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Procurement 2.0: How a Scottish model is conquering England

An innovative approach to public sector procurement that started in Scotland is now making waves for two English councils on the south coast – with major implications for public clients.

A different kind of procurement framework has made its way across the Scottish border and into England.

In fact, it’s travelled all the way down to the South-east’s coastal councils of Lewes and Eastbourne.

Using the Scottish Hub Programme as their template, Lewes and Eastbourne borough councils established Clear Futures framework in August last year, alongside Aecom and Robertson Capital Partners.

The quartet’s arrangement was set up to deliver projects funded directly by the local authorities themselves, as well as by Aecom and Robertson’s investment arms or third-party investors. In other words, it has a PFI-style funding capability built into it, whether or not councils require it.

The original ‘Hub’ model has delivered a host of public infrastructure schemes in Scotland, racking up a portfolio of projects worth almost £3bn – twice what was forecast – since it was first set up eight years ago.

What will really intrigue onlooking contractors and consultants, however, is the nature of the deal these four parties have created with Clear Futures. This is because it puts Aecom and Robertson in a position where all the framework’s projects go through their contractor-consultant joint venture.

The Scottish Hub Programme

In September 2008, the Scottish Government established the Scottish Futures Trust – an infrastructure delivery company owned by the state but able to operate independently of it.

Two years later in 2010, the SFT spearheaded the establishment of the first of five JV Hub companies (one for each region of Scotland) that would act as a framework to procure and deliver projects.

The JVs are made up of public sector bodies – such as emergency services and local authorities – alongside a private development partner. Each JV company caters exclusively to the public sector bodies that signed up when it was set up. Clients to the earlier JVs are fixed, but new participants can join the more recent models.

“At least 80 per cent of the project has to be market-tested [to ensure] competition is alive and value for money is being driven by that procurement process”

David MacDonald, Hub

“In the case of a new health centre, the local health authority would develop what’s called a ‘new project request’, and that sets out the overall required outcomes the project is seeking to achieve,” explains Hub programme director David MacDonald. “But it doesn’t talk about design. Within the project request will be certain immovables like the budget not to be exceeded, perhaps timescale, usage, other public authorities that may be involved.”

The request is then reviewed by the relevant Hub company, which assesses whether the work can be procured through the programme. If it can, the project then progresses through a series of internal design and vetting stages, before moving onto procurement and delivery.

The work is handled by each Hub company’s prequalified supply chain of contractors. “At least 80 per cent of the project has to be market-tested,” Mr MacDonald says, to ensure “competition is alive and value for money is being driven by that procurement process”.

Since the first Hub company was set up eight years ago, the model has delivered £1.67bn of projects in Scotland, with a further £511m currently under construction and £667m in development. Projects typically have a value of £20m-£25m, although larger developments worth £50m-£60m have been built.

Clear Futures model

Just over two years ago, Eastbourne Borough Council went out to procure a 20-30-year partnership with a private sector party, open to working in a similar way to how the Hub companies operate.

It was tracked by Aecom and Robertson’s Scottish investment arm, which believed it represented an “interesting opportunity, but they didn’t know how they were going to make it work”, recalls Clear Futures innovation director and strategy lead Sam Mackilligin.

Having entered into discussions, the three parties settled on a system that led to the creation of a 50:50 JV between Aecom and Robertson: Clear Sustainable Futures, which acts as the Hub company equivalent.

By the time the contract between Eastbourne, Aecom and Robertson was to be signed, the local authority had entered into a shared services agreement with Lewes District Council. As a result, the four parties signed a contract in August 2017, enabling Aecom and Robertson to manage the procurement and delivery of the two local authorities’ capital works programmes.

Of course, not all of their capital works are now going through the framework – as with the Hub model, a project request has to go through some early vetting stages to assess whether it is suitable for the JV to handle.

Scotland’s Hub in action

Aberdeen Community Health and Care Village

This community hospital was the first design, build, finance and maintain project delivered by the Hub programme. It was built and handed over to NHS Grampipan in December 2013 by Miller Construction.

Clydebank Leisure Centre – Hub West Scotland

A key component of the masterplan to redevelop Clydebank, the four-storey Clydebank Leisure Centre was opened in February 2017. Bam acted as main contractor on the £21m scheme, which was designed by Kennedy Fitzgerald.

Greenfaulds High School – Hub South West Scotland

Handed over in September 2016 by Morrison Construction, the £32m school was built on a site adjacent to the former Greenfaulds High School. The three-storey building can accommodate 1,350 students and was designed by Archial Norr.

Perth Theatre – Hub East Central Scotland

Robertson Construction acted as main contractor on £14.8m Perth Theatre development, which involved the partial demolition of the existing theatre. The revamped and extended building features a new studio theatre and community performance space, and was completed in February 2016.

Scottish Ambulance Service Station Melrose – Hub South East Scotland

This was the first partnership between Hub South East Scotland and the Scottish Ambulance Service, and produced a £2.1m service station that was delivered on time and on budget. Morrison Construction acted as main contractor on the project, which was completed in January 2015. 

There are, however, some distinct differences between the Hub and Clear Futures models. For a start, Lewes and Eastbourne do not have a stake in the JV that will manage the procurement and delivery of the work.

However, Clear Futures is more flexible than the Hub companies, as the model leaves the door open for almost any public sector body to join the framework. “We already have one council in the North-west of England who are approving the signing of the access agreement and are starting to use it,” Mr Mackilligin says.

He also points to a “local education establishment”, which he won’t name, that has a major estates review coming up and is preparing to sign up so that “we are involved in that estate’s rationalising programme”. 

And because both Aecom and Robertson have contracting capabilities, they can also act as main contractor or be part of the supply chain on a project.

Mr Mackilligin points out that of the 20 or so projects currently in the pipeline, none involve either firm in the supply chain or acting as main contractor – mainly due to their locations. “When we start to operate in the North-west, Robertson’s construction entity will be [part of] the supply chain,” he says. “But in order to do that, they have to demonstrate that they are best placed to deliver and they have to demonstrate that to the council.”

As things stand, with the two firms handling procurement and delivery through the JV, their fees are built into the total cost of the projects.

Bringing in PFI

One of the main similarities between Clear Futures and the Hub companies is the option to procure a project using a PFI approach.

With Hub, the funding comes from a combination of the public and private sectors, and the Hub Community Foundation also has the option to invest. “The charity is a completely independent body set up to invest in projects and use its returns to invest in community benefit-type work,” Hub’s Mr MacDonald explains.

Robertson’s experience of funding both Hub and PFI projects attracted the contractor to Clear Futures, according to Mr Mackilligin. “[Robertson] will either fund it themselves [… or they will] go to third parties and bring them in,” he says.

There is also an option for Aecom to provide funding. But, given the nature of projects coming through the pipeline and Aecom’s investment appetite, “that’s not an avenue I’ve sought to validate at this stage”, Mr Mackilligin adds.

Although Lewis and Eastbourne do not have a stake in the Clear Futures JV, situations where a project is to be privately funded will see a special purpose vehicle set up in which the public sector will take a stake. This is to ensure the SPV board has public sector and private sector representatives on it, who together have oversight of the vehicle’s performance.

“[Robertson] will either fund it themselves [… or they will] go to third parties and bring them in”

Sam Mackilligin, Clear Futures

PFI Hub company projects have similar provisions in place. But because both Aecom and Robertson can act as main contractor or be part of the supply chain on a Clear Futures project, they have had to insert further safeguards to ensure robust checks and balances are in place.

For a start, neither party can act as the main contractor or private finance in a privately funded project. However, one of their “associated companies” (belonging to the same parent group) can be part of the supply chain, in which case “the party whose associated company sits within the supply chain takes a smaller role in the supervision of that work”, Mr Mackilligin explains.

He concedes that none of this has been tested because none of the Clear Futures projects have used a PFI approach so far – so the checks remain theoretical.

However, he adds that the local authorities currently appear to have sufficient access to public works loans to fund projects, negating the need for a PFI-style model. Educational institutions, on the other hand, may be more inclined to explore a PFI approach, as they have different access to loans.

Where does it fit?

Although the four-party contract to establish Clear Futures was signed in August last year, it was only in January that conversations about funnelling Lewis and Eastbourne’s capital works projects through the framework began.

There are now some 20 projects in the pipeline with values of between £2m and £30m. They range from commercial restaurants on the Eastbourne seafront, through to a 100-unit residential programme and an upgrade to a retail park. Aecom and Robertson currently have a 10-year exclusive contract with the local authorities, and there is an option to extend that by another 10.

Mr Mackilligin suggests the local authorities most likely to benefit from the framework are smaller councils that have lost the internal capacity to manage consultant appointments through the likes of the Scape framework, for example.

“[One of the] key areas of opportunity is helping achieve some key policy priorities of the government”

David MacDonald, Hub

“They have lost that,” Mr Mackilligin says. “They need to deliver services; they can’t afford to keep a project delivery capability internally. The larger municipal authorities probably retained sufficient capital project delivery capability for Scape to ease the process, and they can deliver that really well. They are not going to be interested in Clear Futures.”

Much like the Hub companies that have continuously found fresh opportunity areas, it may well be that the number of public sector bodies attracted to Clear Futures grows with time.

“[One of the] key areas of opportunity is helping achieve some key policy priorities of the government,” Mr MacDonald says. “For example, the integration of health and social care, where we see local authorities and health authorities both delivering care services. Very little work has gone through the programme in conjunction with [emergency] services, but again that’s something that is growing and there’s a huge opportunity.”

If Clear Futures is able to emulate the success of the Hub programme and go from strength to strength in a similar way, contractors and investors may well be tempted to follow suit and establish similar frameworks of their own.

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