National Roads Maintenance Review Phase 1 Report

C Resourcing

C.1 Introduction

The Resourcing Working Group explored the following:

  • delivery and funding models;
  • collaboration and shared services; and
  • procurement.

A range of factors are encouraging the Scottish roads maintenance community to think of new approaches to the delivery of services. These include external drivers (particularly government policies - including climate change and mitigation, budget settlements and customer expectations) as well as internal pressures such as improving service quality, efficiency savings, attracting and retaining skilled staff and accessing best practice techniques and technologies.

C.2 Delivery and Funding Models

Delivery models are the contractual arrangements for delivering road maintenance in Scotland. These can involve competitive tender, in-house delivery or a combination of both.

Delivery and Funding Models - Baseline

The management arrangements for Scotland's roads broadly follow traditional lines. Local or central government fund the work and it is carried out by in-house teams or put out to tender.

Funding for road maintenance is normally on a year-by-year budget basis, within the context of a three-year local government settlement. There is a range of delivery models currently employed for road maintenance in Scotland.

Local authority maintenance, of public roads, is largely delivered through the use of in-house Direct Service Providers (DSPs). This reflects the long standing history of these services being delivered directly by public sector organisations. Local authorities also adopt mixed economy/ mixed market approaches, for example external contracting, when required.

A review of alternative delivery models was undertaken by SCOTS in March 2011 and 28 councils participated[79]. This identified five different delivery models used by local roads authorities in Scotland:

  1. In-house delivery with integrated services
    Direct Service Providers (DSP) for service delivery;
  2. In-house delivery with client/ contractor split
    Council responsible for strategy with DSP providing services/ functions;
  3. In-house delivery with horizontal integration with other services;
    a number of Councils deliver roads maintenance within a service which includes other council functions such as grounds maintenance and street cleansing;
  4. Shared delivery of works
    Local agreements for maintenance/winter service provision on roads at boundaries with neighbouring authorities;
  5. Externalisation
    Contracting works to external delivery organisations/ contractors.

Councils use a mixture of DSPs and private contractors to maintain the network, which is perceived to offer flexibility at the local level. Generally, a council's in-house DSP undertakes routine, cyclic and winter maintenance, while larger structural maintenance contracts are subject to competitive tender. Across Scotland, around 50% of council maintenance revenue expenditure is subject to competitive tender, with DSPs winning about half of the work[80].

Only four councils - Perth & Kinross, Dundee City and Angus (who utilise Tayside Contracts), and North Lanarkshire Council (who have awarded a joint venture term maintenance contract to a private sector partner) - do not have in-house DSPs.

Angus Council created the A92 DBFO to upgrade the road between Dundee and Arbroath to a dual carriageway. The contract includes long-term maintenance and the Value for Money[81] case was made for the use of DBFO versus a traditional procurement option.

Audit Scotland[82] reports that the bulk of road maintenance is funded from revenue expenditure and states that a number of local authorities have made a policy decision to treat all planned maintenance, including structural maintenance, as capital expenditure. In these local authorities, revenue budgets are used to fund response repairs, for example the repair of potholes and other maintenance activities that they have a statutory duty to provide or because they are of immediate public importance. Between 2003 and 2010 Councils' revenue expenditure fell by 36% (£37m). Over the same period capital expenditure increased in real terms by 120% (£60m).

With the shift towards capital spending for structural maintenance, the use of prudential borrowing in combination with other capital resources (grant aid, capital receipts, capital grants, and also funds from the sale/disposal of assets) has become an important component in many councils' capital resources. For example, South Lanarkshire Council's £126 million investment in road maintenance (2008-16) includes a share of phased asset disposals over a three-year period, with further funding raised through prudential borrowing. However, the recent increase in the cost of borrowing from the Public Works Loans Board (PWLB) will reduce the amount of funding that can be raised via this route. In addition, in the current Spending Review period the Scottish Government's capital budget is being cut by 50% which will again reduce the funding that can be expected to be made available.

Transport Scotland maintains budget and programme management in-house, with design and delivery of maintenance activities fully outsourced to four Operating Companies under five to seven-year contracts (currently under the 3G contracts). All structural maintenance (renewal of roads) is treated as capital expenditure and all other maintenance (eg. repairs) is from the revenue budget[83]. Efficiency savings delivered by the OC contracts were around £16m for 2009/10 with cumulative savings of around £63m over the life of the contract arrangements[84].

Contractor performance is constantly monitored by the independent Performance Audit Group (PAG), which publishes an annual public report. This delivery model saw Transport Scotland awarded the "Quality and Efficiency of Rendered Services" award at the 'Roads to Excellence' challenge[85] hosted by the Swedish Roads Administration in Stockholm in 2010 following benchmarking against eight international roads authorities.

In addition, Transport Scotland has Design, Build, Finance and Operate (DBFO) contracts in operation for the M6 and M80 and a PPP contract for the M77. These contracts all include maintenance requirements.

Internationally, road maintenance is outsourced to competitive tender in many countries, including across Scandinavia, as well as in New Zealand and Australia. In-house models are generally used in the USA and Ireland, although these countries are also considering alternatives.

Delivery and Funding Models - Best Practice

The evidence across the sector suggests that there are a number of delivery model options which offer varying degrees of benefits. Best practice is selecting the most appropriate model for local circumstances.

Alternatives to DSPs are beginning to appear as authorities look for alternative means to deliver value.

Tayside Contracts is the commercial trading arm of Angus, Dundee City and Perth & Kinross councils. It provides catering, cleaning, roads maintenance, vehicle maintenance and winter maintenance throughout the Tayside area. It is the only example of a multi-council approach to delivering road maintenance and operates under a Joint Committee comprising elected members from each constituent Council.

It was set up during local government reform in the 1990s. This change encouraged the participating local authorities to maintain the wide capability they previously had as Tayside Regional Council.

Tayside Contracts has delivered £14.5m in surpluses to Angus, Perth & Kinross and Dundee City Councils since 1996[86]. The share of this directly attributable to roads maintenance procurement has not been quantified; however, the three local authorities have provided their views to SCOTS[87] on what they see as the benefits of this delivery model, including:

  • the size of the contracting organisation can offer economies of scale;
  • mix of tendered and as of right work can demonstrate best value;
  • continuity of work for operating partners; and
  • the larger organisation can be more flexible with workforce resourcing/ allocation.

Glasgow City Council has implemented horizontal integration across services. It has used a different working pattern, four days on four days off, to gain efficiencies, in particular maximising the use of vehicles and plant. The resultant efficiencies are on target to deliver £5 million[88] of savings in plant, vehicles and equipment, staff costs and overtime. This reform has also created workplace training opportunities for the unemployed and funded an increased apprenticeship intake through the Commonwealth Apprenticeship initiative.

A Public Private Partnership (PPP) model has been in operation between Amey Roads and North Lanarkshire Council (ARNL) since December 2000, with the Council having a 33% shareholding. ARNL was set up following poor financial performance of the council's Building and Roads Direct Labour Organisation (DLO). In response, the council entered into the ARNL (PPP) agreement to cover the services previously provided by its DLO. The original agreement ran until 2010/11 and has progressed to a limited liability partnership (LLP) in 2011.

North Lanarkshire Council provides the client service for ARNL and operates a mixed market procurement strategy to buy capital work from both the LLP and other private contractors. 10% of the available LLP budget is tendered. A portion of capital works are assigned to the LLP only if the term contract rates are equal to or lower than the tendered market rates. The LLP has recently been awarded a 10 year term maintenance contract, with potential to extend by three years.

The c£7 million[89] savings generated to date have exceeded the council's expectations and the partnership has delivered improvements in service delivery. Currently 98.3% of all works undertaken by ARNL are completed on time. Furthermore, tendering arrangements are demonstrating better value with 16% lower prices than the previous term contract delivered by the DLO assigned to the previous PPP[90]. The Local Authority league table, measured by Audit Scotland using national Local Authority KPIs saw a significant change in the council's standing since the inception of ARNL. It has moved from fifth bottom to third top; in part due to the targets that roads contract is not only meeting, but exceeding.

In Australia, the Roads and Traffic Authority (RTA) of New South Wales illustrates the significant savings that were achieved in Sydney[91]. The RTA let its first 10-year performance-based contract in 1995, which included all maintenance activities for 450 km of urban roads (1,900 lane-km). The result was:

  • a 25% lower bid price;
  • 10-year warranty on workmanship;
  • a 13% asset condition improvement; and
  • overall costs reduced by 20-30%.

This was possible by giving the contractors' responsibility for determining all treatment types, the design, programming and undertaking of all works needed to maintain the road network to pre-agreed performance targets. The performance parameters (for example, roughness, texture, rutting, skid resistance, and remaining service life) were established at the beginning of the contract and monitored during the contract implementation.

Evidence[92] from the Scottish water sector also support the position that allowing the contractor to determine the 'how' to meet pre-defined and agreed outcome and output targets opens up the opportunity for innovation to deliver significant efficiency savings. Linking payments to performance means the contractor is incentivised and able to innovate whilst ensuring quality and safety are not at risk.

Delivery and Funding Models - Innovation

The Audit Scotland report demonstrates that the roads network is deteriorating with a growing backlog of maintenance requirements. The report states that there appears to have been limited progress in improving the backlog situation since the last report in 2004, and it recommends that this review should assess how to stimulate service redesign and increase the pace of examining the potential for shared services.

Internationally, Main Roads Western Australia, has recently introduced a new form of term contract called an Integrated Services Arrangement (ISA). Main Roads had run performance based outsourced maintenance contracts previously. A key reason for the move to ISAs was Main Roads, as the asset owner, wished to regain influence and control over long term operational asset management planning and decision-making.

ISAs are arrangements founded on relationship-based contracting principles. They are based on the successful aspects of the previous contracts, learning from international practices as well as extensive consultation and collaboration with industry and local government. Local authorities can use the ISA in their area to deliver work on their network.

The ISAs will 'in-source' private sector partners (known as 'Integrated Services Providers' - or 'ISPs') to work collaboratively with Main Roads to deliver a range of core maintenance services. The ISPs in each ISA will be reimbursed its direct costs incurred by providing the integrated services and a margin comprised of corporate overhead and profit. In addition, and to drive continuous improvement, a proportion of the ISPs' margin will be subject and relative to its performance.

Each ISA agreement will have an initial term of five years and will include provisions for ongoing extensions. The performance of each ISA will be critical in relation to any decision to extend the term, which will be assessed by an independent performance body. This will provide demonstrable and independent assurance and confidence to the State, road users and the community on how the ISAs are performing.

The ISA contracts are currently starting and there is no indication as yet on how they are performing in practice.

Transport Scotland's PAG model has been commended as an innovative delivery model and is being considered by other roads authorities, including Sweden and Ireland.

Innovation could also come by the application of alternative, or new, funding models. Such approaches could either deliver access to new streams of funding or create better value for money than traditional funding methods.

Road user charging is available to local roads authorities, under the Transport (Scotland) Act 2001, but no charging scheme has been introduced so far in Scotland. Furthermore, the Scottish Government has not advanced any proposals for road user charging, has no plans to do so and it is not part of their future programme.

Under the Roads (Scotland) Act 1984, private sector contributions are possible, either to recover extraordinary maintenance costs due to excessive use by, for example quarry or wind farm traffic, or through voluntary contributions from any party. The new Scottish Planning Policy (SPP) 2010 also supports the need for developers to mitigate the transport implications of development proposals.

In areas of civil parking enforcement, surplus revenues are hypothecated for transport purposes. This could be used for maintenance funding.

Examples of emerging alternative funding routes are:

  • Scotland leads the UK in the use of Tax Incremental Financing (TIF), a public financing method which has been used as a subsidy for redevelopment and community improvement projects. Three large infrastructure pilots (the Edinburgh Waterfront, Ravenscraig and Glasgow's 'Buchanan Quarter') have been approved and the Scottish Futures Trust is currently in dialogue with local authorities to bring forward business cases for three other pilots. There could be potential to use TIF more extensively for road maintenance (the USA does so under the TIF Act) in the medium to long-term.
  • Regulatory Asset Base funding is a mechanism currently being used for utility and rail network financing as it requires a ring-fenced revenue stream to fund any debt used to secure/ maintain the associated assets. For roads, this would require the potential introduction of tolls/ charges or a combination of those plus ring-fenced revenue from Scottish Government.
  • The Scottish Road Works Commissioner is currently investigating additional powers on charges for unreasonably prolonged works and on contributions to costs of making good long term damage to roads due to trench reinstatements.
  • In England, "Section 106" legal agreements between local authorities and developers can be used to secure developer contributions. Such contributions have been used for improving bus infrastructure, financial support for new bus routes and footway improvements. "Section 75" agreements in Scotland also allow the same process. Examples of developer contributions being used for road maintenance are not prevalent in the UK and this is likely to be attributed to the need to encourage private investment projects.

C.3 Collaboration/ Shared Services

Collaboration/ Shared Services - Baseline

Current baseline conditions reflect good sharing of knowledge and experience between neighbouring authorities, and via groups including SCOTS. As outlined at the start of this section, the sharing of road maintenance services between authorities is not widespread but is expanding.

Given the Audit Scotland recommendations, there is a compelling case for all roads authorities to examine how they can work together to deliver a better service to reduce the maintenance backlog.

There are working commercial arrangements between trunk road operating companies and local authorities on sharing winter maintenance capabilities and depots. The value of potential savings is commercially confidential and not publicly available.

Collaboration/ Shared Services - Best Practice/ Innovation

Best practice could be seen as sharing services where those involved all perceive there to be benefits in delivering better outcomes and value for money.

There are various examples of shared service/joint working arrangements amongst Scottish local authorities. These are voluntary arrangements that have arisen from a wish to deliver savings locally, and not driven centrally. A recent survey of local authorities undertaken by SCOTS[93] identified the following examples where councils have entered (or are in the process of) entering into joint working arrangements:

  • in 2010, the eight Clyde Valley Councils (East and West Dunbartonshire, North and South Lanarkshire, Renfrewshire, East Renfrewshire, Glasgow and Inverclyde) announced that they planned to share services in waste management, transport, health and social care, and support services, targeting savings of between 10% and 20% per annum (up to £70m over five years)[94];
  • Forth Valley GIS is a specialist shared service established by Clackmannanshire, Falkirk and Stirling Councils. It provides Geographical Information Services (GIS) to the public sector and its partners to support the improvement of public services. They also share services in trading standards, accident investigation, transport coordination and winter maintenance arrangements. Forth Valley GIS has[95]:
    • Helped secure an extra £500,000 of funding from just one GIS project.
    • Achieved a gross saving of around £100,000 per year by reducing the number of desktop GIS users from 180 to a core of about 30 seats
    • Provided widespread Intranet GIS access to over 10,000 staff for less than £100 per annum per seat compared to the annual cost of desktop GIS of around £1,500 per seat.
    • Saved time implementing regular updates equivalent to £30,000 per year.
    • Helped to innovate and improve the efficiency of service delivery in a wide range of local government functions.
    • Strongly influenced the cultural and technical changes associated with corporate data management and business process improvement
  • across the Ayrshire authorities' roads services a working group has been investigating shared service areas within roads asset management, joint procurement, purchasing of vehicles, sharing of best practice and the development of an Ayrshire transport model.
  • the ELBF Forum (Edinburgh, Lothians, Borders and Fife) has been set up to generate benefits from working together to share services and equipment, with specific working groups covering procurement, internal audit, transactional HR / payroll, mobile working and roads maintenance. The roads maintenance working group is considering areas such as overheads, labour rate and absence levels, legal advice and governance, shared salt facilities & plant facilities, sharing of best practice, professional services/network management and benchmarking while keeping a register of collaborative working.
  • the Pan Lanarkshire Parking service (discussions at an early stage) covering the management and cash collection of charging car parks and charging on street parking areas.

Transport Scotland's new 4G contracts have been developed to actively encourage closer collaboration between Transport Scotland and other public sector organisations including local roads authorities. The operating companies are required to support Transport Scotland in identifying and, where appropriate, implementing collaborative opportunities. Trunk road collaborative forums are also required to be established to bring together organisations involved in roads maintenance delivery.

Local authorities also work collaboratively through SCOTS to deliver road asset management plans and road condition surveys. The Scottish Road Works Register is a further example of joint working among all local authorities in Scotland. These are discussed under the Standards and Prioritisation Working Group paper.

C.4 Procurement

Public sector procurement in Scotland is governed by European legislation which underpins the procedures and rules for awarding contracts.

Procurement - Baseline

To deliver value, and in line with legislation, Transport Scotland competitively tenders the following aspects of the management and maintenance of its trunk roads:

  • Operating Company (OC) contracts;
  • Works Contracts for maintenance schemes valued at over £250k;
  • Performance Audit Group (PAG); and
  • M6 and M80 DBFO and M77 PPP contracts.

Local authorities also use national collaborative contracts negotiated by Scotland Excel and Procurement Scotland.

Scotland Excel is a "Centre of Procurement Expertise for the Scottish Local Authority Sector", launched in 2008, to improve the efficiency and effectiveness of local authority procurement in Scotland and is intended to realise economies of scale through increased buying power.

Procurement Scotland, also launched in 2008, develops and implements procurement strategies on behalf of all Scottish public sector organisations, and is therefore open to a wider group than Scotland Excel. Since its inception Procurement Scotland has secured £30 million of savings through Scottish public sector organisations accessing its contracts. Targeted savings over the three years to March 2011 are in the region of £83 million[96].

An example of how savings are being made through a combination of Procurement Scotland, Scotland Excel and joint procurement partnerships is Falkirk Council who, in 2009 realised £100,000 savings in the procurement of materials for Building Maintenance and £87,000 savings across all services (reduced costs through improved procurement measures)[97].

Whilst these centralised bodies offer many advantages, they may not offer the best solution in every instance. It is important roads authorities maintain flexibility in purchasing, as local, small scale suppliers may offer additional value and responsiveness in some circumstances.

Procurement - Best Practice/ Innovation

Scottish Government national guidelines on procurement, including for example, the Sustainable Procurement Action Plan, and the Construction Procurement Manual represent current best practice and encourage innovation. They include guidance on Value for Money, Whole Life Costing and effective project management including Gateway Reviews.

Whilst there are some pressures for mergers between authorities (and indeed this is happening in some international roads authorities[98]) the potential benefit from economies of scale need to be weighed against the potential loss of local accountability and local delivery.

The use of collective purchasing through Scotland Excel and Procurement Scotland has delivered some successes; although, some local authorities have opted out on occasions where local sourcing has proven more cost effective. This supports the case for maintaining flexibility for local authorities to employ a range of delivery models and procurement mechanisms, as there is no 'one-size-fits-all' solution.

In addition to Scotland Excel, joint procurement appears to be increasingly used, for example:

  • via SCOTS, the joint procurement of the Scottish Road Maintenance Condition Survey (SRMCS) at around £700k per annum, quantified benefits over individual procurement costs for each authority are not yet available;
  • weather forecasting While it has not been formally evaluated the obvious benefits are:
    • A single procurement exercise rather than 12 authorities doing their own thing, with associated savings
    • Combined purchasing power which would be expected to drive a keener price
    • The sharing of knowledge/expertise among the 12 authorities to optimise the benefits being delivered from (evolving) successive contracts
    • Provides an IT platform to share winter decision making information between adjacent authorities during severe weather.
  • traffic signal maintenance - benefits not yet quantified;
  • specialist plant items (eg. infrared patching equipment shared between the Ayrshire Councils) - benefits not yet quantified;
  • The Tayside Procurement Consortium was set up in 2007, with the intention of emulating the success of the Tayside Contracts model. Annual savings benefitting the three partner local authorities are estimated to be in the order of £1m. This is the only Scottish example of a shared strategic procurement unit and is accepted as an example of good practice by non-participating councils. The Consortium provides collective buying power to bring economies of scale on goods and services, and delivers more efficient business processes saving time and money through reduced duplication. It received an award for outstanding achievement at the National Excellence in Public Procurement Awards 2010;

Scottish local authorities are also entering into framework agreements (as opposed to open tendering) for contracts such as professional services. Frameworks can deliver many benefits including the ability to award contracts without the need to re-advertise and re-apply selection and award criteria, leading to reduced transaction costs. Some relevant framework agreement examples include:

  • All Ayrshire minor works framework agreement- a collaborative contract with East, North and South Ayrshire. This was set up in 2001 and was designed to release more than £27,000 of efficiencies to be re-invested into the service[99].
  • Highlands and islands councils' recent professional services framework. This was procured by a single council, for the use of multiple councils, reducing procurement costs.
  • Since early 2006 Aberdeenshire Council, Aberdeen City Council and Nestrans have operated a joint Framework Agreement for Transportation and Environmental Professional Services. Initially based around the joint contract used by Falkirk, Stirling and Clackmannanshire the approach was fine tuned to include two way KPI as part of the joint management of the contract by the public and private sector. The agreement was re-tendered in 2009/10 for a further 3 years with a 2 year option.

There is some industry support for longer term contracts to help encourage investment in services by contractors, and to minimise procurement costs[100] and the new 4th Generation (4G) of Transport Scotland Operating Company contracts include a number of performance metrics to determine extension periods, beyond the initial five year term. In the new 4G and the Forth Replacement Crossing contracts, Transport Scotland has also introduced communities benefit clauses to deliver wider social benefits as a result of its investment in infrastructure. These encourage contractors to engage with the local community including schools and job-seekers.

There are a number of consortia of English local authorities who consolidate their buying power, for example:

  • Eastern Shires Purchasing Organisation, the Central Buying Consortium and the Yorkshire Purchasing Organisation[101].
  • Working under the East Midlands Improvement and Efficiency Partnership (EMIEP), the Midlands Highways Alliance, will save in the region of £11 million across highways maintenance and improvements by 2011. Supported by Constructing Excellence, the nine councils in the region and Highways Agency have been making efficiency savings through procurement frameworks for major and medium sized highways schemes and professional civil engineering services, sharing best practice in maintenance contracts and by the joint procurement of commodities.

The Highways Maintenance Efficiency Programme (HMEP[102]) has recently highlighted a number of successful joint procurement examples across English authorities:

  • Joint Procurement of Condition Surveys:
    A consortium of South and West Yorkshire authorities was formed in 2008. It was anticipated that a larger consortium would offer greater economies of scale and reap lower costs. Through joint procurement of a Technical Inspection and Testing Services contract, work that would have cost £434,000 in previous years will now cost £267,000 a reduction of £167,000 (ie. a saving of almost 40%).
  • Joint Weather Forecasting Contract for Winter Service:
    Through joint procurement of Met Office weather forecasting services three authorities have seen a significant (approximately 50%) reduction in cost.
  • Collaborative Surface Dressing Contract:
    There was no particular inefficiency with the delivery of the surface dressing contract, but partners in the West Yorkshire Collaborative Group identified that joint procurement could result in cost savings. The three authorities aim to realise approximately 10-20% financial savings.