Three Rivers District Council
William Penn Leisure Centre Contract Procedures Review
February 2013
Draft for discussion
Three Rivers District Council | Review of the Redevelopment of the William Penn Leisure Centre | February 2013
Contents
Section
Pages
Executive Summary
2
Introduction
3
1
Background
4
2
Scope and approach
5
3
Business case for redevelopment
6
4
Appointment of design consultants
7
5
Appointment of main contractors
8
6
Form of contract
9
7
Recommendations
10
Action plan
12
Appendix
© 2013 Grant Thornton UK LLP. All rights reserved.
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Three Rivers District Council | Review of the Redevelopment of the William Penn Leisure Centre | February 2013
Executive summary
Approach
Form of contract
We have reviewed the Council's approach to the redevelopment of the William
Penn Leisure Centre in order to identify areas that contributed to the under
performance of this project. Our work has not covered any aspects of the litigation
process between the Council and contractors nor the performance of the
contractors. In undertaking this work we have:
• The standard form of contract should have been sufficient to mitigate the Council's
risk and avoid dispute. However, in reality the Council was not able to rely upon the
contract form as it was implemented. as they were heavily reliant on Atkins for
contract execution.
• briefly considered the business case for the redevelopment and the associated
procedures that led to the adopted contractual approach
• reviewed and confirmed that the Council's procedures for appointment of
contactors was correctly followed
• reviewed and commented on the appropriateness of the form of contract adopted
We have identified opportunities for improvement which the Council may employ
when undertaking future projects.
Recommendations
• the Council should review tender processes to ensure that vendors' capabilities are
more fully assessed in addition to price. This should include a key personnel audit
and an assessment of how well the organisation will work with the Council
• BS11000, the recognised good practice standard for collaborative working, should
be taken into account when embarking on major projects
Business case for redevelopment
• before embarking on a major project, the Council should assess its own ability to
manage the work and make any necessary arrangements to strengthen its ability as
far in advance as possible
• the Council took independent specialist advice in identifying the option for
redevelopment which represented the best value for money
• even when there is a clear preferred vendor at the selection stage, interviews with
more than one vendor will help to support the decision-making process
Key findings
Appointment of design consultants and main contractor
• the Council followed the formal procedure for tendering, submitting an
advertisement in the Official Journal of the European Journal (OJEU), reviewing
tenders received against set criteria and selecting suitably experienced firms
• the Council carried out due diligence on both vendors. However, a more thorough
investigation could have been carried out regarding the vendors' capability to fulfil
a contract. For example, staffing proved to be an issue with both contractors but
this was not specified in the contracts
• the documents we reviewed indicated that price was the most important factor in
the selection of the vendors. This does not necessarily indicate value for money
• the Council could have conducted an assessment into its own ability to manage
such a contract earlier on in the process and employed requisite surveying
expertise well in advance of the project start, rather than during the project The
Council ended up being too reliant on WS Atkins.
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Three Rivers District Council | Review of the Redevelopment of the William Penn Leisure Centre | February 2013
Introduction
Link to our Value for Money conclusion
We are required to reach a conclusion on the adequacy of the Council's arrangements
for ensuring economy, efficiency and effectiveness in its use of resources (the Value for
Money Conclusion).
The Audit Commission Code of Audit Practice 2010 describes the Council's
responsibilities to put in place proper arrangements to:
Next steps
Matters arising from this review have been reviewed with the Head of
Leisure Services. We have made a number of recommendations, which are
set out in the action plan in the appendix. This has been reviewed and agreed
with the Head of Leisure Services.
• secure economy, efficiency and effectiveness in its use of resources
Use of this report
• ensure proper stewardship and governance
This report has been prepared solely for use by the Council and should not be
used for any other purpose. No responsibility is assumed by us to any other
person. This report includes only those matters that have come to our attention
as a result of performance of the review.
• review regularly the adequacy and effectiveness of these arrangements.
For the year ended 31 March 2012 we were required to give our conclusion based on
the following two Value for Money (VfM) criteria specified by the Audit Commission:
• the Council has proper arrangements in place for securing financial resilience
Acknowledgements
• the Council has proper arrangements for challenging how it secures economy,
efficiency and effectiveness.
We would like to record our appreciation for the co-operation and assistance
provided to us by the Council's staff during the course of our review.
We agreed with the Council that we would review its management of the refurbishment
of the William Penn Leisure Centre and identify any areas for improvement which the
Council may employ when undertaking future projects. This work helped to support
the second of the two VfM criteria.
Grant Thornton UK LLP
February 2013
This work does not include:
• findings on the performance of the contractors
• any aspects of the litigation against both contractors by the Council
• the actual completion of the project by the Council after the contracts were
terminated.
© 2013 Grant Thornton UK LLP. All rights reserved.
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Three Rivers District Council | Review of the Redevelopment of the William Penn Leisure Centre | February 2013
1. Background
The William Penn Leisure Centre (WPLC) began existence as a swimming pool
forming part of a school sports facility constructed in the 1970s. The Council took
control of it in 1996, at which point it had expanded to include dry-side facilities
comprising sports hall, squash courts, exercise studios and two fitness rooms.
The Council began to realise that there were a number of performance issues with
plant and equipment associated with the swimming pool. This prompted the
Council to commission a building condition survey of the wet-side facilities which
was carried out in 2002. Although short term works were identified and carried out
at that time, the survey highlighted that the plant was nearing the end of its useful
life. This would require closure for an extended period of time in order for works to
take place. The Council decided that it would take the opportunity created by the
closure of the pool to carry out refurbishment of the centre, which had remained
largely unchanged since it was built. Proposals for the replacement of plant, new
changing accommodation and a learner pool were presented to the Council's
Leisure and Community Policy Panel in September 2003. The Panel decided that an
architectural feasibility study should be commissioned.
•
The Council raised a number of concerns in respect of terms of the compliance
with the Council's contract procedures regarding the appointment, type of contract
used and the termination of the contract. In addition, the Council is seeking advice
on how to improve to become a more intelligent client in the context of wider
developments in local government hastened by the Comprehensive Spending
Review.
The Council appointed WS Atkins plc (Atkins) as the design consultants and Gee
Construction Ltd (Gee) as the main contractor, both widely recognised as reputable
firms in their field of expertise. The building works had a planned duration of one
year but in fact took over three and a half years to complete and resulted in an
overspend of almost £4m. At the time of this review, the Council was in litigation
with both firms, seeking remedy for their underperformance on this project.
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Three Rivers District Council | Review of the Redevelopment of the William Penn Leisure Centre | February 2013
2. Scope and approach
Stage 1 (this review)
Approach
• to consider briefly the business case for the redevelopment and associated
procedures that led to the adopted contractual approach
We have reviewed the Council's approach to the redevelopment of the WPLC in
order to identify areas that contributed to under performance of this project.
• to review and confirm that the Council's procedures for appointment of
contractors were correctly followed
As the project took place some years ago, the extent of documentation is limited and
many of the staff involved are no longer employed by the Council.
• review and comment on the appropriateness of the form of the contract adopted
Furthermore, as the Council was in litigation with both the design consultants and the
main contractor at the time of this review, we did not have only drawn on information
provided by the Council. Therefore our fieldwork has been limited to the following:
Stage 2 (to commence upon completion of legal action regarding the
case)
• comment on what steps the Council could have taken in order to act as an
intelligent client
Documentation review
• Leisure and Community Policy Panel Committee reports 2003-2008
• Executive Committee reports 2003-2008
• confirm the decision to terminate the contractors was taken in accordance with
council procedures
• miscellaneous project documents including notes and email correspondence
• comment on further steps that the council could have taken in order to minimise
costs incurred
We interviewed the following individuals:
Interviews
• Chris Hope - Head of Leisure Services
• Patrick Martin - Contracts Manager (no longer an employee of the Council)
• David Saunders - Building Surveyor (no longer an employee of the Council)
On the basis of our findings, we have identified a set of recommendations to address
these and to assist the Council in the way it approaches future projects.
© 2013 Grant Thornton UK LLP. All rights reserved.
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Three Rivers District Council | Review of the Redevelopment of the William Penn Leisure Centre | February 2013
3. Business case for redevelopment
The Council had recognised that the WPLC facilities leisure faced a number of
performance issues and it became clear that major refurbishment was required. It
therefore appointed Limbrick & Associates (Limbrick), a firm of architects, in June
2004 who carried out an architectural feasibility study. This provided three options
for the Council to evaluate in respect of the pool and changing areas. These were:
• option A – minimum refurbishment
Key findings
The Council considered the redevelopment by taking expert advice from architects
and leisure management experts. It examined the three options provided in terms of
cost and impact. It concluded on this basis that the option for full refurbishment
(option B) represented the best value for money, given the likely decrease in
performance of the facilities as they operated at that time. A suitably qualified
member of staff drafted the tender specification.
• option B – full refurbishment/part redevelopment
• option C – full redevelopment of wet-side
The Council engaged Leisure management consultants PMP Ltd (PMP) to assess the
impact of each option on the financial performance of the venue, as well as funding
options. Limbrick and PMP reported on their findings to the Council's Leisure and
Community Policy Panel on 9 November 2004. On the basis of the information
provided, the Council selected Option B as the one representing the best value for
money.
The capital programme funding approved by Council in February 2005 included a
£3.5m provision for this work. The Council recognised that this would require a
tender for services for both design consultants and main contractor. The Property
and Facility Management section at the Council, which employed staff with
surveying expertise, drafted a specification accordingly.
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Three Rivers District Council | Review of the Redevelopment of the William Penn Leisure Centre | February 2013
4. Appointment of design consultants
In 2005 the Council began the process of appointing a firm of design consultants
who would then also act as the contract administrator for the main contract.
We have reviewed the limited documentation available which was associated with
the tender of the design consultants and discussed the approach taken with Council
staff. At that time, there was a Property and Facilities Management department
within the Council which provided the necessary surveying expertise for its
requirements. This team drew up the specification and tender documentation for this
contract. However, the Council was planning a housing stock transfer which meant
that the requirement for in-house building surveying staff would be greatly reduced.
In due course, the transfer took place part way through the project leaving no
Council staff with this particular skill set.
The Council advertised an open Contract Notice in the Official Journal of
European Union (OJEU) for design services for the refurbishment of William Penn
Leisure Centre in May 2005. This specified a professional design consultancy who
would act as a single point of contact throughout the contract period. They would in
turn sub-contract other contractors which would include as a minimum a quantity
surveyor, building services engineer, structural and civil engineer and a planning
supervisor.
A progress report on the tendering exercise was received by The Council's Leisure
and Community Policy Panel on 5 July 2005. This included an updated cost estimate
for the works from Limbrick at £3,736,000 increased for inflation, assuming that
construction would take place in the period between January 2007 and January 2008.
In response to the advertisement, 27 firms returned Expressions of Interest and PreTender Questionnaires. The Council then selected eight of these firms for a tender
list on the basis of the criteria set (primarily price and quality).
Key findings
Compliance with procurement process
The Council followed the formal procurement procedures in appointing Atkins and
could reasonably expect to have confidence in their reputation as design consultants
of a size and reputation sufficient to support this type of project.
Investigation into the vendor's ability to fulfil a contract
Although the capability of Atkins as design consultants could be assured in this way,
the Council could have mitigated its risk further by carrying out a more detailed
investigation into the vendor including a capability assessment, a key personnel audit
and an assessment of cultural fit as part of its initial due diligence. The contract
should have included staff performance measures to enable better monitoring.
Scoring mechanism
From our review of the tender documentation, it appears that price was the primary
factor in decision making although other factors should be taken into account when
assessing value for money.
Understanding the Council's own ability to manage a contract
It is important for the Council to understand not only the risks associated with a
vendor, but also risks associated with its own ability to manage the contract. Had
the Council anticipated the departure of staff due to the stock transfer and
recognised earlier that it would need this expertise, this may have enabled it to put in
place external project management arrangements sooner and mitigate the risk
presented by its contractors.
After initial tender evaluation against these criteria, the Council invited four firms to
interview. The Council then undertook a further evaluation in August 2005. Atkins,
as the preferred bidder at that stage, were invited to present to the Leisure and
Community Policy Panel. Their appointment was then confirmed in October 2005,
having satisfied the Panel of their suitability for this project.
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Three Rivers District Council | Review of the Redevelopment of the William Penn Leisure Centre | February 2013
5. Appointment of main contractors
In January 2007 the Council embarked on the tendering process for the main
contract, again following OJEU procurement rules.
Key findings
The Council and Atkins (as the main contract administrator) were both involved in
the tender process. Members reviewed the tender price report which was tabled at
the Leisure and Community Policy Panel meeting in January 2007. The report listed
the six tenders received and their prices which were compared to the pre-tender
estimate. The Council undertook credit checks on the three lowest bidders. The
focus appears to have been on price, given that Gee's bid was the lowest of all and
lower than the pre-tender estimate (being £300k lower than the next lowest
estimate). Due to the price being comparatively so low, the Council did ask for
further information from Gee to check for omissions but none were found.
The Council followed OJEU procurement procedures and followed Atkins
recommendation to appoint Gee. The contract was let predominantly on price.
However, the lowest price does not necessarily always represent the best value for
money. Best practice also recommends that more than one vendor is invited to
interview before a contract is let. This would have helped the Council make a more
informed choice.
The Council did not undertake any interviews other than Gee's, which was carried
out to confirm their appointment, on the basis that Gee appeared to be suitable.
Client references were provided by Gee, which related to similar public sector
projects. Although these references did highlight some concerns, Atkins and the
Council felt that as long as a satisfactory check was carried out on the proposed
contract manager, there was insufficient reason not to appoint Gee.
Atkins advised the Council to select Gee on the basis that the tender process
indicated they presented the best option, but that contingency funds should be held
to meet additional cost. They indicated that Gee had priced the contract low in the
hope of recovering profit on variations. From reviewing documentation available, it
is clear that concern was raised both by Council staff and Atkins regarding Gee's
pricing, but this was felt to be insufficient reason not to appoint them. Additionally,
we did not find any recorded concern by Atkins before the appointment of Gee or
warning from Atkins that in due course any perceived underperformance by Gee
would lead to Atkins requesting additional fees on the basis of more onerous project
management required on their behalf. In our view the contract documentation was
not clear enough to prevent Atkins from benefiting from project delays caused by
Gee but resulting in extra cost to the Council.
Compliance with procurement process
Investigation into the vendor's ability to fulfil a contract
Gee is an experienced firm of contractors and as such the Council could rely on their
reputation in the sector. However, further due diligence could have been carried out
prior to appointment in order to mitigate the risks of contractor performance. This
could have included a more detailed assessment of the other bidding contractors
including calling them for interview. We understand that this was the responsibility
of Atkins, with involvement from the Council.
Although the Council and Atkins did undertake some investigations into the ability
of Gee to fulfil the contract including following up references, risk could have been
mitigated further by carrying out a more detailed investigation including a capability
assessment, a key personnel audit and an assessment of cultural fit.
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Three Rivers District Council | Review of the Redevelopment of the William Penn Leisure Centre | February 2013
6. Form of contract
The Council intended to use the Standard RIBA form of contract which is
commonly used for this type of project. It is intended to be simple, transparent and
apportion risk appropriately. If followed, this form of contract will avoid
misunderstandings and disputes, ensuring that professional standards are adhered to
for the protection of all parties. It should:
•
identify parties to the agreement
•
allocate and define responsibilities and liabilities
•
define the scope of work
•
confirm the legal framework
•
confirm the fee
•
set out methods of dispute resolution
•
define provisions for termination
Key findings
The standard form of contract should have been sufficient to mitigate the Council's
risk and avoid dispute. However, in reality the Council was not able to rely upon the
contract form as it was implemented and was heavily reliant on Atkins for contract
execution.
This should have provided sufficient mitigation of risk for the Council. However, we
understand that upon appointment Atkins offered their own form of contract, which
was accepted by the Council. We have not had sight of this document.
It is apparent from the evidence we have reviewed that the form of contract used did
not act in favour of the Council, preventing it from challenging the contractors to
the degree necessary. For example, there was no remedy for the Council in respect
of unsuitable contract staff substitutions.
The lack of performance measures and the reluctance of the Council to impose
sanctions in the interests of progressing the work meant that it was unable to
provide the challenge to the contractors to the degree it wished.
Although the Council should have only dealt directly with Atkins, in reality it became
drawn into the project, rather than allowing Atkins to take the risk as the form of
contract should have provided.
© 2013 Grant Thornton UK LLP. All rights reserved.
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Three Rivers District Council | Review of the Redevelopment of the William Penn Leisure Centre | February 2013
7. Recommendations
The Council should consider the following when undertaking future projects:
• vendors' capabilities should be more fully investigated in addition to price, for
example including a key personnel audit and an assessment of the ability of the
vendor to work in partnership with the Council, having an understanding of the
Council's expectations of working practices
• in undertaking due diligence on a vendor, it is important to assess its readiness to
contribute to a partnership and understanding of the particular nature of
contracting with the public sector. BS11000, the recognised good practice
standard for collaborative working, should be taken into account
• before embarking on a major project, the Council should assess its own ability to
manage the work and make any necessary arrangements to strengthen its ability as
far in advance as possible
• even when there is a preferred vendor at the selection stage, interviews with more
than one vendor will provide a useful comparison, for example to establish a feel
for their ongoing contract management approach and the likelihood of cost
variations
© 2013 Grant Thornton UK LLP. All rights reserved.
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Three Rivers District Council | Review of the Redevelopment of the William Penn Leisure Centre | February 2013
Appendix
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Three Rivers District Council | Review of the Redevelopment of the William Penn Leisure Centre | February 2013
Action plan
Rec
No.
Recommendation
Priority
1
Review and refresh the Council's tender processes to ensure that they cover a
wider remit and provide more robust investigation into vendor capabilities in
addition to price. This should include an assessment of cultural fit, key
personnel audits and an emphasis the collaborative aspect of projects.
High
2
Ensure that, when undertaking due diligence on a vendor, its readiness to
contribute to a partnership and understanding of the particular nature of
contracting with the public sector is considered. BS11000, the recognised
good practice standard for collaborative working, should be taken into
account.
High
3
Before embarking on a major project, the Council should assess its own
ability to manage the work and make any necessary arrangements to
strengthen its ability as far in advance as possible.
High
4
Undertake interviews with more than one vendor at the selection stage, even
when there is a preferred vendor, to provide a useful comparison, for
example to establish a feel for their ongoing contract management approach
and the likelihood of cost variations
High
Management Comments
Implementation
date and
responsibility
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