record progress and key issues faced at each of the key stages
and to share solutions developed with DfT and the other pathfinder authorities.
• The Council is setting in place the foundation for a collaborative framework with
schools, Isle of Wight College, University of Southampton, other local
universities and other educational institutions to build the technical capability
and capacity needed to create an Island based Highways Maintenance
Industry. A supporting letter from University of Southampton is attached at
Appendix 3. The Island is in a unique position to use the investment on the
roads over the 25 years project period to regenerate the local economy
through planned, strategic investment in the educational sector.
• The Council intends to seek proposals from bidders for setting up training and
apprenticeship schemes in association with the educational sector.
• The Council aims to create an economic regeneration climate that delivers
visible improvements across the Island and for Islanders and which acts as the
trigger for major regeneration. The economic regeneration benefit of
investment in transport projects is usually very difficult to measure, but the
Island context offers an ideal contained market place to measure investment
and economic growth.
• The Council is keen to work with other local authorities, universities, research
organisations and international highway authorities to share the benefits of the
experience gained from the PFI model maintenance procurement.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 22
2.3 Local Background
The Isle of Wight, a diamond shaped island, separated from the UK mainland by
the sinking of the Ancient River Solent during the Bronze Age to become an
island in its own right. The Island, separated from the south coast by the Solent,
measures approximately 13 miles by 23 miles along its diagonals and covers an
area of 38,014 hectares.
The Island has a rich history dating back to the Duke of Warwick, the first King of
the Isle of Wight, to Charles I being held as a prisoner in Carisbrooke Castle, and
Queen Victoria’s favourite home Osborne House, which still stands proud on the
Island. In 2009 however, the Island is now part of the England and Wales Local
Authority system and has Unitary Authority status.
The Island has a unique and important natural environment, which is protected by
national and local designations. A majority of the Island is rural in character with
isolated farms, hamlets and villages and with over half the area designated as
Areas of Outstanding Natural Beauty, (AONB). Much of the coastline is defined
Heritage Coast and the majority of the coast and some inland areas are
designated for European and/or International nature conservation of wildlife
species and habitats. There is a cluster of five areas designated as the Isle of
Wight AONB, 41 Sites of Special Scientific Interest (SSSI), 28 existing and 4
proposed Conservation areas and 34 kms of heritage coast. The Island has over
2000 listed buildings of which 28 are Grade 1, including the historic Osborne
House and Carisbrooke Castle.
Travel to and from the Island is via privately operated and un-subsidised vehicle
and passenger ferry services. The vehicle ferry routes are between Lymington
and Yarmouth in the West, Southampton and East Cowes centrally and
Portsmouth and Fishbourne in the East, creating pulses of traffic generation onto
the highway network. High speed passenger boat services are from Southampton
to Cowes, Portsmouth to Ryde and a hovercraft service runs from Southsea to
Ryde.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 23
The County Town of Newport is centrally located with a primarily radial road
network linking the other main settlement areas such as Cowes, East Cowes,
Ryde, Sandown, Shanklin and Ventnor, distributed around the coast. There is a
coastal road system, linked by the Floating Bridge at Cowes, encircling the Island
which is valued by tourists and Islanders alike. The Island has an integrated
public bus network, but services are not available in some rural areas. Island
Line, part of the Stagecoach South Western Trains franchise, operate the eight
and a half mile of passenger railway serving the towns of Ryde, Brading,
Sandown, Lake and Shanklin. A leisure steam railway operates between Wootton
and Smallbrook.
In the absence of a comprehensive public transport network, the largely rural
community relies heavily on private transport. The 2001 census data showed that
compared to England and Wales, the Islanders have slightly higher car
ownership; some 64,000 cars/vans were recorded in the census, some 0.49
cars/vans per person or 67 per km. In addition, there is the daily influx of
passenger and heavy goods traffic, to meet the day to day needs of the
Islanders.
The Island’s 803 km of road network has become the lifeline for the Islanders,
playing a vital role in the social, commercial and recreational life of the
community. However, the conditions of the roads have deteriorated over the
years and many roads are no longer fit for purpose. Currently seven roads have
weight restrictions whilst a large number have width restrictions. The failing road
network is considered to be one of the key factors contributing to a slow down in
the economic regeneration of the Island.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 24
The 2001 census recorded an Island population of 132,731. The Island’s
population distribution is skewed towards the elderly in comparison to national
averages; over 28% of the population were aged 60 years or over, compared with
around 20% for England and Wales; at the other end of the scale, those aged 16
years and under were significantly lower at around 18%. The skewed age
distribution reduces the available pool of economically active citizens, impacting
the economy of the Island.
The public sector is one of the major employers in the Island – namely, the Isle of
Wight Council, NHS, the Prison Service and the Police. The Island also supports
a number of specialist niche industries – wind turbine research and development,
radar, electronics/communications, yacht/boat building, composite and resins,
pollution control equipment, Royal National Lifeboat Institution inshore lifeboats,
cosmetics and fashion.
The Island’s economy is heavily dependent on the tourist industry and during the
summer months the Island’s population can double, with total numbers of visitors
reaching about 2.7 million each year. This can also lead to traffic volumes
doubling during the summer months. The majority of the World’s leading
yachtsmen and women descend on the Island during Cowes week. The Island’s
Music Festivals and Walk the Wight are now nationally famous events attracting
many thousands from far a field. The Island is a paradise for walkers, cyclist and
horse riders. It has over 851km of Rights of Ways traversing through some of
most beautiful parts of the Island.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 25
Whilst the Island sits geographically within the south-east of England it does not
benefit fully from the regions prosperity. The Island has pockets of deprivation
and five wards fall within the 20% most deprived areas in England. The rate of
unemployment has continued to reduce from the historical highs of 10% in the
mid 90’s to currently nearer 4% but much of the employment is seasonal, with
high dependency on the tourist industry. Recent economic changes have further
affected locally based industries causing an increase in the claimant count. The
Island has the second lowest average wage in the UK.
The image of an Island full of natural outstanding beauty, buzzing with an influx of
tourists in the summer, sits in stark contrast with the huge need for economic
regeneration, better employment opportunities, and improved standards of living.
Isle of Wight Council works closely with the South East England Development
Agency and stakeholders to support and develop the Island’s economy through
regeneration programmes, business critical infrastructure and targeted business
support. The Island's economy is now well placed to continue to grow, particularly
drawing on its environmental assets and strengths in growth sectors such as
renewables, aerospace, composites, tourism and marine related industry and
quality infrastructure/well maintained roads are critical to supporting this.
2.4 Strategic Policy Context
The Council’s vision of making the Island a great place to live, work and visit is
being achieved through an integrated series of underlying strategies and policies
consistent with regional and national policies. In this context, the Highways PFI
Project has been developed in line with National and Regional Strategies and is
driven by local strategy and policies as shown in the following diagram.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 26
2.5 National Policy Context
The Chancellor of the Exchequer, in his pre-budget statement in November 2008
set out the Government’s long-term economic goal - to secure and maintain
economic stability, in order to achieve its objective of a fair society where there is
security and opportunity for all. Its aim is to raise the rate of sustainable growth,
and achieve rising long term prosperity and a better quality of life with economic
and employment opportunities for all.
The 2004 Government White Paper “The Future of Transport, a network for
2030” sets out the Government’s vision for transport up to 2030. It recognises the
need for a transport network that can meet the challenges of a growing economy
and the increasing demand for travel, but a network that also achieves
environmental objectives. This strategy is built around three key pillars –
sustained investment, improvement in transport management, and planning
ahead. This means coherent transport networks providing a more reliable and
free-flowing service for both personal travel and freight.
The Government’s Climate Change Bill introduces a legally binding target to cut
greenhouse gas emissions by at least 80 per cent by 2050, the most ambitious in
the G8, building on plans to deliver a one-third reduction in emissions from 1990
levels by 2020.
Against this back drop of the need for long term economic stability, supporting
increasing demand for travel whilst continuing to reduce greenhouse gas
emission, the Department of Transport announced a Highway Maintenance
Pathfinder Programme.
The Government ten-year Plan, Transport 2010, sets out the Strategy for
modernising the transport network nationally. The Plan sets several strategic
objectives including the elimination of the maintenance backlog on local roads,
bridges and street lighting. In addition, the July 2004 White Paper, The Future of
Transport - a network for 2030, reinforces the strategic importance of the
transport network in promoting sustainable, national and local economic growth
and in enhancing social and environmental well-being.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 27
2.6 Regional Policy Context
The South East is a major gateway to Europe and beyond and is the most
prosperous region in England. Even though the Island is part of the South East
Region, it does not share proportionately in the wealth of the Region. However,
the Island has a rich history of innovators and entrepreneurs who have made
valuable contributions to the South Eastern and the national economy. Sustained
inward, private, investment relies heavily on appropriate regional and national
strategies to support transport and other infrastructure development.
The Regional Spatial Strategy (RSS) for the South East of England, known as the
South East Plan, published in May 2009, sets out the long term spatial planning
framework for the region over the next 20 years. The Plan is to develop a
healthier region by achieving more sustainable development, protecting the
environment and combating climate change.
A healthier region means working to improve, among others things, the provision
of community transport facilities, sustainable transport links, a feeling of security
and an approach to a sharing the benefits of regeneration. The South East Plan
will deliver these through local policies which, in the case of Isle of Wight, will
focus on maintaining a high quality of life whilst increasing prosperity and
opportunities for the Islanders, at the same time nurturing and enhancing the
environmental assets, and promoting the efficient use of resources.
The Regional vision is “By 2016 the South East will be a world class region
achieving sustainable prosperity.” The Region faces increasing challenges from:
• Globalisation – increasing competition but an opportunity to build on past
Entrepreneurial culture,
• Smarter growth – higher levels of prosperity per head without increasing
ecological footprint,
• Sustainable Prosperity – innovating to provide economic prosperity within
environmental limits.
Investment in the Isle of Wight’s Highways PFI is aimed at strengthening the
highways network and transport across the Island to enhance its attractiveness
as a place for investment, thereby contributing to the success of the Region and
the Island. The Island has a relatively low cost base and an eco friendly business
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 28
environment which, with the support of SEEDA, is being revitalised through
economic regeneration. The Highways PFI is the key strand that runs through
this regionally supported regeneration and development.
2.7 Local Community Strategy - Eco Island
The Island’s local strategic partnership is known as the Island Strategic
Partnership (ISP); the ISP is made up of leading organisations in the Island
including the Isle of Wight Council, the Health Authority, the Police, Voluntary and
Community Organisations, IW College, the Chamber of Commerce, Business
Community and Government Departments. The Community Strategy “Eco Island”
sets the vision for the next decade by aiming:
“to be a world renowned Eco Island, with a thriving economy and a real
sense of pride, where residents and visitors enjoy healthy lives, feel safe
and are treated with respect”
The four main themes that underpin the strategic vision are:
• Thriving Island,
• Healthy and Supportive Island,
• Safe and Well-kept Island,
• Inspiring Island.
This Island Vision is being delivered through a series of prioritised policy
initiatives and the Highways PFI is one of the vital delivery mechanisms for
achieving this vision.
Through this vision the ISP is committed to protecting and enhancing the Island’s
natural beauty; creating wealth and reducing carbon footprint; supporting
economic development and regeneration; reducing crime and fear of crime; and
enhancing how our local area ‘looks’ and ‘feels’. The Highways PFI is being
developed to support each of these areas and is the cornerstone for the final
Project options presented in this OBC. The ISP is now committed to deliver, by
2020, the lowest carbon footprint in England and renewal of infrastructure to the
highest ecological standards.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 29
2.8 The Isle of Wight Economic Strategy
The Isle of Wight Economic Strategy supports ‘Investing in success to produce a
more mixed economy, creating opportunities for increased inward investment and
sustainable prosperity by prioritising quality of life.’ The strategy cites the road
infrastructure on the Island as one of the key weaknesses for attracting inward
investment and the Highways PFI is seen as vital to both cementing and
reinvigorating a fragmented highway maintenance industry on the Island and
providing an attractive and fit for purpose road infrastructure.
2.9 Isle of Wight Council Corporate Plan - One Island
The IWC Corporate Plan, known as “One Island,” provides the vehicle for
delivering the Eco Island strategy through a number of delivery strands.
Whilst focusing on the external delivery, the Council also has an internal
modernisation programme, known as “One Council”, equipping the Council with
the appropriate infrastructure, capacity and capability which is fundamental to
delivering the much wider vision.
The Highways PFI is an integral part of that transformation vision; the Council
has taken a strategic decision to bring in an experienced Programme Director
and build a team around him using the Council’s own internal staff and
experienced expert advisors to gain maximum skill transfer. The Highways PFI
programme is also setting the standards for all projects and programmes in the
Council and a Governance and scrutiny framework appropriate for major complex
projects is now in place. The Highways PFI also forms the cornerstone of the
Council’s contributions towards creating a sustainable, thriving economy for the
Island. Plans are already under development to engage with schools at all levels
to create interest in civil engineering and allied highway maintenance industries,
to set up technical study programmes and apprenticeship as part of the PFI, and
to build technical capability and a highway maintenance industry on the Island. In
addition, the Council, along with its strategic partners, are working with the local
industries, both those directly connected with highways and the remaining supply
chain to provide them with the best possible opportunity to prepare for and
engage with a future PFI provider. This has the potential to reduce the cost for
the future PFI provider and hence the cost of the PFI for the public purse whilst
creating the impetus needed to pump-prime the Islands economy.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 30
The Council, along with its strategic partners, is setting the key educational and
employment plans in place and will be working with educational institutions to
make this a reality over the next four years and to sustain engagement
throughout the 25 year project period. The aim is to create economic benefit and
legacy that will outlast the PFI programme and create wealth for the Islanders
and therefore the nation, significantly higher than the direct investment made in
the Island’s highways.
The framework below shows the strategic link between the Eco Island Strategy,
One Island Plan and the Highways PFI programme.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 31
2.10 The Island Plan
The Local Development Plan, the Island Plan, is in the final stages of the
statutory approval process, but its Core Strategy is used to set the planning
vision for the Island through to 2026. Building and creating sustainable
communities is central to the Sustainable Community Strategy that is focused on
delivering the Eco Island vision.
The Island sustainable travel plan supports a multi-modal transport strategy. This
relies on the highway network for public and private transport, whilst the Rights of
Way network provides the vital links for walking, cycling and riding; the
combination of the two provides a highly integrated interlinked transport network
across the Island. The public therefore rely on a good transport network for
people and goods to travel from wherever they are to destinations of their choice,
both on and off the Island, with safety, reliability, ease of access, and at a
convenient time. The Island is a renowned destination for walking and cycling,
not only through celebrated annual events, but as a real means to getting around,
delivering a healthy Island both in terms of benefits to the population and the
environment.
The strategy aims to achieve improved transport infrastructure, travel plans and
improved public transport provision and an increase in opportunities for walking
and cycling. The aim is to offer people more choice about the ways in which they
travel, whilst seeking not to penalise those for whom the car is the only realistic
solution.
Car ownership on the Island continues to remain relatively high, due in the main
to the rural nature of the Island, which places additional reliance on the car for
certain types of journey. However, during the summer season the traffic on the
Island changes significantly with the influx of tourist traffic.
The ferry ports, both passenger and vehicle services, are important gateways to
the Island. The numbers crossing the Solent for business or pleasure have
increased steadily over time and this increase in cross-Solent traffic, coupled with
increased car ownership and use, has further added to the transport challenges
the Island faces.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 32
A number of new and improved Park and Ride facilities are being promoted to
reduce congestion. Whilst the improvement, maintenance and management of
the highway network alone cannot deliver all of the aspirations set out in the
strategy, it will make a significant contribution to delivering the strategy. The PFI
Project will provide a focused and comprehensive means of injecting much
needed resources to overcome past backlog maintenance and, once appropriate
standards have been met, maintain these over the longer term. As such, a high
quality, fit for purpose highway network should become a consistent, reliable and
integrated part of the Island’s infrastructure to support implementation of other
strategies and policies.
2.11 Local Transport Plan 2006-2011 (LTP2)
The Local Transport Plan sets the policy framework for determining the transport
needs of the Island, and brings together the transport policies and strategies in a
cohesive manner. The statutory Isle of Wight Local Transport Plan was adopted
in March 2006 and sets out how transport will be improved on the Island over the
period 2006 -2011. The Plan was approved by the DfT and developed through
extensive consultation to achieve the following objectives:
• To increase accessibility for all.
• To encourage and support economic prosperity and regeneration.
• To make Island roads safer.
• To improve local air quality and conserve and enhance the environment.
• To tackle congestion.
• To ensure effective management of the highway network.
• To achieve value for money solutions.
The LTP supported the development of the PFI bid and acknowledged the key
role that the initiative would have in delivering the Plan and in particular the road
maintenance and road safety targets set out in the Plan. The PFI will clearly be
instrumental in delivering a large part of the LTP strategy which is set out below;
• The Plan seeks to promote alternatives to the car and reduce congestion
and pollution
• Increased numbers of people will walk or cycle using improved
cycleways, footways and pavements.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 33
• The Plan seeks to reduce traffic accidents through a range of
engineering solutions and hearts and minds initiatives.
• The road infrastructure on the Island will be maintained to good
standards, and will assist the public transport network using it.
• Provide investment in a safe, well maintained road system, including a
network for buses, lorries and coaches, through for example the private
finance initiative.
The 2006 LTP set a series of ambitious targets for achieving high quality
highways by 2010 - to have no overall deterioration in the condition of the
principal and the unclassified road network, footway condition and to reduce
death and injury on roads. Although 2010 is now recognised as an unachievable
date, the target standards will be achieved on completion of the PFI Project core
investment period.
The LTP incorporates a Rights of Way Improvement Plan, the primary aim of
which is to ensure the most effective use of the Rights of Way network. The Plan
recognises the significant contribution that the Island’s 851 km of non-vehicular
highways make to sustainable transport on the Island. It also seeks to ensure that
the Rights of Way network continues to be managed as an important component
of the overall highway network. The Rights of Way Improvement Plan is wholly
concerned with improving facilities for walking and cycling away from road traffic
and will therefore assist in delivering the quality of life objectives of the LTP. The
inclusion of cycleways within the PFI scope will contribute towards achieving that
objective for Islanders and visitors alike.
Whilst the current LTP2 does not cover the whole period of the PFI contract, the
5 year renewable plan will continue to build the Eco Island theme, consistent with
the Highways PFI Project.
Revised LTP guidance is expected in the summer of 2009 and whilst there may
be some changes from the original draft it is anticipated that the final guidance
will still require local authorities to produce a two part plan, including the overall
strategy and detailed delivery programme.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 34
The draft guidance indicates that the plan should take account of the following
five key goals:
• Tackle climate change.
• Support economic growth.
• Promote equality and diversity.
• Contribute to better safer, security and health.
• Improve quality of life.
The PFI Project will support these goals and will be a fundamental part of the
delivery programme.
2.12 Area of Outstanding Natural Beauty (AONB) Management Plan
The Island has a unique and important natural environment, which is protected by
national and local designations covering both landscape and ecology to help
protect the character of the Island. The Isle of Wight AONB Partnership is a
broad based independent organisation with representatives from many local,
regional and national organisations and individuals with a direct interest in the
AONB. It seeks to ensure a co-ordinated approach to the conservation and
enhancement of the AONB.
The minor and unclassified road network and cycleways, are often key features in
the AONB landscape. Coastal roads, highway verges and hedgerows that form
the boundary define the contours of the undulating landscape; the unclassified
roads contain a number of historic signs which form the rural character; lighting in
rural areas is managed sympathetically to prevent light pollution. The treatment of
the cycleways and the coastal roads in particular, will play a crucial part in
preserving the natural landscape and ecology. The management of the natural
environment is therefore an integral part of highway management. Both the
investment programme and the services of the PFI Project will need to be
sensitive to areas of outstanding natural beauty and the natural environment
through carefully designed output specification requirements.
The aims and objectives of the IWC Highways PFI Project are consistent with the
national economic, transport and environmental policies, enabling these to be
delivered at local level, in order to achieve the nationally set objectives. The Isle
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 35
of Wight Council Highways PFI is one of the three Highways pathfinder projects
and will provide a constructive model for delivering highway maintenance and
operations in a largely rural context. The uniqueness of the Island’s road network,
characterised by the following, provides a valuable benchmark for future policy
and standards development:
• a largely rural road network;
• a largely captured economy allowing;
o correlation between transport investment and economic
regeneration
o a significant proportion of the investment and multiplier effects to
remain in the Island to regenerate its economy,
• an operational regime for delivering a comprehensive highways service in
an environmentally sensitive area.
This PFI Project clearly meets national regional and local strategic objectives by
removing the backlog of highway and street lighting repairs, providing a long-term
service strategy to maintain assets at an acceptable and appropriate standard,
over a long period, by environmentally sympathetic and sustainable means.
The IWC Highways PFI, together with the other two Highways pathfinder
projects, will provide the Department for Transport with an ability to develop
national standards to cover the full spectrum of highway network characteristics
across local authorities in England and Wales.
2.13 Historic Built Environment
2.13.1 Public Realm
The visual impact of highway works can significantly affect the quality and
appearance of the public realm. This is particularly important in designated areas
such as AONB’s, conservation areas or directly affecting the setting of listed
buildings and historic assets. Traditional materials for surfacing, kerbs, structures
and other details should be maintained or replicated.
In addition there are some remaining traditional street lamps, railings, signs and
other structures which make an important contribution to the locally distinctive
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 36
character of towns and villages. Any historic street furniture will therefore be
recorded and retained.
The overall quality and appearance of the Island’s public realm is important to
residents and businesses and directly affects the tourist industry. The use of
appropriate design and materials should therefore be given prominence in the
output specification.
2.13.2 Archaeological Heritage
The Island has in excess of 6500 known Archaeological Sites and Monuments. In
addition there are other Scheduled Monuments and Areas of High Archaeological
Potential. It is unlikely that the reconstruction and resurfacing of carriageways will
result in disruption of any archaeological site; however, the Council will set out all
known sites to prevent the PFI Provider unwittingly trespassing into these areas.
Where the refurbishment of the highway is likely to encroach into an identified
site, the PFI Provider will be required to carry out a comprehensive assessment
and develop appropriate mitigation measures.
2.13.3 Natural Environment - Species and Habitats
The Island is home to a number of rare and endangered species and also to
significant and varied areas of sensitive habitats. Works within the boundary of
the highway and cycleways have the potential to adversely impact on these or
nearby species and habitats.
Whilst the highway surface itself does not form a natural habitat, verges, hedges,
banks, ditches and roadside trees contribute to the natural environment. Natural
habitats are recognised through a hierarchy of designations from those of local
importance such as Sites of Importance to Nature Conservation (SINC), national
Sites of Special Scientific Importance (SSSI), through to European Special
Protection Areas (SPA) and Special Areas of Conservation (SAC) and wider
international designation as Ramsar Site for wetlands and wildfowl. Some
species have specific protection under UK or international legislation.
The PFI Provider will be expected to develop highway schemes that protect the
natural environment for these species. Good practice and protocols built into the
maintenance of highways and verges in rural environment will ensure that the
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 37
natural environment will be protected and enhanced throughout the PFI contract
period.
2.13.4 Historic Environment Action Plan (HEAP)
The HEAP contains the historic roads, tracks and lanes and their associated
boundaries, hedgerows and earthworks. These are described in the "Historic
Routeways" HEAP report. The HEAP requires early liaison with the County
Archaeology Service, the Conservation and Design Team and the AONB Unit to
ensure that any work does not have an adverse effect on the historic
environment. These requirements will form part of the Output Specification and
the PFI Service Provider will be required to carry out the required consultations.
2.14 Transport Asset Management Plan
A Transport Asset Management Plan (TAMP) was produced, in partnership with
Chris Britton Consultants, during 2006 to aid knowledge based decision making.
The highway inventory was initially prepared by John Reid Consultants. This has
now been updated to take into account the fact that the Isle of Wight Council has
been chosen as a pathfinder Highways Maintenance PFI authority.
The TAMP is the Council’s primary document for detailing the standards and
priorities applied to maintaining the Island’s transport network for all users. The
plan mirrors the proposed PFI since it covers all elements of the transport
infrastructure. The TAMP will serve as a baseline to the PFI Project.
2.15 The Network
Existing assets that will become the components of the Project can be
summarised as follows:
• Highways (803km in length)
• Cycleways (31 kms)Bridges and Structures
• Footways and Kerbs
• Drainage
• Safety Fencing
• Street Lighting
• Street Furniture
• CCTV
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 38
• Grass Cutting
• On/Off Street Car Parking maintenance
2.15.1 Asset Inventory, Condition and Survey Data
The Council has built an exceptionally thorough record of its assets, and
repeatedly surveyed the network to improve the confidence level in related
condition data. The information is fully digitised and held in layers linked to an in-
house Geographic Information System (GIS) and will be available in the Project
Data Room. The Council will continue to survey assets and maintain records up
to the point at which responsibility is handed over to the PFI Provider.
A full inventory of street lighting, illuminated signs, bollards and other electrical
apparatus (e.g. CCTV), linked to a GIS system and including substantial column,
lantern, control and supply data forms part of the commercial database, together
with annual assessments of condition of the entire stock.
The asset inventory information available in the Project Data Room is outlined
below:
a. A detailed inventory of all bridges and retaining walls supported by six-
yearly Principal Inspections (PIs) and bi-annual General Inspections (GIs)
of all structures on the highway network. Complete data for the last three
rounds of both PIs and GIs will be kept in the Data Room.
b. A full inventory of all street lighting points and illuminated road signs,
bollards verified by an independent sample site survey based on inspection
of 272 lighting points on the 32 streets selected at random across the
network indicated an error rate for the street lighting inventory of just 1%.
c. A drainage inventory made up of surface features, gullies and manholes,
has been completed and partial information is available on underground
features such as pipe locations and size. The sub-surface inventory is
about 60% complete but with an accuracy of 90+%. Some "poor" condition
drains have CCTV footage coverage to compliment visual surveys.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 39
d. Car parking inventory data on the primary assets, including ticket
machines, the number of parking spaces (on and off-street), their locations
and type of surfacing.
e. Full inventory data for all other assets including:
• Traffic signals (with age profile data)
• Road signs and street nameplates
• Street furniture (bollards, benches, bins, shelters, planters)
• Safety fencing
• Highway trees.
A summary of the assets covered in the asset data base is set out below;
Appendix 4 sets out the details.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 40
Asset Item Quantity Unit
Type
PEDESTRIAN GUARDRAIL 13.1 kmSAFETY BARRIER 2.3 km
GULLY 19626 no
MANHOLE 8512 no
LINEAR DRAINAGE CHANNEL 4.2 km
CARRIER PIPE 370 km
CULVERT 189 no
CARRIAGEWAY - A ROAD 128.3 route km
CARRIAGEWAY - B ROAD 92.1 route km
CARRIAGEWAY - C ROAD 171.9 route km
CARRIAGEWAY - UNCLASSIFIED 410.4 route km
HIERARCHY 1 (to be used for PFI
Output Specification) 105 route km
HIERARCHY 2 (to be used for PFI
Output Specification) 82 route km
HIERARCHY 3 (to be used for PFI
Output Specification) 175 route km
HIERARCHY 4 (to be used for PFI
Output Specification) 441 route km
FOOTWAY - 1, 1a and 2FOOTWAY - 3 and 4
Rights of Way Cycleways (see para 1.7.6) 31 km
KERB 1031.2 kmSOLID CHANNEL 145.6 km
ROAD SIGN (NON-ILLUMINATED) 14815 no
STREET NAMEPLATE 3501 noROAD STUD 127.1 km
STREET LIGHT 12068 noILLUMINATED SIGN OR BOLLARD 2438 noCCTV 76 noTRAFFIC SIGNAL 78 sets
BRIDGE 119 noRETAINING WALL 599 no
BOLLARD 3812 noHAZARD MARKER 4634 no
SHELTER 241 no
BIN 1046 no
SEAT 1027 noPLANTER 219 no
Landscape TREE 1715 no
ON STREET TICKET MACHINE 70 noOFF STREET TICKET MACHINE 79 no
PAY-AND-DISPLAY ON-STREET
PARKING SPACE890 no
PAY-AND-DISPLAY OFF-STREET PARKING SPACE
4899 no
FREE OFF-STREET PARKING SPACE 1009 no
PAY-AND-DISPLAY ON-STREET
PARKING ZONE15 no
PAY-AND-DISPLAY OFF-STREET CAR
PARK52 no
FREE OFF-STREET CAR PARK 29 no
INVENTORY DATA
Structures
Car Parking
767.22 km
Street Furniture
Footways
Kerbs and
Channels
Road Signs
Electrical Items
ASSET
Drainage
Pavements
Safety Fencing
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 41
The following information on asset condition will also be available in the Project
Data Room;
1. A video of the entire network is available from SCANNER. This provides
additional information to the basic numerical data, and enables a view of the
network without having to repeatedly drive it.
2. SCRIM for the A, B and C class roads measured annually.
3. Annual SCANNER data for all A, B, C and unclassified roads. This
information is also available broken down into road hierarchies 1 to 4. A mini-
SCANNER survey has recently been used to provide the information on the
unclassified road network.
4. Historic Annual Coarse Visual Inspection (CVI) data for the unclassified road
network. (now superseded by use of mini scanner).
5. 100% Detailed Visual Inspection (DVI) data for all categories of footways for
the last year along with historic data for category 1 and 2 footways.
6. Deflectograph data for all A class roads, together with those B and C class
roads that are subject to substantial HGV traffic.
7. A full inventory and condition data of kerbs, channels (solid and linear
drainage), edgings, street furniture, road signs, safety fencing and bollards.
2.15.2 Road Pavement Condition
The highway network has been reclassified into hierarchy 1 to 4 as follows:
• Hierarchy 1 (H1) >10,000 vehicles
• Hierarchy 2 (H2) 5-10,000 vehicles
• Hierarchy 3 (H3) 2 – 5,000 vehicles
• Hierarchy 4 (H4) <2,000 vehicles
The reclassification allows better matching of required carriageway standards to
actual vehicle usage.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 42
The Council, through its consultant WDM Ltd, commissioned a survey condition
assessment model to calculate the carriageway/footway backlog and on-going
lifecycle requirements of the network incorporating suitable hand-back provisions.
Through the model, industry standard survey data is translated to an output
based performance measurement which is repeatable, transparent, and
accurately reflects asset condition at specified milestones during the project life.
The model operates at three levels; network hierarchy, condition banding, and
road section criteria. An overall hierarchy based Network Condition Indicator
(NCI) is generated to reflect the specific needs of the network where differing
target criteria are applied depending on the road hierarchy to which it relates.
Surface condition (SCANNER) together with skid resistance (SCRIM) and
residual life as a measure of structural strength (Deflectograph) are used as
survey inputs. Individual thresholds are set to represent the required service
levels. The use of nationally recognised survey methods will give prospective
Service Providers confidence in the resulting information and allow future
predictions based on the trend analysis of previous annual data.
SCANNER surveys are to be used for all Hierarchies 1-4. The DfT national
indicator, the Road Condition Indicator (RCI), allocates road lengths, or networks,
into three condition bands Red, Amber, and Green. “Red” indicates a length of
highway “where maintenance should be considered”. For Hierarchies 1 to 3 the
prime NCI will be a maximum % of RCI by length; the value chosen reflects the
performance of good standard of service. As “Red” levels can be maintained or
reduced by allowing the “Amber” band to increase at the expense of the “Green”
the NCI will be required to have default levels of Amber and Green.
Previously, Coarse Visual Inspections (CVI) have been used as the basis for
Hierarchy 4 roads condition. In a move to embrace innovation, SCANNER output
has recently been developed nationally for unclassified roads and these now form
the basis from which IWC models Hierarchy 4 condition.
In order that an indicator cannot be influenced by visual assessment of the
surface alone the NCI for Hierarchies 1-2 will include an assessment of
“strength”, from Deflectograph. Safety must also influence the indicator; skid
resistance from CSC values will provide the necessary inputs. Upper threshold of
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 43
RCI, and/or intervention levels for individual parameters will act as trigger for
maintenance.
The national indicator for footways (Class 1 and 2) will form the Footway
Condition Index (FCI), based on the results of DVI surveys. A lower standard FCI
will apply to Class 3 and 4 footways to reflect an appropriate service level.
The detailed operational aspects of the technical modelling process are
discussed in further detail at Appendix 5.
2.15.3 Street Lighting
The table below provides an overview of the age and stock profile of the street
lighting asset.
Age Steel Conc Alum Wood
Pole Other Total Profile
0-10 Years 3535 0 0 145 19 3699 30.65%
10-20 Years 3149 8 55 292 40 3544 29.37%
20-30 Years 429 259 1033 456 13 2190 18.15%
30-40 Years 235 468 1483 161 1 2348 19.46%
40-50 Years 39 61 103 36 48 287 2.38%
Total 7387 796 2674 1090 121 12068
Profile 61.21% 6.60% 22.16% 9.03% 1.00% 100.00%
In addition there are 2,438 illuminated signs and bollards.
Electrical Supply Network: Information within the Street Lighting and Illuminated
Traffic Signs Inventory indicates that between 2% and 5% of the electrical supply
network consists of private cable network. The remaining 95% to 98% of the
electrical supply network is provided by the Distribution Network Organisation
(Southern Electric).
2.15.4 Traffic Signals
The Council has assessed the condition of the Traffic Signals asset throughout
the Island to determine the level of refurbishment/upgrading required. The
assessment works have indicated that the asset is in very poor condition and
could result in electrical safety issues in the future.
Details, including age and stock profile of the Traffic Signals are provided below:
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 44
Age Sites Sites
Profile
Signal
Points
Signal
Profile
0-10 Years 51 66% 304 76%
10-20 Years 24 31% 90 22%
20-30 Years 2 3% 6 2%
30-40 Years 0 0% 0 0
40-50 Years 0 0% 0 0
Total 78 100% 400 100%
2.15.5 CCTV
The Council has assessed the condition of the CCTV asset throughout the Island
to determine the level of refurbishment/upgrading required. This assessment
indicates that the asset is in poor condition. The Council is currently progressing
a CCTV refurbishment scheme for which tenders were returned in May 2009; the
scope includes an increase in the number of cameras, refurbishment of the
control room and maintenance of the existing stock.
2.16 Current Service Delivery and Performance
The majority of the Council’s highways related services are managed from
Newport, the exception of a Street Lighting office at Ryde. Most of the
professional, technical, administrative and financial functions are carried out in
house with only a small amount of backup from technical consultants.
In relation to works, the Council acts as a commissioning agent and no longer
has a direct labour organisation. Construction and maintenance work is carried
out through annual or framework contracts.
Performance is monitored by a combination of National and Local performance
indicators. Service performance is good regarding cyclical maintenance, such as
highway verge maintenance and street cleansing. However, national indicators
show the Council is generally in the bottom quartile on asset condition
2.16.1 Current Spending on Island Roads and Bridges
Following years of less than adequate investment in the Island’s roads and
bridges, the rate of deterioration has outstripped the rate of investment, resulting
in continually declining standards of service. Last year, the road network
condition had reached such a low point, that the Council had to find additional
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 45
funding to prevent further deterioration and road closures. The current levels of
annual spend are:
2006/07 2007/08 2008/09
Capital £
£1,516,897
£750,520
£2,724,633
Revenue £
£1,803,228
£1,661,255
£1,969,766
2.17 Drivers for Change
2.17.1 The Service Gap
The Council's statutory duty under the Highways Act 1980 to maintain the
highway network means that it will be necessary to provide a highway
maintenance service for the foreseeable future.
Paragraph 3.4.1 of "Well-maintained Highways - Code of Practice for Highway
Maintenance Management" published by the UK Roads Liaison Group of CSS in
2005, declares that the purpose of highway maintenance is to maintain the
highway for the safe and convenient movement of people and goods. The core
objectives of highway maintenance are stated as the delivery of:
• Safety;
• Serviceability; and
• Sustainability.
The six most significant elements of work on the Council's highway network are:
1. Carriageways
2. Footways
3. Bridges and other structures
4. Street lighting
5. Drainage
6. Car Parks
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 46
The differences between the current and desirable positions (the "Service Gap")
for each of the three core objectives in relation to the most significant elements of
work on the Council's highway network are described below.
2.17.2 Carriageways
Safety
The safety of carriageways can be quantified by:
• Surface skid resistance;
• Number of carriageway Insurance Claims by third parties; and
• Number of urgent defects (ie. those treated within 24 hours)
Surface skid resistance - the skid resistance of A, B and C class roads on the
Council's network is tested annually. The 2008 surveys indicated that 32 percent
of A roads, 22 percent of B roads and 31 percent of C roads are currently at or
below the Investigatory Level.
The number of third party insurance claims relating to carriageway defects
increased by a factor of three in the past five years, as shown in the chart below.
Third Party Claims Relating to Carriageway Defects (June 2009 Data)
The number of instructions to attend highway emergencies due to urgent
carriageway defects, such as potholes, has increased by a factor of three in the
last three years, as shown in the chart below.
162
104
56 47 51
04/05 05/06 06/07 07/08 08/09
Year
Nu
mb
er
of
Cla
ims
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 47
Carriageway Emergency Instructions Issued (2 hour response)
These charts indicate an increasing number of events that are compromising the
safety of the carriageway.
Serviceability
The serviceability of carriageways can be quantified by:
• Asset condition; and
• Ride quality (e.g. smooth, pothole free surface);
Asset Condition - Until recently, the general condition of carriageways was
measured and compared nationally using a series of BVPIs which indicate the
percentage of the network where structural maintenance should be considered.
The table below shows the 2007/08 BVPI results for the Isle of Wight in
comparison with the top and bottom quartile thresholds for that year. The Isle of
Wight results mostly fall into the bottom quartile for both unitary authorities and all
English authorities.
Carriageway Condition Indicators 2007/08
Performance Indicator IWC
Actual
07/08
Unitary Authorities All England
Ref Description Top
quartile
Bottom
quartile
Top quartile Bottom
quartile
BV223 % of the principal road
network where structural
maintenance should be
considered
9 3 7 3 7
BV224a % of the non –principal road
network where structural
maintenance should be
10 4 11 5 10
1892
747
581
06/07 07/08 08/09
Year
No
of
Inc
ide
nts
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 48
considered
BV224b % of the Unclassified road
network where structural
maintenance should be
considered.
38 7 15.5 8.5 18
Since 1 April 2008, national indicators NI168 and NI169 have replaced best value
performance indicators BV223 and BV224a. However the national indicators are
measured on the same basis as the 2008 best value performance indicators. A
comparison of the BV results and the available NI results are given in the table
below, which shows that carriageway condition continues to deteriorate.
Carriageway Condition Indicators 2007/08 and 2008/09
IWC Actual Performance
2007/08 2008/09
Performance Indicator BV223 NI168
Percentage of the principal road
network where structural maintenance should be
considered
9 12
BV224a NI169
Percentage of the non – principal
road network where structural maintenance should be
considered
10 15
The condition of all categories of the Council's carriageways falls well short of
that achieved by the best performing, or even average performing, authorities
and these gaps can only be closed by a significant increase in investment in the
future.
Ride Quality - Longitudinal Road Profile has been used as a measure of ride
quality. The latest 10m Profile and 3m Profile SCANNER results given in the
table below indicate the percentage of A, B and C class roads that have road
profiles worse than the upper threshold contained within UKPMS.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 49
Road Class Percentage of network above the upper threshold
10m Profile 3m Profile
A 18 12
B 17 14
C 34 27
Sustainability
Some recycling of carriageway material takes place at present, and some in-situ
recycling has been undertaken. There are no carriageways surfaced with noise
attenuating materials on the Council's network.
2.17.3 Footways
Safety
The safety of the footways can be quantified by:
• Number of footway insurance claims by third parties;
• Number of urgent defects requiring treatment within 24 hours
As shown in the chart below, the annual number of third party insurance claims
relating to footways defects is variable but has been on a generally upward trend
in recent years.
Third Party Claims Relating to Footway Defects (June 2009 Data)
As shown in the chart below, the number of emergency instructions to attend to
urgent footway defects has also been on an upward trend but dramatically
increased in 2008/9. It remains to be seen whether that is a random annual
variation or indicative of the impact of a deteriorating network condition.
30 28 27
23 18
04/05 05/06 06/07 07/08 08/09
Year
Nu
mb
er
of
Cla
ims
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 50
Footway Emergency Instructions Issued (2 hour response)
Serviceability
The general condition of footways, until recently, was measured and compared
nationally using BVPI 187. The table below shows the 2007/08 BVPI result for the
Isle of Wight in comparison with the top and bottom quartile thresholds for that
year. The Isle of Wight performance falls into the bottom quartile for both unitary
authorities and all English authorities.
Footway Condition Indicator 2007/08
Performance Indicator IWC Actual
07/08
Unitary Authorities All England
Ref Description Top quartile Bottom quartile Top
quartile
Bottom
quartile
BVPI 187
Conditions of
surface footway 46 12 30.3 14 29
Sustainability
Sustainability is not currently a significant factor in the maintenance of highway
pavements.
No recycling of footway material takes place at present.
2.17.4 Bridges and Other Structures on the Highway Network
Safety
Parapet risk assessments (PRAs) were undertaken in 2005 by OPUS and a
priority ranking for upgrade works was derived from its report. Three bridge
218
149153
06/07 07/08 08/09
Year
No
of
Inc
ide
nts
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 51
parapet upgrades are being carried out in 2009/10, and more will be undertaken
prior to commencement of the PFI contract.
This assessment of parapets did not include the 600 or so retaining walls which
are the Council's responsibility. It is anticipated that a substantial number of these
will not conform to modern standards.
Serviceability
From a user perspective the key requirements for structures are:
• Structural condition (i.e. safe for use and structurally sound);
• Adequate parapets (in terms of height and strength);
• Full access (no temporary weight restrictions or height limits); and
• Aesthetic appearance. (i.e. evidence of regular routine maintenance)
Structural Condition – The Council calculates a Bridge Condition Score (BCS)
from its inspection data. This is an 'existing condition' score with a numerical
value between 1.0 and 5.0, but it does not recognise structurally sub-standard
elements. For example, a bridge parapet without significant defects would be
given a BCS score of "good", even though that parapet does not meet current
containment standards. The current distribution of BCS values is shown below.
2009 Highway and Car Parks Bridges and Retaining Walls BCS Values
BCS Values Very Good Good Fair Poor Very Poor Failure
1.00 - 1.30 1.31 - 1.80 1.81 - 2.70 2.71 - 3.70 3.71 - 4.70 4.71 - 5.00
No. of
structures 112 (16%) 238 (33%) 306 (42%) 56 (8%) 6 (1%) Nil
Total Number of bridges and retaining walls for Highways Department / Car Parks = 718
Structural assessments are undertaken on an intermittent basis but the majority
were carried out over 10 years ago and reviews are required to re-evaluate the
load-carrying assessment calculations.
The BCS figures demonstrate that the overall 'existing condition' of the bridge
stock is in fair to good condition, however, given that some structural
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 52
assessments were undertaken some years ago and as illustrated by the backlog
of PRA’s significant work may be required to upgrade to current standards.
Sustainability
Sustainability is not currently a significant factor in the maintenance of highway
bridges.
2.17.5 Street Lighting
Safety
In common with many other local authorities the Isle of Wight has a history of
under investment in its lighting stock. This is compounded by the corrosive effect
of the salt-air which accelerates the degradation of street lighting columns and
traffic sign posts. Consequently, a significant proportion of the IWC street lighting
and illuminated traffic signs asset is in seriously degraded condition due to the
combination of age and environmental conditions. Additionally it is estimated that
50% of the existing lighting levels fall below current European and British lighting
standard requirements. As part of this Project, lighting levels will be reviewed
and modifications made to provide a solution inline with BS5489.
Serviceability
The Isle of Wight has a term maintenance contract arrangement for the provision
of a street lighting maintenance service with SEC Ltd. The contract is operated
under a traditional term contract arrangement procured using the ICE model form
of contract.
The table below, which shows the term maintenance contractor’s self reported
performance in rectifying street lighting faults against the BVPI performance
indicators, indicates a performance levels consistently above target standards.
Ref Performance Indicator Definition Target IOW Actual Performance
05/06 06/07 07/08
BV215a
Average no of days taken to repair a street
lighting fault which is under the control of the
local authority
3 1.89 2.39 1.98
BV215b
Average no of days taken to repair a street
lighting fault where response time is under the
control of a DNO
20 9.01 6.13 9.91
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 53
The table below, which details the term maintenance contractor’s self reported
performance in rectifying street lighting faults against the performance indicators
set by the IWC, indicates a performance which would be accepted as a high
standard nationally.
PI Ref PI Definition Target Actual
05/06 06/07 07/08
LPI % Lights in Light 98 99 99 99
Sustainability
Sustainability is not currently a significant factor in the maintenance and
operation of highway lighting.
2.17.6 Traffic Signals
Safety
The maintenance regime for Traffic Signals is constrained by budget pressures
and the age and condition of a significant proportion of the asset. Reactive
maintenance and fault rectification takes precedence and a vast majority of the
budget is required for these purposes. In some cases pole corrosion is in such an
advanced state that the lantern and brackets need urgent remedial action.
Serviceability
Siemens Traffic Controls maintains the traffic signal network through a term
maintenance contract which is a joint agreement with Portsmouth City Council. A
break clause has been negotiated to allow for termination of the contract to
coincide with the commencement of a PFI contract
Functions specified within the contract include those activities detailed below:
Function Frequency
Electrical testing of all Traffic Signals, loop detection, variable message signs and school warning signs installations
Annual
General Maintenance - Traffic signal poles, lanterns and brackets, push button controls, outstations, MOVA, monitoring and detection systems, electrical and communications infrastructure
Bi-annual
Numbering and renumbering of poles and controller cabinets As required
Cleaning only (additional to general maintenance above):
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 54
S
u
s
t
a
i
Sustainability
Sustainability is not currently a significant factor in the maintenance and
operation of the traffic control equipment.
2.17.7 CCTV
Safety
In common with many other local authorities, the Isle of Wight has a history of
under investment in its CCTV stock. This issue is compounded by the corrosive
effect of the salt-air which is an important consideration in the delivery of the
service - the sea air affects many of the CCTV masts and cameras.
Consequently a significant proportion of the Council’s CCTV asset is seriously
degraded due to age and environmental conditions
Asset condition surveys have confirmed that some 75 percent of the CCTV
apparatus is in an unsafe condition or suffers from degraded performance.
Sustainability
Sustainability is not currently a significant factor in the maintenance and
operation of the CCTV equipment.
> Exterior of all road traffic, pedestrian and light rapid transit signal lenses, wait panels, box signs, variable message signs and school warning signs
Bi-annual
> Interior of wait panels, box signs and fibre-optics Annual
Cleaning only (additional to above on ‘High Maintenance’ sites)
> Exterior of all road traffic, pedestrian and light rapid transit signal lenses, wait panels, box signs, variable message signs and school warning signs
Quarterly
Bulk lamp changes
> Road traffic, wait, pedestrian and light rapid transit lanterns Bi-annual
> Box sign lanterns and School Warning Annual
Respond to faults identified / reported – from inspections, vandalism, accidents
> Priority one faults - emergency faults 2 Hours
> Priority one faults - urgent 4 Hours
> Priority two faults - normal 24 Hours
> Priority three faults - other 7 days
> Priority four faults - outstanding As agreed
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 55
2.17.8 Drainage
Safety
Again due to budget constraints, there is a significant backlog of renewals and
improvements, which requires a substantial proportion of the budget being
devoted to reactive maintenance rather than programmed preventative
maintenance. Whilst it is not possible to explicitly assess the effect that the poor
condition of this asset has on safety, it can be conjectured that the presence of
surface water and local flooding does have safety implication. Additionally it is a
recognised nuisance in streets with pedestrian movement.
Serviceability
There are no statutory or local indicators identifying the condition of highway
drainage systems.
Sustainability
Sustainability is not currently a significant factor in the maintenance and
operation of highway drainage.
2.17.9 On and Off-Street Car Parking
The Council currently manages both on-street and off-street parking as a co-
ordinated whole via a Civil Enforcement Area. Maintenance is undertaken by
contractors and is supervised by the Enforcement Officers.
Serviceability
The Council is responsible for 15 chargeable on-street parking zones, 52 pay-
and-display, off-street car parks and 29 free off-street car parks/lay-bys. The
condition of the car park surfaces is considered to be generally fair to good but
with some exceptions which fall into the category of poor. However the ambience
of many of them is not commensurate with an area of high tourist demand.
The Council formally inspects its off-street car parks quarterly and encourages its
Civil Enforcement Officers to report defects during their daily visits.
Sustainability
The Council currently operates a proportion of solar powered ticket machines.
Otherwise Sustainability is not currently a significant factor in the maintenance of
car parks.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 56
2.17.10 Major Works - Bouldnor Road
The A3054 Bouldnor Road is the coastal road in the far North West of the Island
and a major access route to the car and passenger ferry terminal in Yarmouth
Harbour. The road runs along the top of a shallow cliff or embankment, supported
by a sea wall at its base. Movement due to ground instability is threatening the
safety and stability of the road above it. This is considered to be both unsafe and
unserviceable.
2.18 Project Description/Overview
The IWC Highways PFI Project follows the “fence to fence” concept to develop a
holistic approach to highway maintenance. The Project provides the best fit with
the Island’s Strategic aims for sustainable development and the Council’s
ambitions for providing a transport network that will both improve the condition of
the highway and act as a stimulus for the Island’s economy. The Project focuses
on the key elements of the highway with an intention to improve the current
network condition to a level where normal levels of maintenance will sustain the
network at steady state. The holistic approach helps to create synergies and
avoid contractual boundaries with third parties within the fence to fence
boundary. The focus is on ensuring that the PFI Service Provider can be charged
with an output based specification that has minimum conflict with Council
retained services thereby enabling the PFI contract to be managed and
monitored effectively.
2.19 Project Scope
The high-level summary of the Highways PFI scope is described below; Appendix
6 sets out the details of the PFI scope and the Council retained services. The
additions to the scope since EOI are discussed in Appendix 7.
2.19.1 Roads
The Island’s 803 km of rural and urban roads that are currently being managed
publicly, will form part of the PFI network. These would include the A, B and C
classified roads and the unclassified roads. The scope will include refurbishment
of all classifications of publicly maintained road network including kerbs and
footways, such that the development of category 1 defects is arrested and the
general condition of the network is raised to position the Isle of Wight’s highway
network at the upper quartile level of Local Authorities when assessed in
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 57
accordance with National Indicators. Skidding resistance of the network will be
brought above the investigatory level for the relevant hierarchy. The highway
drainage system will be brought to 100% operational capacity using an output
measure to prevent carriageway flooding. Throughout the PFI period there will be
on-going lifecycle, routine and winter maintenance and operation of these roads
for the remainder of the 25 year period. Roads that are currently privately
maintained will not form part of the PFI scope.
2.19.2 Structures
It is intended that, on completion of the CIP, all structures will have a 40 tonne
capacity. Currently, 10 structures require works to achieve this position.
However, works are currently programmed for some of these structures and the
number will be kept under review throughout the PFI tender period to only include
those not already treated.
Full access - There are currently 8 structures on the network with a temporary
weight restriction. One of these structures belongs to Network Rail. The non-
Network Rail structures will be strengthened as part of the PFI Project and the
restrictions removed. There are currently two bridges with height restrictions on
the network. One belongs to Network Rail (as above) and one to the privately
owned Isle of Wight Steam Railway. There are no plans to remove these
restrictions.
As part of the PFI Project, the assessment and provision of containment in line
with TD19/06 and IAN 97/07 to parapets, piers and soffits for bridges, retaining
walls and other structures will be undertaken and implemented during the core
investment period. Thus, safety deficient parapets will be upgraded and regular
inspections and follow-up repairs will be undertaken to ensure their continued
integrity and functionality. Parapet work will only be considered on retaining walls
greater than 1m high. While parapets on Network Rail bridges will not be
included, since they are not the responsibility of the Council, the PFI Project will
include undertaking risk assessments and carrying out any necessary safety
fence works on the approaches to Network Rail bridges, in order to minimise the
risk of errant vehicles encroaching onto the railway.
Aesthetic appearance is not seen as a major issue, and routine painting and
graffiti removal is currently undertaken as required as part of routine
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 58
maintenance. The Council consults with the local community where large-scale
works are undertaken within the AONB to ensure that new or improved structures
are visually acceptable. This will continue under the Project.
The PFI contract will include the normal annual maintenance and lifecycle
replacement works to all structures.
2.19.3 Street Furniture
The Island’s roads contain compulsory, directional and tourist signs, roadside
seating, bus shelters and roadside planters. During the CIP, signage will be
refurbished such that visibility is compliant with current standards. As appropriate,
other assets will be available for use, clearly visible and in a good state of repair.
Again, the upgraded assets will be maintained at the refurbished standard
throughout the PFI contract period. It is intended that the refurbishment and
maintenance of street furniture, coupled with carriageway and footways will uplift
the Island’s street scene.
2.19.4 Footways
The urban roads and town centres have an extensive network of footways. As
part of the CIP works the footways will be upgraded to provide an acceptable
structure and surface, minimising the current defects to reduce the risk of third
party claims. The combination of footway renewal with the carriageway renewal
offers the opportunity to have a single upgrade programme, which will resolve
utility diversions and address drainage issues all at the same time.
2.19.5 Traffic Signals
The Island has 79 sites of traffic signals that help to control traffic flows at some
of the major junctions. The Traffic Signal associated assets are in very poor
condition and have been identified as a safety hazard. In addition, the technology
is now out of date. It is intended that all traffic signal installations are upgraded to
comply with the relevant standards, reduce the risk of failure and adopt the latest
technology to reduce lamp changes and power consumption in line with the
carbon reduction aims of government.
2.19.6 Street Lighting
The 12,068 lighting columns on the Island fall well below the current standard for
lighting of these 8,400 are either life expired or fall below current standards and
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 59
these have been defined as ‘non-deemed to comply’ and programmed for
replacement during the CIP. It is assumed that all of the remaining 3,668 will be
renewed on a condition assessment basis as part of the Service Providers
ongoing annual investment programme. The specification will be to current codes
of practice and will require the application of modern technology, such as remote
switching and energy saving equipment and design, through a low carbon
footprint based output specification. The PFI Service Provider will then maintain
the whole system for the PFI contract period.
2.19.7 CCTV
The existing CCTV unit and control room are in poor condition and the Council is
currently undertaking a renewal programme. Consequently, the next round of
lifecycle renewal in 10 years time will be at the end of the proposed 7 year core
investment period. However, CCTV cameras are mounted on special masts or
lighting columns, both of which fall within the project’s “fence to fence” boundary
and replacement would disrupt the project payment mechanism based on lane
availability. Additionally, the power required for CCTV is likely to come off lighting
columns where appropriate and synergies in the maintenance of the CCTV and
street lighting are likely to result in operational cost savings. CCTV is therefore
included within the Project scope and assumes replacement of all cameras after
a ten year life.
The CCTV cameras and control room will be used mainly to operate the network
along with crime reduction and emergency management.
2.19.8 Grass Cutting and Street Cleansing
The fence to fence approach allows all services that need to be carried out on
and adjacent to the highway to be synchronised, deriving maximum efficiency in
service delivery. This integrated approach enables grass cutting to be followed by
street cleansing and drain cleansing to meet the output specification
requirements.
Street cleansing was initially included in the scope but excluded at the
Expression of Interest (EOI) revision in 2008. However, the detailed analysis of
the contract scope and practicality of delivering these intertwined services using
different delivery mechanisms has convinced the Council that it should be part of
the wider Highways PFI Project. In addition, following detailed analysis and soft
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 60
market testing, the Council has decided to include all highway grass cutting within
the PFI scope.
2.19.9 On and Off Street Car parking
The “Fence to Fence” approach lends itself to including on and off street car
parking assets as part of the Highways PFI Project. The off-street car parks are
an extension of the highway network, using similar material to the highways.
There are therefore scale and efficiency benefits to be gained by including the
capital and maintenance elements of off-street car parks within the project scope.
The off-street element will be funded by the Council.
2.19.10 Bouldnor Road Improvement
The Council has identified a major road reconstruction project on Bouldnor Road
along the coastal road between Cowes and Yarmouth. This section of the road
has shown signs of significant movements over a period of time and the Council
developed plans for a major refurbishment of this section in 2006. This stretch of
the coastal road is strategically important for the Island and closure would not be
a practical option. The Council made an application for Integrated Transport
scheme capital funding to address the stability of the highway and it was
expected that the refurbishment would have been completed ahead of the
Highways PFI Project. However, based on the latest timescales, funding for the
stability work is unlikely to be available before the PFI works commence in April
2013. Given the strategic importance of this road for the Island, the Council has
decided that it should form part of the Highways PFI Project. This scheme was
not included at Expression of Interest stage. A report on the refurbishment of
Bouldnor Road can be seen at Appendix 8.
2.20 Standards of the Project
2.20.1 Core Investment Period (CIP)
The works carried out during the Core Investment Period will be assessed by the
PFI Service Provider from the survey data provided by Isle of Wight Council. The
quantum of the works will be assessed by the PFI Service Provider to meet the
lifecycle and physical requirements of the Output Specification. The latter will be
developed to meet the standards of the Design Manual for Roads and Bridges
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 61
and to achieve compliance with the requirements of Well Maintained Highways,
Management of Structures and Well Lit Highways.
The Island’s highway network stands alone and does not allow traffic to divert
across boundaries into another authority’s area. Because of this, the successful
completion of the infrastructure renewal must be very carefully undertaken to
prevent the Island’s traffic coming to a halt. To minimise disruption a traffic
model, (see Appendix 9), has been produced, which will be made available to the
contractor so that the effect of road closures and the use of temporary traffic
control can be analysed prior to any road being attended. A seven year CIP has
also been chosen to allow the major works to be spread over a longer period.
Appendix 10 gives the rationale behind a 7 year CIP.
The Isle of Wight relies heavily on the tourist trade for economic survival. Cost
models for the CIP and also for whole lifecycle maintenance include an allowance
for night time working on major traffic routes. Using the traffic model for guidance
it will be necessary to build, within the contract documentation, constraints on
times of working during the peak holiday periods and, in particular, to avoid traffic
delays in the vicinity of major events such as Cowes Week and the two music
festivals.
2.20.2 Post CIP
The Output Specification for the post CIP period will be developed to require
steady state maintenance of all assets at the condition achieved by the CIP
investment. The operations and maintenance elements of the specification will be
developed to achieve compliance with the requirements of Well Maintained
Highways, Management of Structures and Well Lit Highways.
2.21 Conclusions
The Council’s fence to fence approach to defining the Project scope is a holistic
approach towards PFI Project delivery and one that is welcomed by the Industry.
The current condition of the Isle of Wight Highways network and the service gaps
provides a basis for understanding the scale of the Project. At a strategic level,
the Project is key for the regeneration of the Island and satisfies all of the natural,
regional and local strategies. The Council now believes that there is a convincing
strategic case for investment on the Island’s Highways network.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 62
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 63
3. Economic Case
3.1 Introduction
The Economic Case identifies possible options for the Highways PFI, building on
the business need described in the Strategic Case. The Options analysis takes
the Do Minimum option and compares that with seven other possible options,
using a weighted scoring based on the Island’s and the Council’s strategic
priorities. The preferred option is taken forward for the Economic Case using a
NATA style appraisal. The net cost of the preferred option in present value terms
is compared against the present value of benefits to give a Benefit to Cost ratio.
3.2 Options Appraisal
The Council has carried out an initial appraisal of eight options, a Do Minimum
and seven alternative Do Something options, which are briefly described in the
table below.
Option Description
1 Do Minimum: continue with current levels of expenditure and small amounts of
capital investment to maintain the network in its current condition
2 Strategic network PFI including on-going maintenance but no capital works on
the unclassified network
3 Full network PFI including on-going maintenance and street cleansing
but excluding on/off street car parking maintenance.
4 Full network PFI including on-going maintenance but excluding street cleansing
and on/off street car parking maintenance.
5 Full network PFI including on-going maintenance, street cleansing and
on street car parking maintenance but excluding off street car parking
maintenance.
6 Full network PFI including on-going maintenance, street cleansing and on/off
street car parking maintenance.
7 Full network PFI including on-going maintenance and street cleansing
but excluding cycleways and on/off street car parking maintenance.
8 Full network PFI including street cleansing but excluding any lifecycle capital
replacement and on/off street car parking maintenance.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 64
An appraisal system was developed which drew heavily on the Island’s strategic
policy documents. Criteria were taken from the Eco Island Vision 2008-2020,
and the Island’s Local Transport Plan 2006-2011 (LTP2), the Island’s Highways
PFI Expression of Interested submitted to the Department for Transport
supplemented by a number of other criteria. Around 80 criteria and objectives
were defined from the different sources and assembled under 12 sub-headings.
Weightings were applied to the different criteria, based on the strategic
importance, to give a 200 point scoring system as follows;
Overall
weighting
Eco Island: A Thriving; Healthy and Supportive, Safe, Well-Kept
and Inspiring Island.
30
EoI and LTP2 25
Sustainability 20
Political acceptability 15
Affordability and cost 20
Value for money 15
Commercial appetite 10
Environmental 15
Project deliverability 15
Management of risk 10
Innovation and improvement 10
Stakeholder impact 15
Total 200
The appraisal was carried out in a series of workshop sessions and reviewed by
the Project Team and technical advisors. Policy experts were used to challenge
assumptions. The scores ascribed to the different options are summarised below,
full detail is at Appendix 11.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 65
Option Description Score Risk Evaluation
1 Do Minimum: continue with current levels of expenditure and small amounts of capital investment to maintain network in its current condition
0 Substantial sunk costs (project costs) with no benefit. Significant reputational impact as the expectation which has been built is destroyed and leading to questioning of the council’s ability to deliver on strategic projects. No improvement in the risk profile of the network.
2 Strategic network PFI including on-going maintenance but no capital works on the unclassified network
75 Continuing deterioration of the lower status routes and footways. Reputation impact (expectations not met) Failure to maximise opportunity to regenerate tourism.
3 Full network PFI including on-going maintenance and street cleansing but excluding on/off street car parking maintenance.
131 Loss of potential cost savings (maintenance off car parking infrastructure could have been undertaken at marginal rather than full cost)
4 Full network PFI including on-going maintenance but excluding street cleansing and on/off street car parking maintenance.
104 Loss of potential cost savings (maintenance off car parking infrastructure could have been undertaken at marginal rather than full cost) Potential for conflict between street cleansing operation and PFI contractor (bin provision, street/gully cleansing) Potential for conflict between parking enforcement and PFI contractor
5 Full network PFI including on-going maintenance, street cleansing and on street car parking maintenance but excluding off street car parking maintenance.
122 Loss of potential cost savings (maintenance off car parking infrastructure could have been undertaken at marginal rather than full cost) Risk of loss of potential redevelopment opportunities presented by off-street car parks.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 66
6
Full network PFI including on-going maintenance, street cleansing and on/off street car parking maintenance.
166
Option is reliant on the Council finding a capable PFI partner to deliver the full scope.
7 Full network PFI including on-going maintenance and street cleansing but excluding cycleways and on/off street car parking maintenance.
116 Loss of potential cost savings (maintenance off car parking infrastructure could have been undertaken at marginal rather than full cost) Loss of potential cost savings (maintenance of car park surfaces could have been undertaken at marginal rather than full cost). Differential standard of maintenance between cycleways and highways. Risk of further deterioration of the cycleways network which would impact other strategic objectives (health and well-being etc.). Increased cost of cycleways maintenance as a stand-alone operation.
8 Full network PFI including street cleansing but excluding any lifecycle capital replacement and on/off street car parking services
46 Loss of potential cost savings (maintenance off car parking infrastructure could have been undertaken at marginal rather than full cost) . Risk of deterioration following the rehabilitation phase and poor standard of network on handback. Reputation impact as the condition of the highways deteriorates back towards the pre-existing standard
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 67
The Do Something options were appraised relative to the Do Minimum, which
therefore has a minimum score. Option 6, a full network PFI with a full range of
services, had the highest score. Options 3, 5 and 7, which all had similar scores
and were the next best options, excluded combinations of on or off street parking
maintenance or cycleways.
Option 6, a full network PFI with a full range of services, was therefore identified
as the preferred option.
The Economic Case for the preferred option as set out in the NATA style
appraisal at Appendix 12 and makes use of standard DfT approaches and values
where possible.
The Economic Case presents a mix of quantitative and qualitative impacts, the
derivation of which is described below with the findings summarised in an
Appraisal Summary Table.
3.3 Service Improvements and Community Benefits
The table below relates different service improvements to the community benefits
they will generate. The principal service improvements flowing from the Project
will be better road surfaces with better skidding resistance and improved street
lighting. The principal impacts flowing from the Project will be time savings from
several sources, savings in vehicle operating costs, reductions in the number of
accidents, reduced levels of street crime and disorder and general efficiency
gains.
Benefit item Better road surfaces and
improved skidding
resistance
Improved street lighting
Time savings from higher
traffic speeds
�
Time savings from fewer
road works and road
closures
�
Vehicle operating cost
savings
�
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 68
Reduced numbers of
accidents
� �
Reduced public liability
payments
�
Reduced street crime and
disorder
�
Time savings from
removal of weight and
width restrictions
�
Efficiency savings from
private sector involvement
� �
Efficiency savings from
undertaking the right
options
� �
The basis for estimating each benefit item is set out below and full detail is at
Appendix 13.
The IWC Highways PFI Project is expected to be a 25-year concession starting in
early 2013; benefits are therefore calculated over the 25-year period from 2013 to
2038 inclusive.
Over the first 7 of the 25 years there will be a Core Investment Period (CIP) to get
the network up to a defined standard, with lifecycle maintenance then being
applied for the remaining 18 years. This profile is taken into account in the
estimates made below in the assumptions about the ‘ramp-up’ of benefits through
the CIP and the volume of road works and road closures over the CIP and the
following 18 years.
In recent years the condition of the Island’s road network has been deteriorating.
The highway condition model operated for the Isle of Wight Council allows the
Council to identify the schemes needed to bring the Island’s roads and footways
up to standard and the costs of those schemes. A recent run of the model has
shown that maintaining expenditure at around current levels will mean the
condition of the road network is broadly maintained at today’s level. The Council
has therefore adopted this model run as representing the Do Minimum.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 69
3.3.1 Time savings from higher traffic speeds
Time savings from higher traffic speeds as a result of better road conditions is set
out below. Runs of the highway condition model have been undertaken for the Do
Minimum and for the preferred Do Something. The schemes needed to get from
the Do Minimum to a Do Something are phased over seven years – with the
worst NI score road sections being undertaken first.
It is generally believed that traffic speeds are constrained on sections of road with
poor surface quality. As these sections of road are improved from the Do
Minimum to the Do Something, speeds and journey time reliability will improve
and time savings will be generated. The central estimate assumes that speeds
through these sections of roads of poor quality will increase by 2 mph (3.2 kph).
This assumption is given some substantiation by a small set of timed journeys
undertaken on two pairs of road sections. The pairs of road sections, each
around a mile long, were chosen as being similar in all major respects other than
the quality of the road surface and at least six timed runs were made on each
section of road. The average times and speeds on each are given in the table
below. Speeds were 1.4 mph lower on the poorer of one pair of road sections
and 3.5 mph on the other pair, where Whiteoak Lane has a particularly poor
quality surface; this averages out at 2.45mph lower average speed in comparison
to a similar road in good condition.
Pair 1 Pair 2
Appleford
Road (poor
condition)
Niton Road
(recently
surfaced)
Whiteoak Lane
(poor condition)
Rolls Hill
(recently
surfaced)
Average time,
minutes
01:29 01:26
01:46 01:36
Average speed,
mph
40.5 41.9
34.0 37.5
The Island’s road network has been divided into four hierarchies of road based
on traffic flow, as follows. These values have been used in estimating the
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 70
numbers of vehicles which will benefit from an improved road surface on roads in
each category:
Hierarchies Vehicles per day, AADT
1 >10,000
2 5,000 – 10,000
3 2,000 – 5,000
4 <2,000
These flows are combined with the kilometres of road in each category to have
improved road surfaces and the central assumed speed change of 3.2 kph to
give estimates of time savings. The time savings from all the schemes to be
implemented during the CIP are assumed to be built up evenly over the 7 years
of the CIP then maintained over the remaining 18 years of the concession.
3.3.2 Changes in travel times
Changes in travel times from changes in the volume of road works and road
closures are covered in this section. Currently there are around 5,000 job tickets
for road works on the Island each year. The average duration of road works is
estimated at half a day and vehicles are assumed to be slowed down by two
minutes – at, say, temporary traffic lights or in taking a longer, alternative route.
During the CIP, the number of road works might be expected to increase, adding
to delay. From years eight onwards, however, there should be a substantial
reduction in road works and a consequent benefit from reduced delays.
For the Do Minimum, the current situation of around 5,000 job tickets per year
was assumed to continue.
For the Do Something, the modelling of the road network indicated that there
would be some 235 major schemes, with an average duration of three weeks,
undertaken during the Core Investment Period. It was assumed that these
schemes would impose an average delay of five minutes on each vehicle
affected, as in more cases roads would be closed requiring an alternative route to
be taken. It was assumed that the number of job tickets issued for smaller items
of road works would decline steadily over the Core Investment Period and from
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 71
year 8 onwards there would be some 500 job tickets issued per year, one tenth of
the current rate.
3.3.3 Vehicle operating cost savings
There is some evidence, particularly from the USA, that the poor condition of
roads can substantially add to vehicle operating and maintenance costs. Work
by TRIP (The Road Information Programme) has indicated that roads in poor
condition can cause additional vehicle costs, from accelerated vehicle
deterioration, additional maintenance needs and higher fuel consumption, of
around $200-300 per vehicle per year.
The USA is different from the UK in the types of cars that people drive, the
condition of the road network and the extent to which they use their cars, so the
values generated by a USA lobby group may not apply in the UK. In the UK,
Potholes.co.uk claims that potholes cost UK road users £320m per year and
since there are 32.4 million registered vehicles in GB this works out at an
average of around £10 per vehicle per year. We assume that the relatively poor
quality of roads on the Isle of Wight would mean that the cost on the Island would
be higher than the average and have assumed a central estimate of an additional
£20 per vehicle per year.
The number of vehicles owned by the Island’s households is recorded as 63,874
cars and vans in the 2001 census. Allowing for growth since 2001 and the cars,
vans, HGVs and buses owned by the public sector, the utilities, the private
sector, bus operators, etc we assume that 75,000 vehicles could benefit from
reduced vehicle operating costs.
Common experience, supported by an analysis of traffic counts, indicates that the
Island’s vehicle fleet increases in the summer months. Traffic count data across
a number of the Island’s roads indicated that summer traffic flows were on
average around 11% higher than flows in neutral months. This increased vehicle
flow, for a period of four months in the summer, was also assumed to benefit
from a saving in vehicle operating costs.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 72
3.3.4 Reduction in the number of accidents
The Island’s road accident data for previous years – the three years from mid
2005 to mid 2008 - has been analysed to identify the accidents in which poor
road conditions might have been a major factor. Over this three year period,
there were 13 fatalities from accidents involving wet shunts and loss of control
where a road’s poor skid resistance was possibly a contributory factor.
Over the 7 year CIP the skid resistance of the road network will be improved
which will allow at least a proportion of these and other non-fatal accidents to be
avoided, depending on the relative contribution of poor skid resistance and other
factors to these accidents. The Council’s general experience is that the
implementation of a road safety measure can normally lead to a reduction of
around one third in the number of relevant accidents. Therefore it is assume that
in the completed Do Something option one-third of these accidents could be
saved. Standard DfT accident values are then applied to the estimates of the
reduction in the number of accidents.
3.3.5 Reduction in the Council’s public liability payments
The Council’s current road-related public liability payments average around
£500,000 per year, though there is considerable variation from year to year. A
major claim, in relation to a fatality for example could push the claim in any year
considerably higher than this. The Council would not be liable for any such
payments if it maintained its proper schedule of road inspections, as we assume
it would in the Do Something.
For the Do Minimum we assume that current levels of public liability payments
would be maintained and that this risk will be transferred in the Do Something.
3.3.6 Reduction in accidents and street crime
Reduction in accidents and street crime as a result of improved street lighting has
been developed using the draft MOSLAR guidance on the impacts of enhanced
street lighting on accidents and the fear of street crime to assess these impacts.
This guidance indicates that benefits might arise from a reduction in night-time
accidents of the order of 12.5% on the Island’s single-carriageway and urban
roads. The guidance also suggests making use of a research finding that
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 73
households would be willing to pay £12 per year (2003 prices) for street lighting
improvements, with a reduced fear of crime being one reason for this willingness
to pay.
The street lighting will be improved to new EU standards in the Island’s towns
and some villages where there is existing lighting, resulting in reduction of
accidents and street crime/disorder.
3.3.7 Time savings from removal of weight and width restrictions
The removal of weight and width restrictions will benefit heavy goods vehicle
movements. The number of restrictions to be removed from each category of
road is combined with the average traffic flow on each category of road and the
following proportions of HGV in the traffic flow by category of road. Each affected
HGV is assumed to save 5 minutes from being able to take a more direct route as
a result of the removal of a restriction.
Hierarchies HGVs as % of traffic flow
1 6%
2 7.5%
3 7%
4 4%
3.3.8 Efficiency Gains
Efficiency gains from the following two sources have been taken on board in this
section:
• the transfer from public to private sector management of the road network;
• being able to undertake more effective maintenance measures because of
the availability of more funds.
Better value for money can be expected from two different sources under this
Project. The first source of efficiency gain has been identified generally from
previous PFI projects and is generally attributed to the greater incentivisation
and efficiency of the private sector in doing what the public sector had previously
been doing. We assume that this efficiency gain is worth 15% of the expenditure
under this Project.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 74
The second source of efficiency gain arises from the availability of certainty of
funding over a long period of time under the PFI which means that more efficient
measures can be undertaken. In effect, the repeated application of lower cost,
less effective measures can be replaced by a more effective, higher cost
measure with an overall saving in lifecycle costs.
The Isle of Wight Council is able to point to a number of cases where repeated
minor repairs have been made to sections of road, when the cost effective
solution would have been a more major road reconstruction which would have
removed the need for future repairs. The example of Calbourne Road, Calbourne
given below is a case in point.
Calbourne Road, Calbourne
The need for resurfacing Calbourne Road has been clear to the Council since around the
mid-1990s, but funds were not available.
Now funds are available for a £280,000 resurfacing scheme to be undertaken this year.
In the interim, however, the Council has undertaken a number of minor repairs which would
not have been needed if the resurfacing had been done.
Since June 2006, £26,000 has been spent on minor repairs, not including further expenditure
on infilling numerous potholes.
This is all effectively abortive expenditure, amounting to around 10% of the required
expenditure, made as a result of a lack of appropriate funding, which will be avoided under
the PFI.
The Council assumes that such efficiency savings could be worth a further 5% of
the expenditure under the PFI.
3.4 Value for Money Assessment (TQAT)
The Value for Money assessment is fully described in the financial case, Section
5. A detailed public sector comparator and a shadow bid model have been
constructed. Comparing the PFI shadow bid with the Public Sector Comparator
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 75
(PSC), the PFI option is found to be 13.68% Value for Money over the PSC
option.
3.5 NATA
The NATA (New Approach to Appraisal) appraisal process was introduced by the
Department for Transport in the late 1990s. A principal purpose of the NATA
approach to appraisal was to broaden the scope of the appraisal so that decision-
makers were informed of the impacts of the scheme being appraised on the five
overarching objectives of transport policy – the economy, the environment,
safety, accessibility and integration.
The NATA-style Appraisal Summary Table, attached at Appendix 12, is a part of
this process. It summarises the wider-ranging appraisal, describing the principal
impacts in relation to each objective in qualitative or quantitative terms.
The principal quantified benefit estimates are summarised in the table below,
calculated over the 25-years of the concession period and expressed as Present
Values in 2009 prices.
Benefit Item £ million present
values, 2009 prices
Time savings as a result of better road surfaces
Time savings from changes in road works and road closures
Vehicle operating cost savings
Accident savings from improved skid resistance
Public liability payment savings
Accident savings as a result of improved street lighting
Fear of street crime reduction as a result of improved
street lighting
Time savings from the removal of width and weight
restrictions
Efficiency savings from private sector involvement
Efficiency savings from improved road maintenance
Measures
Total £ 480 million
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 76
Sections of the table have been removed as they are deemed
commercially sensitive.
The costs of the Preferred Scheme are detailed in Appendix 14 and are
described more fully in the Financial Case. They include un-inflated (2009/10)
costs as follows with no allowance for Optimism Bias:
Do Something Costs Excluding Optimism Bias
£ million
Capital costs over Core Investment Period
Lifecycle replacement costs
Operation & Maintenance costs over 25 years
Authority funded Capital costs over Core Investment Period
Authority funded Lifecycle replacement costs
Authority funded Operation & Maintenance costs over 25
years
Contract Management Costs over 25 years
Client Management Costs over 25 years
Total
Present Value £323 million
Sections of the table have been removed as they are deemed
commercially sensitive.
The Benefit:Cost ratios have also been estimated making an allowance for
Optimism Bias using the assessment and percentages set out in Section 5.7.1
below. For the Do Something, the Pre-Optimum Bias and PFI (Post-Optimum
Bias) percentages are applied. For the Do Minimum, where the scale of work is
less, just the Pre-Optimum Bias percentage is applied.
The Do Something costs with an allowance for Optimism Bias are as follows:
Do Something Costs Including Optimism Bias
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 77
£ million
Capital costs over Core Investment Period
Lifecycle replacement costs
Operation & Maintenance costs over 25 years
Authority funded Capital costs over Core Investment Period
Authority funded Lifecycle replacement costs
Authority funded Operation & Maintenance costs over 25
years
Contract Management Costs over 25 years
Client Management Costs over 25 years
Total
Present Value £359 million
Sections of the table have been removed as they are deemed
commercially sensitive.
The un-inflated costs of the Do Minimum, of maintaining the highways network in
its current condition, excluding Optimism Bias, are as follows.
£ million
Capital costs over Core Investment Period
Lifecycle replacement costs
Operation & Maintenance costs over 25 years1
Total
Present Value £229 million
1 Includes the costs identified as Contract Management Costs in the Preferred Option
Sections of the table have been removed as they are deemed
commercially sensitive.
With the allowance for Optimism Bias the Do Minimum costs are as follows:
£ million
Capital costs over Core Investment Period
Lifecycle replacement costs
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 78
Operation & Maintenance costs over 25 years1
Total
Present Value £241 million
1 Includes the costs identified as Contract Management Costs in the Preferred Option
Sections of the table have been removed as they are deemed
commercially sensitive.
The Benefit: Cost Ratio, excluding Optimism Bias, is 5.1:1, calculated as follows.
The net cost of the PFI in present value terms is £94 million (Do Something costs
of £322 million less Do Minimum costs of £229 million) and the benefits are £480
million, giving a Benefit: Cost ratio of 5.1:1.
When allowances are made for Optimism Bias, with a higher percentage
allowance applied to the Do Something costs, the Benefit: Cost Ratio falls to
4.1:1, calculated as follows. The net cost of the PFI in present value terms is
£118 million (Do Something costs of £359 million less Do Minimum costs of £241
million) and the benefits are £488 million, giving a Benefit: Cost ratio of 4.1:1.
3.6 Assessment of Funding
The PFI credit will make funding available which is not available through
mainstream Council funding. As stated in paragraph 3.5 above CIP funding of
around £XX million would be needed to maintain the network in its current
condition while the capital expenditure of the preferred scenario over the CIP of
£XXX million would be needed to bring the network into an acceptable condition.
The PFI would make this funding differential available.
3.7 Preferred Investment / Service Delivery Option
The Preferred Option 6 emerged by far the highest scoring option when
appraised against a set of criteria and objectives which draw heavily on the
Island’s strategy as set out in Eco Island Vision 2008-2020 and in its Local
Transport Plan. The Preferred Option is a full network PFI which includes street
cleansing; and capital and lifecycle maintenance of on and off street parking.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 79
The level of funding needed to halt the decline in the Island’s roads and to ensure
that the Island’s roads, footways and cycleways can play their part in contributing
to the Island vision will only be available through this Project.
3.8 Conclusions
An assessment of eight different options against Isle of Wight Council objectives
identified Option 6, a full network PFI with a full range of services, as the
preferred option.
In the appraisal of this option it is assumed that investment is incurred over a
seven year period to bring the Island’s transport networks up to an acceptable
condition and that they are maintained at that level over the remaining 18 years
of a PFI concession. A range of benefits arising from the enhanced quality of the
networks have been estimated and generate a benefit:cost ratio of 5.1:1, without
allowance for Optimism Bias, or 4.1:1 when such allowance is made.
Over the seven year Core Investment Period, funding of around £XX million
would be needed to maintain the network in its current condition, while capital
expenditure of the preferred scenario over this period of £XXX million would be
needed to bring the network into an acceptable condition.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 80
4 Commercial Case
4.1 Introduction
The Commercial Case focuses on the key areas of the procurement strategy and
process, commercial considerations, soft market testing and the human
resources implications of the project. Risk has been considered within the context
of the Commercial Case although this is dealt with in more detail within the
Management Case.
4.2 Procurement Appraisal for PFI
Public sector procurement is governed by legislation set by the European Union
mandating three core principles:
• Equality of treatment between all potential bidders
• Non-discrimination
• Transparency
Effective procurement is crucial in securing high quality, best value public
services and the government has highlighted that the development of a clear
procurement strategy is a key step towards achieving Value for Money and
delivering the demanding efficiency targets.
The process requires use of the Official Journal of the European Union (OJEU)
for the open advertisement of all opportunities exceeding the published value
thresholds as will be the case in this Project.
It is mandatory for the Council to comply with these regulations and also Council
Standing orders; therefore a compliant procurement mechanism will be utilised
for the selection of a PFI service provider.
The European Commission published Directive 2004/18/EC in the spring of 2004,
introducing the Competitive Dialogue (CD) procedure. This mechanism has been
introduced as an alternative to the negotiated procedure for complex
procurements such as the letting of a PFI contract.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 81
Four regulated mechanisms exist for undertaking OJEU procurements:
• The Open Procedure – whereby any organisation expressing an interest is
provided with the full contract documentation and invited to tender. This
method does not include any opportunity for short-listing or contract
negotiation.
• The Restricted Procedure – which allows a pre-qualification stage to be
performed to short list the suppliers that will be invited to tender. Again no
opportunity exists for contract negotiation using this mechanism.
• The Competitive Negotiated Procedure – which allows the Council to pre-
qualify suppliers that will be invited to negotiate over the required service
provision. There is no formal end to the negotiations prior to the contract
signature.
• The Competitive Dialogue Procedure – whereby the Council pre-qualifies
service providers to create a shortlist of those who are invited to participate in
the dialogue process, affording them opportunity to discuss and refine the
required solutions. Once the solution has been confirmed the dialogue is
brought to a halt through formal notification to all participants and final tenders
are invited. After the Call for Final Tender has been issued only limited
discussion and clarification is allowed – there is no provision for further
negotiation at this stage.
Guidance states that the Competitive Negotiated Procedure should now only be
used in exceptional circumstances, whilst the Competitive Dialogue procedure
should only be used for “particularly complex contracts” (ref: Regulation 18 -
Public Contracts Regulations 2006).
Under the Public Procurement Directive (2004/18/EC) and the Public Contracts
Regulations 2006, the proposed PFI contract can be classified as a “particularly
complex contract”. The Council is not able to objectively define the technical
means capable of satisfying its needs or objectives and therefore the Competitive
Dialogue procedure is the mandated process.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 82
4.3 Procurement Process
The Council will follow the following procurement process and timescales:
The key stages of the Procedure can be defined as below;
a. Post OBC to Pre Dialogue (September 2009 to June 2010)
• Planning and initial preparation (pre OJEU notice) – commencing
following submission of OBC.
• OJEU contract notice (see draft attached at Appendix 15) for short-
listing of bidders through the use of a Prequalification questionnaire
• Selection of bidders and preparation for the dialogue stage – agree a
shortlist.
b. Dialogue Phase (June 2010 – June 2011)
• The dialogue – issue Invitation to Submit Outline Solutions.
• Evaluate outline solution
• Invitation to Submit Detailed Solution Evaluation
• Call for Final Tenders
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 83
• Close CD.
c. Post-dialogue Phase (July 2011 to November 2012)
• Submission of Final Tenders and bid evaluation
• Bid clarification
• Preferred Bidder to Financial Close
• Final Business Case to DfT and HMT
• Cabinet Approval
• Financial Close
d. Mobilisation (November 2012 – April 2013)
• The 5 month mobilisation period is an indicative time scale
A detailed Project Gantt chart is attached at Appendix 16.
4.4 Competitive Dialogue (CD)
The CD process is likely to be longer than the negotiated route and more
resource intensive. The Council is keen to minimise bid costs and will keep this in
focus when drawing up the Project Agreement, and will work with bidders to
achieve this. The Council itself has made considerable investment in assembling
a post-OBC team structure as described in the Management section of this OBC,
including full time Legal and Procurement support. In addition, the Programme
Director will be able to draw on the wider external Advisor team, also identified in
the Management section.
The Council will design a detailed CD process and announce a set of protocols
and ground rules to facilitate an orderly conduct of the dialogue. The process will
be co-ordinated and managed centrally.
The Council expects the early dialogue from ISOS to ISDS to be conducted on a
two to three weekly rotation, with a plenary opening session followed by dialogue
conducted by three teams – leading on technical, commercial and legal. Each
dialogue team will have back room support to help with the effective management
of the overall process.
Experienced bidders of the size and shape necessary to undertake this Contract
will understand the financial commitment necessary to bid and the likely
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 84
investment in time necessary to bring a successful conclusion to the procurement
process. The Council’s soft market testing (see 4.10) indicates that the market is
fully aware of the resource implications but will be fully appreciative of any client
body that focuses on minimising bid costs.
In order to achieve best value and efficiency targets the Council is approaching
the competition positively, taking full account of the opportunities for innovation
and genuine partnerships which are available from working with others in the
public, private and voluntary sectors. Importantly, this strategy seeks to balance
two priorities:
• delivering efficiencies and quality
• sustainable procurement, engaging with local and regional suppliers
to promote the local economy taking into account the social and
environmental impact of spending decisions
4.4.1 Evaluation Criteria
The Council will determine the detailed Evaluation Criteria once the full
specification is developed. It will publish the Evaluation Criteria for each of the
stages with the full scoring methodology before commencing CD. The Council
intends to publish an affordability NPV envelope for bidders to use as a guide to
prevent abortive work being undertaken. The following may be included when
forming the basis of the Evaluation Criteria:
• Technical
• Legal
• Financial
• Payment Mechanism
• Staffing
• Resourcing
Detailed Evaluation Criteria will be determined through a series of project
workshops and will be tested for robustness before formally adopting them for
evaluation.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 85
4.5 Output Specification
The Council has drawn on the experience of other Authorities that have procured
Highways PFI projects in formulating the basis of a workable scheme specifically
adapted to particular local needs. The Council’s service requirements will be set
out in detail in the Output Specification based on 4p’s guidance – the first draft of
this document is being prepared at present.
The Council has set a number of standards for each highway asset category, and
these are set out in Appendix 17. These standards have been tested for
appropriateness for Isle of Wight conditions and affordability. In costing the
effects of delivering operation and maintenance activities under an output based
PFI specification, the Council has taken account of meeting the standards,
practices, and obligations, contained in the following documentation:
• Existing output specifications on other highway and lighting PFI projects
• Current best practice across other Local Authorities
• Well-maintained Highways – Code of Practice for Highway Maintenance
Management
• Management of Highway Structures – Code of Practice, UK Bridges Board
• Well Lit Highways – Code of Practice for Highway Lighting Management
• Code of Practice on Litter and Refuse, DEFRA
• DfT design manuals
• Highways Act 1980
• The New Roads and Street Works Act
• Traffic Management Act
• IWC internal Policies
Core services relating to highway assets will necessarily be closely aligned with
industry standards. Standards for litter and detritus grading will be set at the
COPLR intermediate B+ standard, and for graffiti and flyposting at grade A. The
Service Provider will be required to co-ordinate and programme its works with
any contractor with responsibilities for waste collection management on the
Project Network and shall be able to demonstrate from time to time, at the
request of the Council, that this requirement is being met. It is expected that this
interface will be well within the normal scope of the Service Providers current
duties on other Networks.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 86
The lighting requirements for lighting on subsidiary roads and associated areas,
footways and cycle tracks will be determined based on crime figures, traffic flow
and environmental criteria as set out within BS5489-1: 2003 (Table B.4 – Lighting
Classes for Subsidiary Roads (pedestrians and cyclists))
Crime Rate
Ra value
Lighting Class
Area ID Area ID Area ID
Low traffic
flowa Normal traffic
flowb High traffic
flowc
E1/E2d E3/E4d E1/E2d E3/E4d E1/E2d E3/E4d
Low Ra<60 S5 S4 S4 S3 S3 S2
Ra≥60 S6 S5 S5 S4 S4 S3
Moderate
Ra<60 S4 S3 S3 S2 - S1
Ra≥60 S5 S4 S4 S3 - S2
High Ra<60 S2 S2 S2 S1 - S1
Ra≥60 S3 S3 S3 S2 - S2
Lighting Classes for Subsidiary Roads (pedestrians and cyclists).
The lighting class appropriate for each type of traffic route within the IW shall be
determined in accordance with the road type, traffic flow and environmental
criteria selection process set out within BS5489-1:2003, Table B.2 – Lighting
Classes for Motorways and Traffic routes and Table B.3 – Lighting Classes for
Conflict Zones.
Within the Output Specification the appropriate lighting class for each
town/district centre within the IW shall be determined based on usage, traffic flow
and environmental criteria as set out within BS5489-1: 2003.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 87
Type of Traffic Lighting Class
Normal Traffic
Flow
High Traffic
Flow
E3 E4 E3 E4
Pedestrian only CE3 CE2 CE2 CE1
Mixed vehicle and pedestrian with separate
footways
CE2 CE1 CE1 CE1
Mixed vehicle and pedestrian on same
surface
CE2 CE1 CE1 CE1
Lighting levels for town centre areas as extracted from BS5489
Within the Output Specification the appropriate lighting class for each car park
within the Isle of Wight shall be determined based on usage and traffic flow
criteria as set out within BS5489-1: 2003.
Type of Area and Usage E Uo
Light traffic, e.g parking areas of shops, terraced and apartment
houses; cycle parks.
5 0.25
Medium traffic, e.g parking areas of department stores, office
buildings, plants, sports and multipurpose building complexes.
10 0.25
Heavy traffic, e.g parking areas of schools, churches, major sports
and multipurpose sports and building complexes.
20 0.25
Lighting levels for outdoor car parks as extracted from BS5489
The Council has accurate installation dates for its traffic signal controller assets
and the Output Specification will contain a standard whereby no traffic signal
controller shall be more than 10 years old after the core investment period and no
more than 8 years old at handback.
Arboriculture and grounds maintenance standards will employ relevant statutory
legislation, British Standards, NJUG guidelines, local authority best practice, and
trade association recommendations.
Each component of the detailed Output Specification will be drafted to provide:
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 88
• The high level requirements of the Council for each aspect of the Service
as ‘Required Outcomes’
• The performance requirements of the Service Provider, measured against
the Service Delivery Outputs and their corresponding Performance Targets
• Clear “Clause” links to the Payment Mechanism and Service Performance
Schedules
• The mechanism by which the Output Specification shall be measured in
accordance with the Monitoring Procedures set out in the Project
Agreement
The Technical and Financial modelling has applied market rates to the costs of
delivering these standards of service and taken account of scale, continuity and
private sector operating efficiencies.
4.5.1 Performance Requirements
The Council’s Highways PFI Contract will be an output based service contract
designed to raise the standard of service through efficiency gains in the delivery.
Service payments will be based on either meeting milestones or Output
Specification requirements and hence the contract documents will have detailed
outcomes and key performance indicators for each aspect of service delivery.
The Council will adopt the model standard form framework but will devise its own
detailed specification, post OBC. This will include Island specific issues,
sustainability, carbon footprint, night working and restrictions on refurbishing
certain parts of the network during certain critical dates for tourism. The Council
will follow the following Performance Standards (PS) form:
PS1 Network Performance
PS2 Surveys and Inspections
PS3 Core Investment Period
PS4 Network Standards
PS5 Environment
PS6 Emergency and Response
PS7 Winter Service
PS8 Policies
PS9 Network Management
PS10 Contract Management and Customer Interface
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 89
The Output Specification and Performance Requirements will link to the Payment
Mechanism detailed at 4.7 and all three documents are dependent on one
another in determining the PFI Service Provider’s performance and payment.
The Project Agreement will also be fully cross referenced to the Output
Specification and Payment Mechanism ensuring a cohesive suite of Contract
Documentation.
4.6 Project Agreement
The Council is currently developing a draft Project Agreement with its external
legal advisors, DLA Piper. The precedents being used to inform the drafting of
the Project Agreement include: the Streetlighting Model Contract (due to the
number of analogous issues relating to the maintenance PFI projects already
dealt with in this Model Contract); the Standardisation of PFI Contracts versions 4
("SoPC4"); the draft Highway Management Procurement Pack issued earlier this
year by 4Ps; and other relevant highways contracts.
Initial legal meetings have been held with DLA Piper and WSP (the Council's
technical advisors) to discuss and reach agreed positions on certain key issues
for inclusion in the Project Agreement. As DLA Piper has experience of this
sector from the Birmingham City Council Highways PFI project and the Sheffield
Highways Maintenance PFI Project; the Council is able to take advantage of this
knowledge on all key issues within the sector.
The Council is committed, wherever possible, to adhering to the drafting
contained within SoPC4. However, there are likely to be a number of sector-
specific derogations for which approval will be sought. These derogations arise,
in the main, because this is a maintenance project rather than a design and build
project. The Council will, wherever possible, take advantage of the lessons learnt
on any sector-specific derogations approved in the Birmingham and Sheffield
projects to inform any derogations it proposes to SoPC4 drafting. The Council
will keep a running list of derogations from SoPC4 which it will frequently review
as the drafting of the Project Agreement is developed to confirm the necessity of
any such derogations. Following on from the initial set of legal meetings, the
Council has provided an initial high level summary of the derogations from
SoPC4 which it currently expects to seek on the Project which is set out at
Appendix 18.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 90
The drafting of the Project Agreement will be completed prior to the start of the
procurement process and will be made available to bidders at the
commencement of procurement.
4.7 Payment Mechanism
It is presently envisaged that the payment mechanism will be based on a Unitary
Charge for the delivery of the key elements of the Highway service; payments to
the Service Provider will vary according to agreed standards, and be measured in
accordance with pre-set rules.
The Council will develop the Payment Mechanism to:
• Incentivise to deliver to required standards, timetable and project objectives
• Encourage to extend asset lifecycle through the use of innovative design
and new technology
• Be bankable
• Be objective, clear, simple, cost effective and capable of measurement.
The approach will build on the experience of the previous projects in the highway
maintenance sector and key guidance from the 4Ps and HM Treasury.
Performance during the CIP will be measured through achievement of
milestones. The initial level of Unitary Charge will reflect the total contract value
less the value of core investment works. As each milestone is achieved, the
Unitary Charge will step up in increments set to make the Unitary Charge
reflective of the total contract value on completion of the CIP.
It is intended that Service Provider performance will be measured against the
service delivery requirements of the Output Specification for each of the
performance standards of the model standard form. These will be appropriately
modified to reflect the service and network conditions of the Island.
PS1 of the standard form relates to the CIP, the performance of which is
monitored and paid for through the milestone methodology outlined above. The
performance standards listed in paragraph 4.5.1 will also form the basis for
monitoring service delivery.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 91
Some Payment Mechanisms used on previous projects in the sector included
bespoke deductions against each service delivery criterion of the performance
standard, albeit with some banding. The Council will retain this as a fallback
position, but considers that there will be some merit in exploring the benefit of a
simple hierarchy of deductions related to the impact of the performance failure
which would apply to all service delivery criteria.
Apart from simplifying the application and monitoring of the Payment Mechanism,
the common hierarchy approach may allow the introduction of a small set of Key
Performance Indicators into the Payment Mechanism. These would allow the
Council to include some overarching aggregate performance requirements in
addition to the disaggregate requirements of the individual service delivery
criteria.
Service Provider performance will be largely a self monitored with a requirement
for independent review and approval by third party on a random sample of
indicators. The approach to be adopted will be based on irregular and random
sampling but, to incentivise accurate self monitoring, payment deductions for
inaccurate or false reporting will be high. The interface with other contractual
remedies will also be carefully considered.
The Payment Mechanism will be closely integrated and calibrated in line with the
Output Specification and Performance Monitoring Regime, to the extent that all
three documents are dependent on one another, when determining the PFI
Contractor’s performance and payment.
4.8 Derogations from SOPC4
An initial derogations table is attached at Appendix 18. The Council will update
the table as and when necessary and intends to work with DfT and PUK
throughout the procurement process to ensure that approval for derogations can
be obtained in a timely manner.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 92
4.9 Commercial Issues
4.9.1 Wharf facilities
There are three operating commercial wharfs on the Island, all on the Medina
estuary off the Solent.
The main wharfs are Medina Wharf in Cowes, and Kingston Wharf in East
Cowes, both of which currently accept regular imports of gravel, aggregates and
other bulk cargos. Medina Wharf has direct road access on to the main highway
network via a specially constructed link road. Kingston Wharf is due to have
access to the main road network via a new road link through a proposed
employment development area, due for completion at the end of 2009. On
average (between 2003 and 2008) 72,500 tonnes of stone and 102,000 tonnes of
shingle and ballast per annum were imported to the Island through Cowes
Harbour.
The smallest wharf, Blackhouse Quay, is in the built up heart of Newport.
Although road access is restricted adjacent to the site, and leads onto an
industrial estate road, before reaching the main road network, the wharf still
accepts occasional cargos of gravel for local distribution, but access by sea is
limited by a narrow tidal window and relatively shallow waters.
4.9.2 Isle of Wight Mineral Background
The Island has a number of currently active quarries: 5 sand and gravel, 3 chalk,
and 1 limestone (producing crushed rock). These are distributed across the
Island on a predominately east/west axis orientation, following the geological
occurrence of economically significant reserves. The locations of all of these
quarries can be considered rural (i.e. outside development envelope boundaries)
and they are spread throughout the Island, with the main centre for processing
being located just to the south east of the capital town, Newport. There are
currently 3 quarries that carry out some form of material recycling.
There are a number of environmental constraints to mineral operations, bearing
in mind that extraction is limited to resource occurrence including major chalk
aquifers, AONB, and sites designated for their (European, national, or local)
significance for nature conservation interests (i.e. wildlife and habitats). Other
physical constraints include access, existing development and allocations.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 93
Further information relating to the Island Plan and Mineral Planning Authority will
be held in the Project Data Room.
4.9.3 Isle of Wight Council Property Considerations
Until the Highways PFI Provider is identified the Council will not be in a position
to determine which, if any, of the currently held highways related Isle of Wight
Council sites might be of interest to the Service Provider, and how they might be
transferred. However, in order to ensure that all prospective bidders are able to
consider the issue of Council held properties, a schedule of such properties will
be held in the Project Data Room.
4.10 Market Soundings/Market Interest
The Council has developed an in-depth understanding of the market place
through:
• Market research
• Market warming on both formal and informal mechanisms including face-to-
face meetings and the publication of a Prior Information Notice in the OJEU
(see Appendix 19)
• A series of industry days to demonstrate the strength of both the project
and the Council to potential service providers, encouraging interest and
participation.
Soft market testing commenced as part of the EoI process and this has continued
to date. Some of the supporting letters attached at see Appendix 20 demonstrate
the on-going interest on this Project. A summary of the market interest is
attached at Appendix 37.
The Council intends to select a partner who is capable of working with the
Council in the long term for the benefit of the Island and held two Industry Days –
the first of these were aimed at the locally based contractors and the second, the
larger gathering, was aimed at potential PFI bidders. The second event was held
on 3 September 2009 at the Royal Yacht Squadron, Cowes, Isle of Wight. A
detailed report on the event is attached at Appendix 35. The Industry Day was led
by the Leader of the Council who introduced potential service providers to the Isle
of Wight and the project. The Programme Director outlined the scope and
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 94
approach the Council are taking in seeking a PFI partner for the Council. The
Technical Manager and the Commercial Manager covered detailed aspects of the
Project. The day was well supported by the DfT, helping to reinforce the strategic
message. The Council also set aside an exhibition area to display asset data and
condition and offered the opportunity for prospective bidders to discuss the
details with the wider IWC team including the Advisors. The presentation also
included a short video to provide an overview of the Island, the highways
condition and give a flavour of some of the residents and visitors’ views about
Island roads, including a visual demonstration of some of the good and bad
areas. This was supplemented by a bus tour of some of the roads and assets
around the Island to further illustrate the rural nature of the Island, the current
state of our network and logistics.
4.11 Project Data
The Council has continued the soft market testing process beyond the Industry
Day to ensure any queries raised are addressed. The Council will only enter the
procurement process once it receives formal approval to proceed from DfT and
the HM Treasury Project Review Group. A draft copy of the OJEU Contract
Notice is attached at Appendix 15.
The Council will set up an extranet system to support the procurement phase of
the Project. The extranet system will act as the virtual data room and will provide
information to Bidders throughout the procurement process. The Council has
comprehensive records of our inventory and asset condition. These will be
available to bidders through the extranet. The Council also has digitised maps in
GIS format; these will be made available on the extranet. All documents that are
on the extranet will also be available in the Project Data Room. There are some
old construction drawings, paper maps and other historic records; these will be
listed on the extranet but only available for review in the Project Data Room.
4.12 Encouragement of Competition
In order to ensure a sufficient number of bidders to achieve a successful
Competitive Dialogue (CD) process, the Council included as broad a scope as it
feels is relevant to the Isle of Wight Project, although this can be refined as the
Competitive Dialogue progresses and dictates.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 95
In order to minimise early bidder costs and thereby have a reasonable number of
initial bidders, the Council has aimed to set a realistic timetable for achieving the
various stages of the CD process (see 6.5) and intend to hold meetings in
London, or other mainland locations where appropriate, to minimise the need for
bidders to travel to the Isle of Wight. Bidders will however be encouraged to
come to the Island to verify the nature of the assets for themselves and discuss
other matters as they require.
4.13 Bankability
In preparing both the EoI and OBC the following key assumptions have been
made:
• The project will attract bidders. The Council is taking measures to ensure that
this is the case as evidenced above. In addition, the market research undertaken
to date, evidenced at 4.10 indicates a strong commercial interest in this Project.
• Availability of bank funding. The HM Treasury statement that, if necessary the
government will provide the finance for PFI projects to go ahead, has provided a
degree of confidence that money will be available for projects that are currently in
or near to commencing procurement. In addition, with a Financial Close for this
Project not due until late 2012, it is likely that there will be a very different
economic climate at that time and Council has been encouraged by recent
projects closing without the need of funding from HM Treasury. Further
discussion on this is covered in the Financial Case.
4.14 TUPE
Given the current scope of the Project, the Council anticipates the transfer of XX
staff which amounts to a release of a payroll obligation of £XX.
The transfer of staff will take place in accordance with the Transfer of
Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).
The Council has successfully conducted TUPE transfers in the past with no
ongoing obligations.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 96
The Council is committed to open and transparent communications with staff and
unions ensuring a good working relationship and therefore has produced “A Basic
Guide to TUPE” which will be shared with all staff who are eligible to transfer. A
copy of this guide is attached as Appendix 21.
The Council is committed to ensuring that Equality and Diversity and Health and
Safety issues are paramount in its own and its partner’s practices. As part of the
Council’s pre-qualification process, we thoroughly check all bidders’ diversity and
health and safety policies and ensure that these are in place and embedded in
the organisations practice.
The new provider may be offered the opportunity to enter into a Service Level
Agreement with the Council’s Payroll, HR and Legal departments either on a
permanent or transitional basis to ensure continuity for transferring staff is
maintained.
The Council's pension fund administrator has considered the position should a
bidder choose to apply for admitted body status in the LGPS. A detailed account
of the Council's position and the process for such a situation can be found at
Appendix 22.
However, in the event that the successful bidder does not enter the LGPS, under
the terms of TUPE they will be required to offer a pension broadly comparable to
the Council’s Local Government Pension Scheme.
Broadly comparability relates to the protection of transferring employees’ future
pension rights. Assessment of whether a scheme is “broadly comparable” falls
within the remit of the Government’s Actuary Department whose principles are
set out in “Assessment of broad comparability of pension rights, Statement of
practice by the Government Actuary, May 1999” which is attached at Appendix
23.
As well as the staff considerations, the Council is maintaining a list of current
contractors to monitor any legal implications that the PFI will have on these and
to ensure that businesses are notified of any implications on them upon which
they will need to seek independent advice. In addition, where potential TUPE
implications arise, the Council will facilitate contact between contractors and the
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 97
successful bidder for the PFI to ensure a smooth transition is guaranteed. The
bidder will be required to demonstrate a commitment to developing
apprenticeship opportunities through joint working with Island-based schools and
colleges to develop skills.
The Council proposes to retain a core group of staff who will take responsibility
for the management and oversight of the contract and maintain the residual
functions. This will ensure that the Council can monitor delivery, services and
outputs. Further detail on the management of the contract is set out in the
Management Case.
4.15 Insurance
4.15.1 Current Insurance Arrangements
The Council’s current public liability insurance policy includes a deductible of
£125,000. As a result, the Council effectively self-insures meeting claims from its
insurance reserves in full where the total value of the claim is less than £125,000
or paying the first £125,000 of larger claims. The handling of claims is
undertaken jointly between the Council’s Insurance Unit and Council’s insurer.
The Council’s highways claims experience over recent years is detailed in 2.17.2.
The Council self-insures the highways assets.
4.15.2 Insurance Arrangements under PFI
As the highways authority, the Council will remain liable at law in respect of any
claim made in respect of the Island’s network. Subject to confirmation through
commercial negotiations with the successful tenderer, it is anticipated that the PFI
Service Provider will arrange and continue to provide adequate insurance cover
throughout the term of the contract to indemnify the Council against all public
liability claims arising from the highways network. These insurance
arrangements will be subject to approval by the Council annually. The Service
Provider (either directly or through the insurer) will be responsible for the receipt,
handling and determination of such claims. It is reasonable to assume that the
volume of claims made will reduce as a result of the improved standard of the
road and pavement surfaces (and that improvements in the inspection regime will
also increase the repudiation rate for such claims).
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 98
The Council has consulted its insurance advisor JLT Group. It is the Council’s
intention not to require the PFI Provider to insure the highway network against
catastrophic loss.
4.16 Conclusion
The Council has soft tested the market to ensure it has an attractive Project
which will be of interest to bidders when the Project goes to market. The Council
has established a robust procurement strategy, utilising the Competitive Dialogue
process, allowing appropriate lead times for each stage. The Council has
discussed the key documentation for the Project: the Output Specification,
Payment Mechanism and Project Agreement, and also considered the TUPE
implications for staff likely to be affected by the Project and set out the Council's
position with regard to pension schemes. Whilst a number of the items discussed
in this section need further work, the Council believes that the position with
regard to commercial issues is well thought out and robust.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 99
5 Financial Case
5.1 Introduction
The purpose of the Financial Case is to establish the financial justification for the
Project. It details the basis for building the base costs; the assumptions and the
methodology for calculating PFI credits and Unitary Charge; the Council’s own
affordability position and the calculation of the Public Sector Comparator (PSC).
Finally, it sets out the case for proceeding with the PFI procurement by
demonstrating Value for Money.
5.2 PSC Base Costs
The key cost elements for the Project to deliver the services required can be
classified under Core Investment Period (CIP) costs, Lifecycle replacement costs,
Operational and Maintenance costs, and Contract Management costs. The scope
of services and the approach to determining costs reflects an integrated service
delivery across the Island that would form the basis of the Output Specification
when going out to tender.
WDM, our highway survey consultants, have undertaken Condition Surveys to
estimate the backlog of repairs required to bring the Isle of Wight network up to
current acceptable standards. The detail of their cost modelling exercise is
provided at Appendix 5.
The Council staff, who are specialists in their own area, have considered the
requirements to bring other project assets up to acceptable standards and these
costs, together with the WDM costs above, have been fed in to the Technical
model (see Appendix 14) for verification and then submission to the Financial
Advisors for financial modelling.
The base costs (real 2009 prices un-indexed) over a 25 year period are:
• Core Investment Period (7 years)
• Authority funded Capital costs over CIP
• Total £139.66m
• Lifecycle costs (18 years)
• Authority funded Lifecycle replacement costs
• Total £173.58
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 100
• Operation and Maintenance (25 years)
• Authority funded O&M costs over 25 years
• Contract Management Costs (25 years)
• Total £181.26
Sections of the bullet point table have been removed as they are
deemed commercially sensitive.
5.2.1 Core Investment Period (CIP)
The Council has tested the CIP for a 5 and 7 year period and concluded that,
from the Island’s perspective, a 7 year CIP was optimum to facilitate a smooth
rehabilitation programme without causing significant disruption to the Island
residents and also to the visitors to the Island. The detailed rationale behind this
is supported by the results of Council’s Island-wide traffic model, the results of
which are detailed in Appendix 10.
A summary of the CIP costs, including the Authority funded scope, is provided
below:
Two tables in this section have been removed as they are deemed
commercially sensitive.
5.2.2 Lifecycle, and Operations and Maintenance Costs
A summary of the Lifecycle (18 year) and Operation and Maintenance (25 years)
costs, including Authority funded scope, is provided below:
Three tables in this section have been removed as they are
deemed commercially sensitive.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 101
5.3 Shadow Bid Model
The Shadow Bid model (see Appendix 24) estimates the work required, and the
cost of that work to meet the Council’s required standards, under a PFI delivery
model. The model seeks to replicate the cost that the Council and its technical
advisors believe would be proposed in a commercial bid from potential bidders for
this Project, given the requirements of the Project and the proposed risk allocation
developed to date. The model takes into account the current state of the economy
and its impact on funding markets.
The key output of the Shadow Bid model is the Unitary Charge calculation, which
is then used for estimating the Project’s affordability. The Unitary Charge (UC) is
based on a base case assumption of tighter market conditions being prevalent at
the time of financial close, as opposed to what has been extant in the past few
years, and also takes in to account the commercial terms that equity providers will
want to see.
UC for Affordability y
Calculations
First Full Year Year 8 Year 25
£19.8m £38.0m £54.7m
Whilst the base case assumptions represent the best estimates on information
currently available, sensitivities have been undertaken to determine the impact of
changes in the funding market; these are discussed in 5.5.4.
5.3.1 Shadow Bid Costs
The Shadow Bid costs, which are the key technical inputs into the Shadow Bid
Model, have been developed to take into consideration efficiency factors
associated with a long-term integrated services delivery contract delivered through
the private sector. These efficiencies, to take account of a PFI Service Provider’s
ability to achieve economies of scale, procurement savings, long-term contract
security, integrated service delivery through effective coordination and reduction in
duplication, and the ability to bring about innovation, are detailed below and were
applied to the PSC base costs during CIP (5.2.1), and during Lifecycle and
Operation and Maintenance (5.2.2):
• CIP 7% • Lifecycle 7%
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 102
• O&M 5%
Further, the commercial risk pricing that a PFI Service Provider would typically use
for pricing has been determined through a series of risk workshops. These risks
were defined and agreed between the Technical Advisors, the Financial Advisors
and IWC and are discussed in more detail under the Value for Money Section
(5.7). The following commercial uplifts have been applied to the efficiency adjusted
PSC to give the final Shadow Bid model costs:
• CIP 10.7% • Lifecycle 6.1% • O&M 4.1%
5.4 Affordability
The annuity based affordability model calculates IWC credit requirement based on
the Gap Funding method, after considering all sources of funds available for the
Project.
The main sources for funding available for the Project are:
5.4.1 Budgetary Contribution
The current highways budget contribution and additional resources approved by
the Council is £339.5m over the life of the Project in nominal terms (£9.02m p.a.
(including client side costs, indexed annually at RPIX).
Sections of the text have been removed as they are deemed
commercially sensitive.
Annual spend £m
Highways X
Design X
Structures X
Street lighting X
Energy X
Traffic X
Network Management X
Cycleways X
Support X
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 103
Street Cleansing X
Public Realm X
CCTV X
Central Services X
Additional funding for in-scope X
Additional contribution agreed EOI X
Total X
Client side monitoring 0.700
Total Budgetary Contribution 9.02
The Council has further considered the potential for costs exceeding beyond the
base case and assessed an upper limit of a 80th percentile risk envelope and the
possibility of a 12 month extension to the programme.
5.4.2 Cash flows from PFI Credits
PFI credits have been assumed as payable on an annuity basis from the point of
service commencement in accordance with CLG guidance (Local Government PFI
support guide (2009-2010)). The annuity grant receipts are £677.5m (in nominal
terms) over the life of the Project.
5.4.3 Interest on cash balances
Interest on cash balances calculated @ 3.5% arising from the Project cash flows is
£45.6m in nominal terms over the life of the project.
5.5 PFI Credits and Calculation Methodology
PFI credit calculations have been undertaken through both the ‘Revenue
Abatement’ and ‘Gap Funding’ approaches. The Council’s credit requirement is
based on the ‘Gap Funding’ method; however the ‘Revenue Abatement’ method
was used in line with CLG guidance and to demonstrate that IWC is seeking PFI
credits only to support the capital elements of the Project.
5.5.1 Revenue Abatement Method
The Revenue Abatement method used is in line with CLG guidance and calculates
the overall project costs, making abatement in respect of the revenue component.
For this Project, the split between Capital and Revenue spend based on detailed
costing is assumed as 70:30. The classification of costs into capital and revenue
has been based on discussions with the Council’s Project Team and Technical
Advisors. The PFI credit requirement using the Revenue Abatement method is
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 104
£364.6m before the inclusion of Authority funded scope, or £371.1m after the
inclusion of Authority funded scope.
5.5.2 Gap Funding Method
Based on the cost of works calculated by the Shadow Bid Model and IWC budget
contribution to the project, the required funding to meet the project costs is
calculated using the Annuity Based Affordability Model (see Appendix 25). The
PFI credit requirement using the Gap Funding method is £364.6m after the
inclusion of Authority funded scope.
5.5.3 PFI Credit Requirement
The different PFI credit calculation methodologies above indicate a PFI Credit
requirement of £364.6m under both the Gap Funding methodology, after taking
account of the Authority funded costs, and the Revenue Abatement methodology,
before taking account of the Authority funded costs. Both methodologies assume a
discount rate of 5.4%, for projects endorsed in 2009-10 and 2010-11, and a
scaling factor of 1.0 to be used in the calculation of PFI Credits as specified in
CLG’s Local Government PFI Project Support Guide (2009-10) p1.
The following table shows the base case Unitary Charge and PFI Credit
requirement:
£’m NPV Revenue Abatement
Gap Funding UC in first full year
OBC Base Case 364.6 (before taking account of Authority funded costs)
364.6 (after taking account of Authority funded costs)
£19.8
At the EoI stage, the PFI Credit requirement was £325m (Gap Funding method) or
£391m (“Capital Costs” method). At that time PFI Credit requirement under
Revenue Abatement was not calculated.
£’m NPV Capital Costs Revenue Abatement
Gap Funding UC in first full
year
EOI Case 391 - 325 18.4
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 105
The Council’s credit requirement is based on the ‘Gap Funding’ method as
discussed above. The impact of changes in the financial markets since EoI stage
and changes to the scope (see below) have increased the PFI credit requirement.
However, the Council has increased its financial contribution from £5.5m per
annum to £9.02m per annum (including client side costs) to take account of the
increased scope and, overall, the increase in Council contributions has helped to
reduce the effects of the negative impact of the financial markets.
Funding market conditions have changed significantly since 2006/07 when the
original EoI was submitted and the PFI credit requirements set out in this
document reflect current financial market conditions.
The Council has revisited the PFI Project Scope since the EoI stage and this has
helped to gain greater synergies between the various highway related services
and achieve greater efficiencies. A reconciliation of PFI credit requirement from
EoI to OBC is set out in Justification for Scope Change from EoI stage (Appendix
7).
The Council has also carried out sensitivities to changing financial markets and
they are discussed at 5.5.4 below.
5.5.4 Sensitivities
In calculating the credit requirement, a number of sensitivities on financial terms
and scope have been undertaken. The Council has carried out sensitivities to
assess the impact of a worsening credit market by a further 50 base points, and
a series of improving credit market conditions:
The table below shows the financial assumptions corresponding to the above
sensitivities:
Sensitivities December 2009 Base Case
December 2009 Market Improvement
December 2009 Market Improvement (Higher margins)
50 bps increase in swap rate
Term 23 years 23 years 23 years 23 years
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 106
Swap rate 4.50% + 0.50% buffer = 5.00%
4.50% + 0.50% buffer = 5.00%
4.50% + 0.50% buffer = 5.00%
4.50% + 0.50% buffer + 0.50% increase = 5.50%
Credit spread 0.30% 0.20% 0.20% 0.30%
Margin – CIP 2.50% 1.50% 2.50% 2.50%
Margin – Operations Year 8 – 10
3.00% 1.50% 2.50% 3.00%
Margin – Operations Year 11 onwards
3.50% 1.50% 2.50% 3.50%
Arrangement Fee 2.50% 1.00% 2.00% 2.50%
Commitment Fee 50% of CIP margin
50% of CIP margin
50% of CIP margin
50% of CIP margin
Equity Bridge Arrangement Fee, Commitment Fee and Margin
Same as Senior Debt
Same as Senior Debt
Same as Senior Debt
Same as Senior Debt
Equity Bridge Letter of Credit
2.00% 1.00% 1.50% 2.00%
Minimum ADSCR 1.30 1.25 1.25 1.30
Minimum LLCR 1.35 1.30 1.30 1.35
The Authority also carried out sensitivities to determine downsides for the project.
Sections of the text have been removed as they are deemed
commercially sensitive.
All other sensitivities tested are less extreme than the Envelope
Sections of the text have been removed as they are deemed
commercially sensitive.
A table was removed as it was deemed commercially sensitive.
5.6 Preferred bidder debt funding competitions
Since late 2007 there has been a substantial deterioration in the market for
lending to PFI projects as a result of decreased liquidity in the financial markets.
There is considerable illiquidity among commercial lenders which has resulted in
a reduced availability and increased cost of funds, and put a strain on the length
of PFI tenors.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 107
Based on the Council’s current estimated costs, it is expected that this Project will
be looking to raise just over £104m of senior debt. In the current market, it is
unlikely that there would be sufficient market interest for this amount to be raised
effectively through a funding competition; however there are signs of market
improvements in the last quarter:
• In recent months there have been signs of a limited improvement in the
market, demonstrated through the high profile M25 deal closing;
• There have been some 15 other projects that have closed in the last quarter;
and
• The project is not expected to reach financial close until late 2012, by which
time the market may have substantially recovered.
The Council and its Financial Advisors will continually monitor the lending market
in order to determine the optimum financing strategy at each stage of the Project,
and consider possible opportunities for competition in the future.
5.7 Value for Money
5.7.1 Pre and Post Optimism Bias
Optimism Bias (OB) has been calculated in accordance with CLG guidance note,
“Adjusting for Optimism Bias in FRS PFI projects” (March 2007). The main
strategies for reducing OB, including stakeholder consultation, accurate costing
and project and risk management, have been implemented and a series of risk
workshops have been undertaken to determine the OB levels to be included in the
VfM analysis.
The figures that have been applied for optimism bias are set out in the table below;
Expenditure Category OB Pre Final Business
Case
OB Post Final
Business Case
Initial capex 5% 36.6%
Lifecycle 7% 7.3%
Opex 5% 18.9%
Public sector transaction costs 5% 10.0%
The “OB Post Final Business Case” percentages added to the PSC costs and set
out in the table above were agreed at the risk workshops and also include a 5%
‘residual risk’ allowance. The PSC ‘residual risk’ was considered to be 5% in total
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 108
and was allocated to the CIP, Lifecycle and Operation & Maintenance cost
categories pro-rata to their contribution to the overall risk total.
However, the quantification arising from the risk workshops does not cover all
possible risks; it focuses on the quantification of the top 14 risks. There is therefore
a possibility that
• A significant risk has been missed; and/or
• The quantification of the risks is wrong.
The risk of missing out something significant is very small indeed. The Council
has used a number of precedents in determining the risk register and had
significant input from all our advisors, bringing in a wealth of experience from
similar PFI projects. Risks not within the top 14 are covered by qualitative analysis
which indicates that they have minimal value and it is not necessary to quantify
them separately.
The risk that the quantification of risks may be wrong is clearly real; quantification
is essentially a series of informed judgements. However, in the Council’s view, the
risk is just as likely to be higher as it is to be lower than quantified, with any
variances netted out, and therefore its expected value is zero.
On the basis of these factors, the Council has taken a judgement to add a
"residual" optimism bias figure of 5% to the numbers arising from the detailed risk
workshops.
5.7.2 Quantitative & Qualitative Assessment
The Council has followed the HM Treasury guidance in demonstrating Value for
Money (VfM) from the PFI option as compared to the PSC option (also referred to
as the Conventional Procurement ‘CP’ option in the Treasury guidance). The
Council adopted the following process in order to quantitatively assess Value for
Money.
A series of risk workshops were held to identify and quantify the key contract risks.
A long list of potential risks was developed and consideration given to whether the
risk would be retained, transferred, or shared under the PFI, and whether there
were any actions the Council could take to mitigate the risks (see Appendix 26).
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 109
The likely impact of each risk was scored, both before and after any action the
Council may take to mitigate the risk.
A Monte Carlo analysis (see Appendix 27) of the outputs from the risk workshops
for the CIP, Lifecycle and O&M phases was carried out to determine the Post Final
Business Case Optimism Bias. The following table provides a summary of the
Risk/OB assessment.
Pre OB PSC (Post-OB) PFI (Post-OB) CIP 5% 36.5% 10.7% Lifecycle 7% 7.3%% 6.1% O&M 5% 18.9%% 4.1%
The results of this exercise were used as inputs to the Treasury VfM model and
the PFI option was found to be 13.68% against the PSC option. The details of this
exercise and the detailed assumptions sheet are attached at Appendix 26.
5.8 Initial view on Accounting Treatment
Communities and Local Government issued the following “Accounting opinion
requirements for PFI credits” on 18 November 2008:
“A current pre-requisite for PFI credit support (as set out in CLG’s Local
Government PFI Project Support Guide for 2009-10) states that local authorities
will account for PFI projects according to current guidance - which is anticipated in
the 2009 SORP to be in accordance with IFRS (www.cipfa.org.uk/pt/download/
LAA_SORP_2009_ITC_exposure_draft.pdf), and to include a controls-based
assessment of balance sheet treatment. While local authorities are encouraged to
take an early view of the accounting treatment under this guidance, there is no
need to include this view in the Outline Business Case.
However, local authorities are also required to include an initial view on the likely
budgeting balance sheet treatment in the National Accounts, which will be based
on standards laid out in part IV of the ESA95 Manual of Government Deficit and
Debt (ESA 95). This is a risk-based analysis and states that where construction
and either availability or demand risk are transferred to the private sector, the
asset will be off balance sheet in the National Accounts.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 110
ESA 95 states that "the contract may refer either to a new asset or to significant
refurbishment, modernisation or upgrading of existing assets, including assets
already owned and managed by government but provided that the expenditure for
renovation, etc., will represent a predominant part of the new value of the asset
after renovation." In accordance with this, the Council’s best view of the likely
treatment in the National Accounts when the Highways PFI project commences in
April 2013 is that it is likely assets within this project will remain off balance sheet’.
Under ESA95 no view is required from the Council’s external advisers; it is
expected that DfT, will provide PRG with their opinion on whether the view is
reasonable or not.
5.9 Financial Case Summary
A table was removed as it was deemed commercially sensitive.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 111
6 Management Case
6.1 Introduction
The Management Case sets out the governance arrangements regarding the
Project including differentiating between decision making and operational
activities. It outlines current structures and structures post OBC, and describes
the experience and contribution of the advisors appointed to assist the Council
with this Project. It sets out the delivery plan and discusses the approaches
during both the operational and contract monitoring phases. It also details the
Council’s approach to stakeholder risk and data management. Finally this
section considers the Council’s readiness to proceed to procurement.
6.2 Project Management & Project Governance Structure (Pre &
Post OBC)
The Council’s Highways PFI organisation structure is shown in the diagram
below:
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 112
• Full Council
Full Council is responsible for adopting various plans and strategies and also
identifying and allocating financial resources. Reports, e.g. progress reports or
requests for approvals, about this project are made to Full Council as
appropriate.
• Cabinet
Cabinet consists of the Leader and a number of other councillors, with portfolios,
nominated by the Leader. The Cabinet carries out all of the local authority's
functions which are not the responsibility of any other part of the local authority,
whether by law or under the Constitution. This includes approving documents
such as this OBC.
• Member Review Board (formally Member Panel)
The Member Review Board (MRB) for this Project consists of the Portfolio Holder
for Environment and Transport, the Portfolio Holder for Major Projects, the
Chairman of the Scrutiny Panel for the Economy, Environment & Transport, the
Senior Responsible Owner, and the Highways PFI Programme Director. The
Head of Highways and Transport is an observer member. The MRB meets on a
bi monthly basis to update members on progress and maintain dialogue between
Members and the Project Team. The MRB was initially part of the Project Board
(PB), however, following the initial meeting of the PB, it was decided that the
Member Review function needs to be independent of the PB. The Member
Review Board Terms of Reference are attached at Appendix 36.
• Project Board
The Project Board has delegated authority to make relevant decisions affecting
the procurement of the Highways PFI Project and, as such, is the main decision
making body for the Project. It has approved the scope of the Project and
approved the Outline Business Case before submission to the Cabinet.
Although day-to-day responsibility for managing the Project has been delegated
to the PFI Programme Director, the Project Board acts as the final arbiter for
issues referred upwards by the Programme Director, either because they fall
outside the remit of the Programme Director, or because he is unable to resolve a
given issue internally.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 113
The Project Board, chaired by the Senior Responsible Owner and including the
Programme Director, the Head of Highways and Transportation, the Section 151
Officer, the Legal Team Leader, and DfT representative, meets at least once a
month, or more frequently by agreement when more immediate decisions are
required.
The specific responsibilities of the Project Board are:
Throughout the project:
• To ensure sufficient resources are allocated including human, physical and
financial resources
• To review the Project’s progress against its Project plan.
• To monitor the Project’s budget.
• To ensure a robust quality management process is in place
• To ensure Affordability, VfM and Risk are identified, monitored and managed:
• To report to the Council on the Project’s progress, referring appropriate issues
to Cabinet or Full Council, for approval as required.
• To appoint external advisors as required.
• To champion excellent design, ensuring that it features as a priority in the
selection criteria developed as part of the procurement process.
• To act as ambassadors for this project, and the procurement and delivery of
the facilities thus provided.
From the start of the project until it enters procurement:
• To agree the objectives and scope of this Project
• To sign off the Outline Business Case before submission to Cabinet
From the start of procurement until contract commencement:
• To agree the procurement plan.
• To oversee the progress of the procurement process including the timing of
the OJEU notice; short-listing of bidders; the timing of the ISOS and ISDS;
selection of the Preferred Bidder.
• To agree the contents of key procurement and contractual documents including
the OJEU notice; Output Specification; Project Agreement; Payment
Mechanism.
• To ensure that a pre-contract risk review is completed.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 114
• To sign off the Final Business Case.
• To recommend the award of contract.
Senior Responsible Officer (SRO)
The Director of Environment and Neighbourhoods is the Senior Responsible
Officer and, therefore, the lead officer ultimately responsible for the Project.
6.2.1 Project Team Structure – to OBC
The diagram below illustrates how the current project team, organised with key
responsibilities shown for each work stream.
The full-time core project team consists of:
• Programme Director, Jay Jayasundara – Chartered Civil Engineer and
Chartered Management Accountant; FCMA, MICE, MIAustE, BSc Civil
Engineering, MSc Construction Management; Prince2 Practitioner; 31 years
experience in delivering major complex projects at local, national and
international levels and considerable highways and PFI project delivery
experience. Programme Director for Highways Agency’s first DBFO scheme,
Construction advisor to Financial Secretary at HM Treasury in 1990’s
promoting PFI centrally and contributing to the revision of ‘Green Book’ and
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 115
standard PFI Contracts. As OGC Director he has advised a number of PFI
Projects including Prison and Office accommodation PFI’s. As Executive
Secretary to the Prime Minister, he acted as the SRO and Programme
Director for a major accommodation PFI. Jay has delivered a number of
overseas Capital Projects, using complex financing structures. Took up IWC
PFI Programme Director post in January 2009.
• Technical Manager, Malcolm Smith – Chartered Civil Engineer, Member of
the Institute of Civil Engineering, Member of the Institution of Highways and
Transportation, Prince 2 Practitioner. 37 years Highway experience including
17 years heading up the Highway Maintenance Section of the Isle of Wight
Council. Malcolm has been the lead technical officer since the inception of
the Council’s PFI in 2004, gaining considerable PFI knowledge over this 5
year period. Highway asset management has also been his responsibility
and he has developed the Council’s knowledge base to the point where it is
a national leader in the field. In March 2009 he was appointed to a full time
role of Highway PFI Technical Manager to project manage the technical
input to the project supplied by the Technical Advisors and work stream
leaders.
• Commercial Manager, Tracy Ringer – Fellow, Association of Chartered
Certified Accountants; BSc Applied Accounting; BA Humanities with English
Language; NVQ5 Operational Management. Responsible for finance, legal,
procurement and risk issues relevant to the project, and liaison with relevant
external advisors with particular regard to financial modelling and the
Payment Mechanism and Project Agreement. Also responsible for the
preparation and monitoring of the internal budget through to financial close.
Previous experience in managing voluntary sector projects funded through
the European Social Fund, and 7 years Local Authority accounting
experience across a wide range of service areas including Highways, Waste,
Economic Development, Planning Services, Fire and Rescue, Emergency
Planning, Consumer Protection, Tourism. Tracy has been involved in this
project for a number of years and led the preparation of the EOI financial
case.
• Programme Office Manager, Anthony Hiscock – BA Business Management
and Economics, Prince 2 Practitioner, MSP Practitioner. Responsible for
providing programme delivery schedules and monitoring progress against
these. Also version and document control, maintaining key project tools,
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 116
providing checkpoint/highlight reports. Previous experience in local authority
procurement including OJEU processes, PQQ evaluations, financial
analysis, contract management, and gap analysis to initiate cost
savings/benefit realisation.
• PA, Sarah – Louise Foley - NVQ 3 Business Administration; currently
undertaking Foundation Degree in Local Government. Responsible for
arranging and co-ordinating meetings for both internal and external purposes
including preparing comprehensive agendas and papers and taking minutes
– this will extend to potential bidder meetings in due course. Also, proactive
diary management and admin support for the Project Team. Previous
experience in local authority human resource issues including drafting
employee contracts.
• Project Administrator, Maureen Graham – Responsible for administration
support to the full-time project team, meeting organisation and
administration, diary management. Previous experience in administrative
support for IWC, and other, major projects, customer complaints department
including significant experience of highways related issues.
This team is dedicated to the Project and there are no demands upon it with regard
to other projects. They are supported, as appropriate, by specialists drawn from
other relevant disciplines within the IWC including Property, Planning, Stakeholder
Management, Risk, Legal, Procurement, HR. Whilst these resources are part-time
with regard to the Project, their relevant departments are aware of the strategic
importance of this Project and have committed to supporting it as appropriate.
Programme Directors from strategic projects meet each other regularly to discuss
progress on their Projects, for example since the Council is running a major
reorganisation of the Island’s school system at the same time as the Highways PFI
Project, regular meetings are scheduled between the Programme Director and
senior staff associated with the schools project. This interaction ensures that
programmes are compared so that there is no conflict around specialist skills,
material supplies or the necessity for traffic diversions. Additionally, the Strategic
Projects team is responsible for co-ordinating and monitoring progress on major
Projects and has synchronized the resourcing needs on a priority basis to further
assist programme planning.
With regard to the technical workstream there are a number of specialists, drawn
from the Environment and Neighbourhoods Directorate, each assisting with
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 117
information around the relevant assets/services including Highways Maintenance,
Highways Renewal Programme, Traffic Management, Structures, Street Lighting,
Cycleways, Parking Services, Contracts and Waste, Environment and CCTV.
Although these staff are part-time with regard to the Highways PFI Project, they
are committed to the Project and understand their role within it. There is currently,
or foreseen, no other relevant major Project that would conflict on their resource
availability.
6.2.2 Project Team Structure – Post OBC
The Council is planning to increase the full time resources of the PFI team, post
OBC to support the procurement phase. There will be full-time legal, procurement,
stakeholder management and data management specialists, and two additional
technical resources joining the team during this phase. The legal resource will join
the team in September and the procurement resource and data manager
recruitments have commenced. The Technical Support for the CD will be recruited
internally from the Council. The PFI Project Team will have 12 full time staff though
to the end of the procurement phase. The proposed team structure for the next
phase is shown below:
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 118
6.2.3. Contract Management Team – Post Contract Award
The Council is determined to put in place a strong contract management
structure to establish effective contract management from day one. It has agreed
a provisional structure for the on-going management of the PFI Contract, post
award. It is intended that the post-OBC staff, who are involved in the CD process,
would have built up the vital expertise needed to manage the contract and will
transfer to the on-going Contract Management Team. The Council will ensure
that there is continuity between the procurement and contract management
phases selecting resources with appropriate skills. The proposed Contract
Management Team structure is show below:
Contract Manager
PFI Director
Manager:Roads, Footways &
Structures
Manager:Environment, Cycleways
Manager:Car parking, Street Lighting
Manager:Street cleansing, Street Furniture, Public Realm
Manager:Finance
Contractual paymentsCertification
Performance monitoringLegal
Assistant:Roads, Footways &
Structures
Assistant:Environment, Cycleways
Assistant:Car parking, Street Lighting
Assistant:Street cleansing, Street Furniture, Public Realm
Assistant:Finance, Contract & Legal
PFI Contract Management Team – Year 1 & 2
PA
Director Environment & Neighbourhoods
It is recommended that the proposed Contract Management Team structure is
reviewed after the first two years of operations.
6.3 Expert External Advisors
IWC has appointed a number of expert external advisors to assist it with ensuring
a robust project methodology right through to contract commencement and
beyond. These external advisors are described below and letters of support from
them are attached at Appendix 28.
• DLA Piper, appointed September 2008, are providing legal advice to the
project, right through to contract commencement and into the early days of the
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 119
contract. The key lawyers appointed to this commission include Allison Page,
Natasha Luther-Jones, Steven Johns, Lee Dixon. These all have significant
experience of PFI projects and are currently supporting Birmingham City Council
and Sheffield City Council on their highways maintenance PFI projects. DLA
Piper will be primarily involved in the production of the project agreement and
relevant schedules and annexures. They have also provided assistance in
respect of the risk register and production of the OBC and going forward they will
be providing assistance with competitive dialogue training, producing evaluation
criteria across work streams, assisting with the production of the necessary
procurement documentation such as the OJEU, the PQQ, the Descriptive
document, the ISOS/ISDS/ISRS/CFT documentation and the preferred bidder
letter. They will continue to attend the monthly project team meetings. They will
also assist, once the Project reaches financial close, in producing a guide to the
project agreement for the Council's retained staff who will be managing the
project
• PricewaterhouseCoopers LLP (PWC), appointed October 2008, are
providing financial advice to the Project from Outline Business Case through to
contract commencement. The key personnel supporting this Project include Paul
Davies, John Carr, Sukhy Duggal, Manisha Misri, Ian Shore, Jonathon Muga, all
of whom have significant experience of PFI projects including Transport PFI
projects. For example, this team includes individuals that have supported the
Portsmouth Highways Maintenance PFI project, the M25 widening project as well
as numerous Street Lighting PFI projects across the country. PwC are also
providing support on other highways maintenance PFI projects including client
side support on the Sheffield project and bid side support on the Birmingham
project.
PwC’s main tasks so far have included assisting with the financial modelling to
establish the cost of the PSC and the PFI project, the level of credits required and
the resultant affordability position of the Council. They have also provided key
assistance in understanding the procurement and contract risks associated with
the Project and, where appropriate, quantifying these for the purposes of the risk
analysis to be included in the OBC. Additionally, they offer support on
commercial, financial and procurement issues requested of them including
providing advice in terms of the latest positions given the current funding climate.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 120
Going forward, PwC will provide key financial/commercial support at all stages of
the Competitive Dialogue process, from OJEU to financial close, and support the
Council’s Project Team in procuring the Project as well as developing the
capabilities of this team to manage the contract that arises from the Project.
• The Technical Advisor (TA) appointment was divided into two phases – pre
OBC that required detailed knowledge of assets, asset condition, economic
analysis, cost modelling and PFI costs, and post OBC. The longer term technical
advisor appointment went through the OJEU procurement route and evaluation
criteria reflected the expertise needed in the next phase, availability of the key
resources and strength of the project management capability. Halcrows were
appointed as the TA to OBC submission, with WSP appointed post OBC.
• Halcrow, have assisted with options appraisal, economic modelling, and
verification of asset conditions and costs of rectification and maintenance. WSP
Ltd are continuing, supplying technical advice.
• WSP appointed in July 2009, are providing technical advice to the Project
from the outset of the procurement process through to the early delivery stages of
the Contract. The key staff appointed to this commission include Steve
O’Donnell (project manager), Gordon Lewis (highways and structures), Robin
Cathcart (PFI contract and paymech), Ian Townhill (street lighting) and they will
be further supported by colleagues within the relevant disciplines. All of these
staff have significant experience of PFI projects and are currently working with
other clients, including Local Authorities, across a range of sectors. Their main
task is assisting in the development of the Output Specification and Payment
Mechanism. They will also assist in providing technical input to the Project
Agreement and support on technical issues across the project as required.
In addition to these advisors we have also had specialist support for particular
aspects of our project development:
• WDM Limited have nearly 40 years experience in undertaking highway
condition surveys and providing asset management consultancy and software to
highway authorities throughout the UK. They have undertaken annual SCRIM,
Scanner, Deflectograph, Carriageway CVI and Footway DVI surveys for the Isle
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 121
of Wight Council for the last 20 years. In addition they maintain and operate the
Council’s Pavement Management System (PMS). Using condition data from the
2008/09 surveys they have predicted the carriageway and footway costs for the
PFI using the latest modelling techniques developed over the last 9 years in
conjunction with the DfT, Transport for Scotland and highway authorities. Two of
their very experienced Directors and several Pavement Engineers have been
involved in the project.
• Colin Buchanan are developing a high level SATURN traffic model of the
Island for the purpose of establishing future traffic flows over the next 25 years.
Working closely with the Council's appointed Technical and Economic Advisors
for the Highways PFI project, the model will be used to accurately determine
current and future traffic volumes and assist bidders for the Highways PFI in their
submission. The model will also be used to assess the impact of developments
and changes to the network including for planning control.
• JLT as the Council’s appointed insurance broker have provided specialist
advice as required in support of the preparation of the OBC.
All of the advisors have significant experience in their field and meet regularly
with IWC either on the Island or at their offices and ensure that there is relevant
discussion between them on cross-over topics.
6.4 Meetings
6.4.1 Internal
The core Project Team, and specialist internal staff, meet on a weekly basis to
discuss progress and issues.
On a monthly basis the Project Team hold a full two day workshop that
addresses various issues relevant to the Project on day one (also perceived as a
training/learning opportunity) with day two being a working day addressing the
issues from day one. The expert advisors join the Project Team for these two
days, which also include their monthly progress update meetings with the
Programme Director and appropriate PFI team member.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 122
6.4.2 External
The DfT set up a monthly network meeting with the three pathfinder Highways
authorities, and the Programme Director and Technical Manager attend these.
Additionally they attend the well established Street Lighting Network meeting as
street lighting is within the scope of this project. The SRO and Programme
Director also attend the monthly strategic meeting. The Project Team have
utilised the DfT appointed Transactor in developing the Project and this OBC, and
have also had discussions with other relevant authorities, as appropriate.
6.5 Project Delivery Plan and Timetable
The project delivery plan has been formulated in Microsoft Project and has been
produced incorporating modified Prince2 methodologies. The Project Plan is
attached at Appendix 16.
Below is a summary of the key milestones.
Activity Scheduled Completion
Submission of OBC 28th Aug 09
DfT/PRG Approval Feb 10
Issue OJEU Feb/Mar 10
Issue ISOS June 10
Issue ISDS Dec 10
Issue CFT Sept 11
Select PB Feb 12
Financial Close Nov 12
Commence Rehabilitation Apr 13
The Project Team have undertaken a critical path analysis and progress against
delivery plans is being measured weekly to ensure that the programme schedule
remains viable. Workshops, bringing together the IWC’s Project team and the
external advisors, will be held every six months to review the programme. These
reviews will enable the team to plan in detail the specific resource requirements
and activities that will need to be completed within the next six months. Further,
the workshop gives the Project Team the chance to identify any potential issues
they may have with the timescales and the ability to put in place a plan to resolve
them.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 123
All Council staff associated with the project have received training on Microsoft
Project which has been used to develop the project plan. The Programme
Director, Technical Manager and the Programme Office Manager are all Prince2
practitioner qualified and the Programme Office Manager is also a Managing
Successful Programmes practitioner. Both of these methodologies will be used to
manage the programme and form a robust and efficient programme office.
6.6 Operational phase and contract monitoring
Once the contract has been awarded to the successful Service Provider, the
Council will implement a robust mechanism by which the agreement will be
managed. It is proposed that the principles outlined by the Office of Government
Commerce will be adopted, utilising the key areas as a means to ensure delivery
of the best solution within the affordability envelope.
The Council will ensure that the right people are in place to carry out the contract
management activities, including both the direct contract management team and
the wider stakeholders across the organisation and region. As detailed
elsewhere, the intention is to have the ongoing contract management team in
place as early into the dialogue process as possible so that potential bidders can
establish the quality of the resources available to work with them on the long-term
contract. By having the intended Isle of Wight contract management team in
place early on in the dialogue process, the team will be fully familiar with the
project agreement and key requirements of it and the Council hopes that good
relationships will be built up with all bidders, particularly with the ultimate
successful bidder.
The Project Team is already aware of particular issues pertinent to the Isle of
Wight where the PFI provider can be encouraged to address local needs. The
Council is already working with local learning establishments and residents to
highlight where local skills can be developed to assist with the Project. By utilising
local resources within this service, the Service Provider will have a readily
available solution to ensuring service performance. The Council will vary its
contract management quite significantly following the CIP. The overarching
approach will be one that is both robust and flexible to respond to the contract
requirements.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 124
6.7 Project Interface and Dependencies
The Project has identified a number of interfaces and dependencies that may
affect it, and will attempt to manage these to ensure no detriment to the Project in
the long-term. These interfaces and dependencies include fence to fence issues,
utilities, local events, land owners, Network Rail, Havenstreet Steam Railway,
Environment Agency, Floating Bridge and other transport operators. Where
appropriate, the Project Agreement will contain provision to ensure no adverse
impact to the Project will occur from these.
6.8 Stakeholder Consultations and Communications Strategy
With an anticipated Project duration of 25 years, the Highways PFI Project Team
recognises the need to put in place a strategic framework for the management of
stakeholders and communications generally.
The Stakeholder Management & Communications Strategy for the Council’s
Highways PFI Project to deliver the stakeholder management of all stakeholders
and associated communications relating to the Project is attached at Appendix
29. The Stakeholder Management Tool (SMT) is built around structures,
processes, tools, and human resources typically required to manage the
stakeholder and communication elements of a major project through to
successful completion, it aims to support the successful delivery of the Highways
PFI Project through the structured and systematic identification, analysis, and
management of Stakeholders, and the implementation of effective
communications.
The SMT has been used to map out stakeholders, stakeholder managers and
deliver key messages at critical stages. The tool is also used to identify changes
to the plan, enabling the Council to be pro-active in managing messages. The
SMT adopts the following methodology:
• Identifying and mapping stakeholders in order to understand their influence
on the project and support the decision making process.
• Providing accurate, timely, and relevant information (communications) to
assist stakeholder managers to use the most appropriate communication
channels (within budgetary constraints).
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 125
• Managing stakeholders to keep, or get, them on board for the duration of
the project.
• Keeping the Project Team appraised of the general and specific nature of
stakeholder opinion/support/risk (informing ongoing project management
decisions or mitigation planning).
• Providing a communication and engagement audit trail to evidence best
practice and to support a learning/improvement culture within the IWC.
The Highways PFI Project will impact a large number of people and organisations
(stakeholders) in a multitude of ways. Therefore, the Project Team has put in
place an appropriate framework with the right structure, tools, processes, and
people in order to effectively manage and communicate with stakeholders from
the outset.
• Structure – Team make up, and how the team is organised.
• Processes – What is done, when, and how.
• Tools – Providing the analytical and data storage backbone of the project
• People (resources) – The human element that reaches and connects with
stakeholders
6.8.1 Local residents
The condition of the Isle of Wight roads is one of the major concerns for local
residents. The Residents Surveys have highlighted this as a concern repeatedly.
Hence residents recognise that they will be the main beneficiaries of
improvements, although they will suffer some disruption, particularly during the
Core Investment Period. The Council aims to keep them informed of the project
progress, and provision will be made within the Project Agreement for the Service
Provider to continue with this precedent.
6.8.2 Network users
As well as residents, the Island’s highway network is used by others such as
transport providers, delivery drivers and tourists. Additionally interest groups
such as the Ramblers Association and land owners have an interest in the
footways and cycleway network. Ensuring wider local stakeholder support has
been seen to be a priority since the inception of the project and regular
information meetings are held with Town and Parish Councillors along with other
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 126
local interest groups. Transport operators are kept informed through the Council’s
Quality Transport Partnership, while local media are used to keep local residents
in the picture as to progress. Once the PFI is in the operational phase then the
successful service provider will be required to keep stakeholders updated as to
the programme of works and the SMT updated throughout the life of the Project.
6.8.3 All Council staff
Staff likely to be affected by the PFI have been kept informed. They have been
invited to staff meetings and briefing sessions whereby the PFI procurement
process has been fully outlined and explained. In addition to that, senior
members of the PFI Project Team are attending individual team meetings to
facilitate a platform for discussion at every level. Information is being shared with
staff at the earliest opportunity.
The Council has also established regular bi-monthly consultative meetings with
the local trade union to ensure that continuous consultation occurs to ensure that
an agreed approach can be adopted. Union representatives are also encouraged
to raise additional issues as and when they arise. A letter of support from
UNISON is attached at Appendix 30.
The Council has created a Stakeholder Management Tool (SMT) which includes
details of all employees currently in-scope, the employee details section is in the
confidential section of the tool. This system will record all individual and group
communications and will ensure that all staff who have been identified as falling
within the scope are kept informed at all stages.
Once we have reached the “Call for final tender” stage, all employees in scope
for transfer will be provided with the opportunity to meet with Human Resources
advisors and trade union representatives. In addition, meetings with pension staff
will be arranged in the event that the successful bidder does not enter the LGPS.
In addition to the above, once the preferred bidder has been selected, the
Council will facilitate communication and meetings between trade union and staff
representatives and the transferee to enable consultation under TUPE to take
place.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 127
6.8.4 Statutory Undertakers
Co-ordinating the highway network refurbishment with the statutory undertakers
will be essential to the success of the Project. Initial talks have been held and
there will need to be an on-going dialogue to ensure that their works dovetail with
that of the PFI Service Provider.
6.8.5 Local suppliers
The Council has a co-terminus date for as many of the external contracts as
possible in advance of the PFI. However, it is anticipated that there may be
contracts still extant which may give rise to a further TUPE implication. Through
the Local Industry Day and other communication mechanisms, all current
contractors and the bidders will be advised to seek independent legal advice in
relation to TUPE, and bidders will be provided with contact information to
facilitate direct communication with current contractors on the TUPE implications
ensuring a smooth transition for any non-council TUPE transfers.
The Island location offers the local contractors an opportunity to participate as
part of the supply chain. The selected bidder will be encouraged to demonstrate a
commitment to utilising local companies and workforce throughout the term of the
contract.
6.9 Sponsorship and Support
Ever since the idea of using a PFI project to rejuvenate the Isle of Wight’s
highway network was suggested in 2004, there has been cross-party political
support. Political control has changed during that period and the present
controlling Conservative group have set aside a £7.6 million budget to see the
PFI through to contact commencement. This budget is considered to be
sufficient for the necessary costs including internal staffing, external advisors,
accommodation costs, project networking, training, resources (ICT) and
communications and stakeholder management until April 2013.
The procurement budget of £7.6m (see Appendix 31) contains £0.5m
contingency to deal with delays or other impacts resulting from external risks that
are outside the control of the Project Team. Project progress is, and will continue
to be, monitored regularly to identify whether any overspends or delays are likely
to occur. Should this be the case then remedial action, as necessary, will be
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 128
undertaken. The contingency of £0.5m is intended to cover for instance, a 6
month delay in commencement of the project occur, if this became a reality it will
be foreseen well in advance and actions to address will be implemented.
The Council has ensured that local organisations including the Island Strategic
Partnership, the Isle of Wight Economic Partnership, the Quality Transport
Partnership, the Chamber of Commerce, AONB, the Environment Agency, and
other environmental organisations, have been informed about the Project’s
intentions and all are supportive of the Project.
The Council has carried out soft market testing as described in the Commercial
Case section to ensure interest in the Project is maintained and held a local
Industry Day to inform existing contractors. A wider national Industry Day for
prospective PFI Bidders was held on 3 September 2009.
6.10 Risk Management
A risk management strategy has been developed for the Project designed to
manage those risks which could impact the Project between the OBC stage and
financial close. This will help inform the risk consideration within the Council’s
ongoing contract management arrangements for the PFI contract from financial
close. The strategy is attached at Appendix 32.
To support the implementation of the risk management strategy, a number of risk
workshops have been held facilitated by the Risk Workstream Lead and attended
by the Project Team (including the external advisers) in order to:-
• Agree a common approach to risk within the project (in accordance with the
risk management strategy)
• Identify and assess the main risks including an initial allocation and proposal of
a risk action plan for each material risk exposure.
The key outcome of these workshops was the establishment of the risk register
for the PFI Project (see Appendix 33). The register records those risks which
could impact the project (in the development, procurement and close-out phases)
including both risks which impact the Council’s current highways operations and
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 129
risks which could impact the anticipated (post-implementation) business model.
For each risk, the register records the nature and potential impact of the risk
exposure identified, its significance in terms of both likelihood and impact and, for
each material exposure, a target exposure level and risk action plan detailing
countermeasures in progress or planned to achieve that target level. Within the
register, an ‘owner’ has been identified for each risk and associated risk action
plan. The Risk owners take full responsibility for the management of the risk and
have nominated risk managers reporting to them. The responsibility for managing
the risk rest with Risk owners and they report back to the PFI Team and Project
Board. The register focuses attention on the ‘current’ risk level and the ‘target’
level; when the risk action plan has been successfully implemented, the current
level will then be reduced to the target level. The target level represents the
accepted level of risk; whilst measures could be designed and implemented to
reduce the risk level further to or towards the ‘residual’ (or unavoidable) risk level,
it is anticipated this would be uneconomic. The register is divided into the key
phases of the Project – procurement and award, capital rehabilitation, financial
and commercial.
The successful completion of the Highways PFI Project represents a major
investment and is key to achievement of the Council’s corporate objectives. As a
consequence of this, the potential failure of the project is a risk captured within
the Council’s strategic risk register. This, in common with the Council’s other
strategic risks, is reported to and monitored by the Council’s Directors Team and
Cabinet. This risk is defined in the Council’s strategic risk register as:-
Failure of the PFI process following the OBC leading to a direct impact on road
infrastructure, economic regeneration and development and on the ability of the
Council to maintain a safe highway infrastructure for all users.
This risk summarises, at the highest level, the risk profile of the Project reflecting
the more detailed risks within the PFI Project risk register. The most significant
risks within the Project risk register are reported monthly to the Project Board. As
part of their standing agenda, the Project Board considers these and any shift in
the Project risk profile.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 130
6.10.1 Risk Escalation
Where a significant shift has been identified in the level of exposure (through, for
example, the identification of a new risk, the material reassessment of an existing
risk or the delayed completion or other failure of a risk action plan to produce the
anticipated mitigation) this will, subject to materiality, be escalated through:-
• Workstream leader reports it through one-to-one meeting with Programme
Director or raises it at a Project Team meeting,
• Risk Workstream Leader and/or Programme Director highlights this in the
Project Board risk report, or
• Updating the risk within the Council’s Strategic Risk Register.
Within this process, the criteria for escalation will be either a significant change in
the risk assessment (for example, from ‘medium’ to ‘high’) or a material delay or
other failure of the risk action plan.
6.10.2 Current Risk Status
The current status of risks at this level is detailed in the table below:-
Risk Area Risk Description Impact Proximity Risk Owner
Imp
act
Pro
ba
bil
ity
Asse
ssm
en
t
Imp
act
Pro
ba
bil
ity
Asse
ssm
en
t
Failure to meet agreed timeline through procurement process to
financial close as a result of delays in establishing a dedicated
project team supported by external advisors. The consequent
delay in commencement of operations will increase internal and
advisor costs.
Immediate 4 3 High
(12)
Jay
Jayasundara
3 1 Low
(3)
Failure to provide dedicated, resourced and experienced
personnel to support the project from the internal corporate and
technical teams. This will lead to delays and, in extremis,
withdrawal of DfT support due to lack of appropriate resource.
Immediate 4 3 High
(12)
Jay
Jayasundara
2 1 Low
(2)
Risk that approvals required from DfT are not obtained resulting
in project delays, potential project failure and reputational impact.
Immediate/Medium Term 4 3 High
(12)
Jay
Jayasundara
2 3 Medium
(6)
Shortage of materials and/or labour result in higher rehabilitation
and maintenance costs
Long Term 4 3 High
(12)
Jay
Jayasundara
2 2 Low
(4)
Increases in Landfill Tax resulting in additional disposal costs. Medium Term 4 3 High
(12)
Jay
Jayasundara
2 4 Medium
(8)
Costs are higher than expected based on current highway
condition surveys and bridge inspections leading to increased
lifecycle costs.
Immediate to Long Term 4 3 High
(12)
Jay
Jayasundara
2 3 Medium
(6)
RPI increases greater than projected. Medium to Long Term 4 3 High
(12)
Jay
Jayasundara
2 2 Low
(4)
Unknown or undisclosed existing environmental contamination
resulting from inadequate records leads to additional cost and
delay.
Medium to Long Term 4 3 High
(12)
Malcolm Smith 2 3 Medium
(6)
Availability of funding on reasonable terms during procurement
impacting affordability and possible delay
Medium Term 4 4 High
(16)
Jay
Jayasundara
3 3 Medium
(9)
Opportunity for refinancing - risk of refinancing being forced
through shorter funding periods in future resulting in sub-optimal
outcomes and reduced opportunity for positive impact on
affordability.
Medium to Long Term 4 3 High
(12)
Jay
Jayasundara
3 1 Low
(3)
Risk that required land is not available for depot (plant and
material storage) and maintenance yards resulting in delayed
commencement.
Immediate to Medium
Term
4 3 High
(12)
Malcolm Smith 2 2 Low
(4)
Service interfaces with other service providers (waste disposal
etc.) not properly identified and accommodated leading to delay
and service disruption.
Long Term 4 3 High
(12)
Malcolm Smith 2 3 Low
(4)
Cost and Affordability
Funding
Other
Project Management
and Resources
Current /Expected
Risk ScoreLikely Risk Score
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 131
At a more detailed level, using a risk management methodology based on the
Council’s risk management practices, each risk has then been assessed on the
basis of both likelihood and potential impact (including, among others, both
financial and reputational impacts). These have then been combined into a
single overall assessment of each risk at the current level and at a target level
(taking account of the actions planned to mitigate that risk). The assessment
process uses a scale of 1 to 4 (1 being low and 4 being high) for likelihood and
impact and these are combined to give an overall assessment for each risk on a
1 to 16 scale:-
Lik
elih
oo
d/P
rob
ab
ilit
y
V Likely
4
4
Low
8
Medium
12
High
16
High
Likely
3
3
Low
6
Medium
9
Medium
12
High
Unlikely
2
2
Very Low
4
Low
6
Medium
8
Medium
Remote
1
1
Very Low
2
Very Low
3
Low
4
Low
Scale
Low 1
Medium 2
High 3
Major 4
For each risk, a risk action plan has been drawn up in conjunction with the
workstream leader (i.e. the owner of that risk) and this represents the process to
be followed to reduce the risk exposure to the target level. Progress is tracked
against the risk action plans particularly in respect of the high level risks.
An allocation decision has then been recorded against each risk with one of the
following three markers;
� Retained by the Council
� Shared
� To be transferred to the successful bidder.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 132
The risks have been allocated to the party deemed best able to manage each risk
at the lowest cost. Clearly those risk allocation decisions will be reappraised and
informed through the procurement phases of the Project.
These risk identification, assessment and allocation decisions have been
validated through:-
o The operation of a series of risk workshops and other risk
considerations undertaken by the internal Project Team, and
o A validation review by the Council’s external professional advisors
to the project who have significant commercial expertise and
previous experience in the PFI field.
A further risk workshop was conducted to identify the cost elements for each risk
earmarked for potential transfer in order to arrive at an agreed price for that risk.
The initial risk allocation and pricing decisions determined at this stage are
subject to confirmation or change through the competitive dialogue stage of the
procurement process. The risk pricing process and outcome is detailed in
Appendix 26.
This process identified key risk exposures potentially impacting:-
• Bidders,
• The PFI Service Provider
• The Council.
A key risk which has been considered relates to the position of the bidders.
Naturally, potential service providers will have concern over a number of factors
including bid costs, protection of intellectual property and/or commercially
confidential information, procurement timetables and the costs associated with
the early involvement of funders and the due diligence associated with the PFI
Project agreement. Plans are in place to mitigate these through:-
• Building confidence with the bidders by meeting programmed dates for the
key stages
• Making all data readily available to the bidders via the Project Data Room
• Working openly with the bidders to minimise all costs such as unproductive
or unnecessary meetings
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 133
• Development of protocols to ensure IP is protected for all the bidders
• Setting a tight but realistic timetable and keeping to it;
• Supplying information gathered via condition and other surveys at an early
stage;
• Providing other information to bidders(in an appropriate format), at the
earliest possible stage;
• Undertaking the procurement in an efficient and effective manner,
including:
o Ensuring sufficient capacity and capability in the
procurement team (both internal and external);
o Preparing all necessary collateral on the areas of dialogue in
advance of the dialogue sessions so that bidders have
sufficient time for analysis and to develop their responses;
• Ensuring that the approval process is completed at the appropriate stage
and within appropriate timescales;
• Considering ways to reduce the costs associated with due diligence.
6.11 Data Management
The Council recognises the need for two main areas of data management;
• There is data sharing of key project documents between IWC and relevant
external advisors, with appropriate version control, so that all are aware of the
content of the latest versions of the Project Agreement, Output Specification,
Performance Requirements and Payment Mechanism.
• There is the issue of sharing information with potential bidders. The Project
has begun formulating a Project Data Room and now employs a full time Data
Manager. This Project Data Room will incorporate physical and virtual data.
Both the physical and virtual data will be available to bidders on the Project,
although only one bidder at a time will be allowed to view the physical material
in the Project Data Room and an appointment will have to be made prior to
viewing any documents. Virtual data will be available through a secure online
portal with each bidder having their own unique log-in. The virtual data room
will have to apply document security in order for the files not to be forwarded
on to third parties and to limit printing of the documents. Bidders will be
notified when new versions of documents have been released or new
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 134
documents have been produced. A record will be kept to monitor who has
seen which document, when they viewed the document and for how long.
6.12 Gateway Reviews / Independent Scrutiny
6.12.1 Gateway Reviews
Gateway Reviews were launched in the local government sector by 4Ps in April
2003. The principles behind the review process are for a team of independent
individuals, with experience in Project delivery to speak to key players involved in
project delivery and with other stakeholders to consider whether there are any
actions/activities that could enhance the Project’s probability of success. The
benefit of using independent individuals is to use people who are able to think
about issues without having been party to earlier decisions and consequently see
things from a different point of view.
The Council had the first Gateway review, number 0, carried out in June 2005.
The Gateway 0 highlighted staff resources as being the main area of concern for
successful project delivery. This has now been fully addressed and is
demonstrated in other sections of this OBC; the Council has a core team in place,
supported by other specialist staff and external advisors with appropriate
experience. Following discussions with the 4P’s, to recommence the Gateway
process it was agreed that Gateway 0 did not require a refresh but that the
Council would continue with Gateway 1.
This took place on the 21st, 22nd and 23rd July 2009 and the report is attached at
Appendix 34 to the OBC. The Project has been given an amber/green delivery
confidence assessment (successful delivery appears probable however constant
attention will be needed to ensure risks do not materialise into major issues
threatening delivery) and the Project Team already are aware of the risks
identified and have plans to mitigate them where possible.
6.12.2 Independent Scrutiny
Full Council and Cabinet contribute to the scrutiny process in their consideration
of key decisions relating to the project, and the Member Review Board outlined in
6.2 above has the Chair of the Scrutiny Panel for the Economy, Environment &
Transport as a participant. Before committee papers can be submitted for
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 135
consideration by members, the Councils’ internal processes include Directors
Team review and also ‘Call-Over’ which is a review by the lead officers for legal,
finance, human resources, property, risk, communications, performance, and
strategic projects. This gives relevant officers the opportunity to interrogate items
within reports to ensure appropriateness before publication and approval.
The Internal Audit plan for 09/10 includes the Project as a named review item.
The Project will also get considered within the audit for ‘programme and project
management’ being that it is one of the Council’s major projects.
As well as the Chair of the Scrutiny Panel for the Economy, Environment &
Transport being a participant in the Member Review Board above, the Chair of
the Council’s Overview and Scrutiny Committee was interviewed by the Gateway
Review team and will continue to be informed, as relevant, about the Project.
6.13 Statutory processes
The Project Team is currently considering whether statutory powers will be
delegated to the service provider under the Deregulation and Contracting Out Act
1994 to enable it to carry out the services, or whether the service provider will be
required to provide the services as an agent of the Council under section 1(1) of
the Local Government (Contracts) Act 1997.
Discussions have focussed on the precise scope of services required from the
Service Provider, the services currently able to be delegated under the
Contracting Out (Highways Functions) Order 2009 (including powers able to be
delegated under the New Roads and Street Works Act 1991 and the Traffic
Management Act 2004) together with any restrictions on the powers if they are
delegated, the likelihood of any delegated power ceasing to be able to be
delegated, and whether any powers that are currently not delegated are likely to
become delegated prior to the of the project agreement.
The final decision regarding the statutory process to be adopted will be made
following consultations between the Project Team and the Project Board.
Isle of Wight Council – Highways PFI Outline Business Case – December 2009 136
6.14 Readiness to Proceed to Procurement
The Council has commenced preparation of the Output Specification, Payment
Mechanism, Project Agreement and Procurement Documents. The Council will
be ready to publish its OJEU in February 2010 subject to DfT approval to
proceed. The Council is fully resourced and is therefore in the best possible state
of readiness to move forward to the procurement stage. The Council has
considered detailed stages of the Project and developed a practical and
deliverable programme. The Council has now positioned itself in the best
possible state to proceed to the Procurement phase of this Project.