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The slow road to savings

AGENDA

A new report on roads procurement shows highways authorities are on target to meet efficiency targets set out by Sir Peter Gershon's review of Government spending.

But while the best stride forward, others are hampered by outdated methods and a dearth of joined-up thinking. Russ Lynch reports

IN THE CHILL wind of a Government crackdown on wasteful public-sector spending, the Treasury's bean counter in chief, Sir Peter Gershon, set England's 149 highways authorities the task of saving £190 million in his efficiency review two years ago.

These authorities - responsible for spending more than £3 billion a year on the local road network - must find 2.5 per cent in efficiency savings by March 2008.

The onus is on them to find real savings - not scrape back the cash by refusing to spend it. The councils have to deliver the goods through better processes while maintaining their levels of service to the public.

The Highways Agency, which is advising them on tackling the task as a 'change agent', says authorities are on course to meet their goal in its Achieving Efficient Delivery of Local Highway Services report published last week.

According to the report, the authorities made £56 million in efficiency savings in 2005-06, with a further £53 million of savings expected during this financial year.

But while the numbers throw a positive light on council efforts to meet Sir Peter's tough targets, other aspects highlight how far they have to go to bring their procurement methods out of the dark days of cut-throat, lowestprice bidding and into the modern era.

One key area emphasised is a lack of standardisation.

Authorities base their standards and specifications on models developed by the Highways Agency. In practice, this has developed into a plethora of specially adapted standards for roads - and headaches for the construction firms dealing with a range of different contract documents. This disjointed approach is hampering progress.

The report said: 'Because each local authority has individually adapted these standards to suit their roads, this has led to significant variations across the country.

'Similarly, the wide variation in procurement forms and contract models produces tendering and service delivery inefficiencies.

'Longer-term benefits would result from the development and universal adoption of specifications and standards specifically tailored for local roads.'

In fairness, the report highlights several examples of best practice from councils in effective partnering arrangements with contractors reaping the benefits of cost savings (see box). But progress in bringing the rest up to the standards of the best is still painfully slow.

David Holt, a senior procurement manager with the Highways Agency, said: 'Inevitably, it will be piecemeal progress. There are some authorities who want to be trailblazers, but others are content to follow rather than lead. Procurement changes take a while to filter their way through, although the level of enthusiasm is overwhelming. Most authorities are going in the right direction, but it is just a question of time.'

Demand is another factor. If there is one thing contractors like, it is workload certainty. The report acknowledges that a more detailed knowledge of future work and the capacity of the industry to deal with it would also increase eff iciency savings.

Mr Holt added: 'We need to work together more. One point Gershon made is that we won't crack efficiencies until we understand the total demand from industry.

'It is about understanding total demand from the industry and being able to manage that demand to minimise the impact on the supply chain. For example, instead of 100 local authorities going out to tender this year, and then 50 the next, we could stagger the work over a few more years.' The Highways Agency also says:

'There is wide recognition that closer engagement with the whole supply chain is important, but as yet there is little evidence of fully integrated supply chains.'

Progress on integration and the Holy Grail of efficiency are crucially linked to the resources available for steady spending, which comes to local authority highways departments centrally from the Department for Transport and the Department for Communities and Local Government.

It is difficult to build long-term partnerships when the funding tap is turned off.

For example, Northern Ireland's quarrying and asphalt companies currently face bleak prospects after the Treasury slashed plans to spend £780 million on maintenance of the road network by 2012.

And when the money is available, industry bodies such as the Civil Engineering Contractors' Association have called for ring fencing of the funds earmarked for roads, after criticising authorities for diverting the money to other, higher-profile initiatives.

A spokesman for the Asphalt Industry Alliance, which has highlighted a £1.6 billion maintenance backlog in its latest road survey, said: 'One big reason why highways authorities are not spending the money more effectively is that highways engineers are not being given a framework in which to plan - they're given money in the short term and spending tends to be reactive rather than pre-emptive. There is anecdotal evidence coming through that money is being poached for more eyecatching, politically attractive projects such as schools and hospitals. But all these kind of services rely on the road network.'

The Highways Agency report falls short of the assurances contractors and trade associations would like, stating merely that 'greater certainty of these highway budgets is therefore an important issue'.

But Mr Holt added: 'It is right that it is up to local authorities to choose what they spend their money on, but at the same time they must also be aware of the effect of their decisions on their long-term balance sheet if they have to spend more money later.'

The Highways Agency acknowledges that more work has to be done, and sounds a cautionary notice in its conclusion.

It warns: 'Small-scale local change may not be enough to achieve current and future efficiency. Significant step changes may be needed.'

From the examples of best practice which the Highways Agency report rightly highlights, contractors are ready to step forward and innovate with forwardlooking and collaborative partnering contracts when they can strike a fair price with their clients.

But the 'lowest bid wins' authorities that remain stuck in the past will come against a more adversarial supply chain and dwindling patience from ministers, who want the public sector to spend its cash more wisely.

Case history: Amey

BEDFORDSHIRE County Council's £120 million contract with Amey, which began in October 2005, covers all structural and routine maintenance, and capital projects worth less than £500,000.

While other clients in the industry pay lip service to partnering, Bedfordshire and Amey embraced the concept to the extent of buying new offices for the team - branded Bedford Highways - to work together.

Amey was awarded the deal on a 75:25 quality-price weighting, in a tendering process where evidence of successful previous partnering was assessed through site visits and interviews with other clients on existing contracts.

A council spokesman said: 'When we started out on this contract, we anticipated making time and cost savings of 8 per cent, but six months on, the savings have been in the order of 15 per cent.'

Both parties share efficiency savings, and have also appointed an innovation and improvement co-ordinator to harness best practice. Amey has signed up to 42 performance indicators and is required to take part in national design and benchmarking clubs.

The deal lasts five and a half years, with the potential for annual extensions based on performance for a further five years.

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