Frameworks – what are they?

1. Presentation for North Wales Constructing Excellence Club 3rd July 2008 Frameworks – what are they?

2. Contents • Framework Definitions • Setting up a Framework Agreement • Call-offs • Framework Types • Framework Examples • WAG Estates Consultancy FA • NISMP Major Works FA • WWCA • TSIF • Framework Challenges

3. Framework Definitions

4. The European Definition • “A framework agreement is an agreement between one or more contracting entities and one or more economic operators, the purpose of which is to establish the terms governing contracts to be awarded during a given period, in particular with regard to price and, where appropriate, the quantities envisaged.” • “Contracting entities may regard a framework agreement as a contract within the meaning of Article 1(2) and award it in accordance with the Directive.”

5. The European Definition • “Where contracting entities have awarded a framework agreement in accordance with the Directive, they may avail themselves of Article 40(3)(i) when awarding contracts based on that framework agreement.” • Article 40 • 3. Contracting entities may use a procedure without prior call for competition in the following cases: • (i) for contracts to be awarded on the basis of a framework agreement, provided that the condition above is fulfilled.

6. OGC Definitions • A framework agreement is a general term for agreements with providers which set out terms and conditions under which specific purchases (call-offs) can be made throughout the term of the agreement • Often agreements set out the terms and conditions for subsequent call-offs but place no obligation, in themselves, on the procurers to buy anything. • The key is that a means of awarding contracts under framework agreements is provided for without the need to re-advertise and re-apply the selection and award criteria from the outset

7. Setting up a FrameworkAgreement

8. Setting up a Framework Agreement • A value for money judgement to proceed • Scope and types of service are required that will need to be called-off • The specification is key, as once set you cannot step outside it • A pricing mechanism must be included although actual prices are not necessarily required • Advertise in the OJEU as a framework • Determine all the contracting entities entitled to call-off under the framework

9. Setting up a Framework Agreement • Establish length of framework – normally a maximum of 4 years • Establish the total value • Determine the frequency and value of call-offs • Normally, restricted procedures will apply through OJEU • Determine award criteria • Select on the basis of most economically advantageous tender or tenders

10. Setting up a Framework Agreement Does the agreement include a commitment by the procurer to buy something? This is a framework agreement, for which contracts subject to EC rules are formed only when call-offs are made under the framework Apply the EC rules to advertising and awarding the framework itself as if it were a contract to purchase something. Apply the specific provisions to call-offs under the framework. No Yes This is a framework contract and should be treated as any contract under EC rules

11. Call-offs

12. Call-offs (individual contracts) • “Contracting entities may not misuse framework agreements in order to hinder, limit or distort competition.” • Although full EU Directive processes are not needed the relevant EU Treaty principles apply • The length of call-offs should be appropriate to the purchases and reflect value for money considerations. This should not be a means to simply extend the framework, although call-offs can extend beyond the period.

13. Call-offs (individual contracts) • Two options for awards • Use the terms laid down in the framework agreement without reopening competition – used where there is just one provider or based on the primary competition MEAT. • Hold a mini-competition with all suppliers capable of meeting the need by considering particular mixes of quality and rates and making use of the pricing mechanism, set against the criteria stated in the framework. It cannot be a repeat of the primary competition.

14. Call-offs (individual contracts) • Substantive modifications to the terms set out in the framework agreement itself are not permitted. • It is more a matter of supplementing or refining the basic terms to reflect particular circumstances for individual call-offs.

15. Framework Types

16. Framework Types • Supplies from a single provider • FA for furniture awarded following OJEU and MEAT selection to a single supplier • Authority calls-off its requirements during the period of the FA on the basis of the terms agreed when the FA was established.

17. Framework Types • Supplies from several providers • FA for consumables awarded following OJEU and selection based on financial and economic standing and technical capability. MEATs are entered onto FA. • The Authority goes to the supplier within the FA whose offer is MEA for the particular consumables required for each call-off. • The terms of the FA apply and no mini-competition is required.

18. Framework Types • Consultancy services • FA for consultancy services awarded following OJEU and selection based on financial and economic standing, technical capability, track record, quality systems and fee rates. MEATs are entered onto FA. • Hourly rates for different categories and grades are included in the FA. • Mini-competitions are held for call-offs, engaging only those with capability for the required services and establishing which company offers MEA for the mix of grades and rates required.

19. Framework Types • Minor Works • FA awarded to several contractors following OJEU and MEAT. • Contractors provide a range of services over a wide area. • Hourly rates, call out charges and levels of quality set in the FA. • Authority goes to the contractor providing MEAT on basis of original award criteria for the particular need. • No mini-competition required. • Alternative would be to award a FA to a single contractor in separate regions.

20. Framework Types • Major works • FA required for building office units. • FA awarded to a number of contractors following OJEU and MEAT based on financial and economic standing and technical capacity. • Awards are made on basis of a particular mix of quality and unitary prices. • Mini-competitions used to select MEAT for the unit required.

21. Framework Examples

22. WAG Estates Consultancy FA • Three Consultants providing commercial services over three years. • Primary selection based on technical ability and track record • FA established hourly rates for staff types and grades based on WAG standards (professional / technical) • Minor commissions – MEA provider selected on basis of rates and capability • Major commissions – mini-competition with MEA established via quality of people, methodology and fee (35%/35%/30%) • No integration between suppliers

23. NISMP – Major Works FA Lead Contractor = Single company, consortium or joint venture with total turnover £35m (each party to consortium turnover £10m)

24. Framework Value £550m to £650m Project Value All capital projects in excess of £500k with no upper limit No of Contractors 8 framework participants lead by a Lead Contractor Framework Duration Maximum of four years with opt out after two years Project Location Throughout Northern Ireland Framework access Any Government Department as part of DE Agencies Local Authorities and subsidised bodies/grant recipients Project Types offices, laboratories/specialist buildings, colleges, sport /art facilities etc NISMP – Major Works FA

25. NISMP – Major Works FA Objectives • Improve the process for the appointment of Contractors • Use contracts that support collaborative working • Adopt the NEC suite of contracts • Improve standards in health and safety • Move to proactive management of H&S and the creation of a safety culture • Meet Sustainability targets set by the DE • Achieving excellence • Sustainability action plan • Implement proactive performance monitoring of Contractors • KPI’s developed based on constructing excellence • Improve value for money

26. NISMP – Major Works FA Primary Competition Principles of ITT selection process • Criteria to be met for appointment to Framework of 8 Lead Contractors (with Designers) • key commercials • Quality & Capability of Organisations • Quality led assessment criteria • Based on 80/20 ratio (price and non-price)

27. NISMP – Major Works FA Secondary Competition • Quality section which is specific to the individual project(based on one or more from the following list) • Commercial (application of Fee cost of ECI) • Capability • Risk and commercial management • Continuous improvement • Health and safety • Sustainability • Human resources • Supply chain

28. NISMP – Major Works FA Contract strategy • D&B Contractor appointed on two-stage NEC3 contract with break clause • Stage 1: Contractor appointed to complete or develop detailed design with client and establish target price (Pre-construction Services) • Stage2: Contractor instructed to construct project with payment based on defined cost (measured on open book basis) plus Fee with pain/gain sharing on target price • DE (or Consultants from Professional Services Framework) • Development of Project Brief • Project Management • Cost Management • Architectural and other technical advisory services

29. Welsh Water Capital Alliance • Set up by Dwr Cymru Welsh Water (DCWW) • Delivered 60% of AMP3 • 2000 – 2005 • Budget circa £650m

31. The Capital Alliance Structure North Wales Team CSOs, Sewerage & Process Works Galliford Northern; Meica Process; EC Harris;United Utilities North Wales Water Team Water Network Team & Water Process Team Laing Utilities; United Utilities; ChandlerKBS; EC Harris; Black & Veatch Contracting*; Wales & Herefordshire South West Team CSOs, Sewerage & Process Works Morrison Construction Meica Process Ltd Black & Veatch Contracting*; United Utilities; EC Harris; ChandlerKBS South West Wales South East Team CSOs, Sewerage & Process Works AMEC Capital Projects; Black & Veatch Contracting*; United Utilities; EC Harris; ChandlerKBS South Wales & Herefordshire (* Formerly Paterson Candy Ltd)

32. North Wales Team Galliford Northern; Meica Process Ltd; EC Harris;United Utilities Delivering Key Processes South West Team Morrison Construction Meica Process Ltd, Black& Veatch Contracting*; United Utilities; EC Harris; ChandlerKBS Strategic Group Representatives from across Alliance South East Team AMEC Capital Projects; Black& Veatch Contracting*; United Utilities; EC Harris; ChandlerKBS Water Team Water Network Team & Water Process Team Laing Utilities; United Utilities; ChandlerKBS; Black& Veatch Contracting*; ECHarris Delivering Support Services Alliance Development Team Representatives from across Alliance The Capital Alliance Structure [NB: Sewage Operating Contractors (SOCs), Network Development Consultants (NDCs), Sewage Pumping Station Contractors (SPSs) etc are key interfaces] (*Formerly Paterson Candy Ltd)

33. The Alliancing Approach • People & Relationships • Safe environment • Innovation & challenging • Openness, honesty & trust • Respect for people • Team working • Celebration of success • A learning, not a blame culture • Effective communications • Ownership

34. The Alliancing Approach • Continuous Improvement • KPIs • Common processes • Non man marking • Realistic targets • Business improvement teams • Supply chain management • Shared risks • Shared best practice • Investment in people development • Task & Finish Teams • Risk • Commercial – cost • Commercial – Contract Administration • Purchasing/Hire • Stakeholder Management • IT/IS • Quality • Design

35. The Benefits & Impacts • Moved from input to output specification • Works that work! • Shared delivery of DCWW Business Plan • Incentivisation: • No build = more profit for all • Strategic element driving shared best practice • Continuous Improvement programme monitored through BEM • Outperformed tough financial targets • 26% plus 2% better than AMP2 • Supported DCWW’s OPA benchmark

36. Procurement Strategy – why TSIF • Strategic Analysis of Work Scope Waste Retrieval and Processing FED / Ponds Deplanting and Demolition High Risk CW Pumphouse Miscellaneous Safestores - Reactors 1 & 2 ILW Store High Value

37. Procurement Strategy – why TSIF • Cooling Ponds / Waste seen as high risk because • Uncertainty of scope • Uncertainty of risk / cost • Environmental & Safety issues • Programme implications using Self Manage approach • The mix of skill sets called for • Interface issues • The need to retain knowledge and training • Strategic Integrated Frameworks seen as the way forward

38. Procurement Strategy – why TSIF • The Benefits that Magnox expects – • Programme certainty • Increase in competence and capability • Improved long term relationships • Corporate Social Responsibility in action • Flexibility and responsiveness to providing solutions • Use of Parental Assets of each Partner • Integrated approach to solutions using best resource available • Loose work boundaries, simple to vary the work scope • Learning from Partners, Knowledge transfer • Scale of Economies Leading to cost benefits • Best value product and service • Better sharing and management of risk • Foster innovation and Organisational Learning

39. Tried and tested Latham/Egan Constructing Excellence It works More cost effective More for less Better value Build on successes elsewhere Risk mitigation Alignment of contractors / client Sharing of best practice Business improvement incentivisation Asset optimisation Opex/capex balance Best whole life solutions Focused on outputs ( rather than scope) Why an Integrated Framework (alliancing)?

40. TSIF Working Arrangements • Magnox collaborating with • A Civils & Demolition Partner • A Mechanical & Electrical Partner • A Decontamination & Operational Partner • A Design Partner • Four equal Partners with separate but complementary contracts with Magnox • A virtual company • Single business plan with one set of numbers! • Mutual goals • Joint incentivisation • Corporate governance • Independent audits, benchmarking, market testing, target cost setting, etc

41. TSIF Working Arrangements • Framework Contracts • ECC Option C – Target Cost with Activity Schedule • Works Orders for Core Management Team and Projects • Fixed Fee • Performance Adjustment (KPIs) • Defined Cost based on Schedule of Cost Components • Project Share Mechanisms • Strategic Agreement • TSIF Business Plan • Dispute resolution • Strategic Share Mechanism • Common processes

42. TSIF Working Arrangements Steering Group Tier 1 & 2 Core Management Team Tier 1 & 2 (& 3 at times) Integrated Project Team Integrated Project Team Integrated Project Team Integrated Project Team Tier 2 & 3

43. TSIF Working Arrangements • Role of TSIF • Manage programme of works to suit NTWP (and balanced resources) • Manage spend to suit NTWP budgets and profiles • via incentivised target costs (combined) & KPIs • Manage safety, health, environmental and quality • Identify and develop work scopes – specifications, designs, procurement • Identify appropriate resources for each project • Form integrated teams to deliver discrete projects • Develop supply chain • Capture and deploy best practice

44. TSIF Procurement Event • Objective • To award 4 Framework Contracts • Predominantly Civil Engineering / Demolition • Predominantly Mechanical & Electrical • Predominantly Decontamination / Waste Handling • Predominantly Design • Three year durations plus two year option • Based on most economically advantageous • Set against the criteria in the ITT (2.2.1) • Using the weightings in the ITT (2.2.2) • Qualitative Response - 50% • Commercial Response - 15% • Presentations, interviews, visits - 35% • Ensuring the best fit of skills from each Framework

45. TSIF Procurement Event • Process • OJEU Call for competition - October 2004 • Pre-qualification evaluation - November 2004 • Establish tender list and issue ITT - December 2004 • ITT Return - January 2005 • Tenderer Presentations - February 2005 • Shortlist - End of February 2005 • Interviews / Visits - April 2005 • Internal approvals - May 2005 • Preferred Partner Shortlist - June 2005 • Preliminary Contracts Awards - July 2005 • Preparation Phase / Negotiations - July - September 2005 • Framework Awards - October 2005

46. TSIF Procurement Event • Preferred Partners • Civil Engineering / Demolition Costain • Mechanical & Electrical AMEC • Decontamination / Waste Handling AK Engineering • Design Services Project Services

47. Framework Challenges

48. Framework challenges • Meeting the rules without being inefficient • Right sizing the call-off arrangements • The conflict between supply chain competition and collaboration • Maintaining competitive tension whilst encouraging shared best practice • Making it effective for all participants • Getting on the framework can be an expensive event, so the rewards need to be evident and available.

49. Framework challenges • Making the primary procurement event flexible enough to allow the framework to develop. • Selecting the right participants, not only to deliver the services / works but to bring innovation and enthusiasm. • Balanced selection to ensure local supply chain is not destroyed • Ensuring that the Employer leads on SCM below tier one • Keeping the leadership focussed on the big picture – the road ahead not just the next bend and the rear-view mirror!

50. Contact – slander@chandlerkbs.com Questions?