How does the NHS ensure that it obtains best value when procuring its construction needs? No doubt this will be a question that will increasingly concern the NHS should they be called upon to bear a share of the widely anticipated cuts in public spending. Over the last 18 months, the NHS has sought to achieve best value through the application of Frameworks Scotland. HFS Frameworks Scotland operates on a design and build basis along with a target cost payment mechanism. Will HFS Frameworks Scotland always be the most appropriate way to procure the construction needs of the NHS? Can local frameworks be used to procure projects for which Frameworks Scotland is not suitable? Burness, with the assistance of procurement specialists within the NHS and the private sector, will be offering answers to these questions. Frameworks are no longer the only option for the NHS and a new era of the hub is now dawning. How will hub operate and how will it interact with national and local frameworks? Burness, as legal advisors to the hub South East Territory, is ideally placed to offer views of these important issues.

1. HFS FRAMEWORKS - OPERATION AND USE
RON THOMSON
DIRECTOR - THOMSON GRAY PARTNERSHIP

2. TRADITIONAL FAILINGS
No predictability of Cost
Budget Overshoots (Inevitably)
Late Delivery
Functionally unsatisfactory
Operationally expensive
Adversarial culture

3. SOME REASONS FOR SHORTFALLS IN THE PROCESS
Commercially astute market
Abundance of private sector work
Lack of prescriptive documentation by clients
Polarisation of contractor / client positions
Perception in the market that public sector will accept second best
Too much focus on capital rather than whole life costs
Fee Competition / Resource

4. BACKGROUND
Sir Michael Latham and Sir John Egan
“Achieving Excellence and Rethinking Construction”
The traditional view of public sector procurement:-
“… seeking tenders for each stage in a construction project
such as design, selection of the main contractor and specialist
sub-contractors and awarding contracts on the lowest price will
guarantee value for money”
NHS in England responded with “Pro Cure 21”
NHS in Wales responded with “Designed for Life”

5. EMERGENCE OF FRAMEWORKS SCOTLAND
Scottish Government Health Directorate / HFS Strategy
Construction Framework for NHS Scotland
Four year operation with option to extend for 2 years - £1m threshold
To deliver time and cost efficiencies
”One stop shop” design and construction covering Scotland
Integrated supply chain - long term
Collaboration / partnering
Minimum 3 maximum 5 Principal Supply Chain Partners (Main Contractors!)
NEC3 Contract
VALUE FOR MONEY

6. KEY ELEMENTS OF FRAMEWORKS
Stage 1 - Initial Agreement
Stage 2 - Outline Business Case
Stage 3 - Full Business Case
Stage 4 - Construction
Principal Focus is the Acute Sector

7. MAIN COMPONENTS OF STAGE 3
(FULL BUSINESS CASE)
NEC3 Form of Contract
Pain share / gain share mechanism
Intensive “front end” of the process (6 - 8 weeks)
- activity schedules
- affordability reviews / checks
- NEC3 workshops - team understanding
Open book accounting strategies - Pre Agreed %ages
Develop procurement schedule
Market testing
Develop / agree target price
Develop works and site information
Risk / Value Engineering workshops
Contracts concluded

8. SUPPLY CHAIN FEATURES
Competitive (Sub contract) bids
Market-wide
Scope for innovation
Price Benefits?
Single Source supply chain
Inclusive role of sub contractor
Expertise / experience of PSCP
Better management capability
Arguably more expensive

9. BENEFITS OF HFS FRAMEWORKS
Realistic Forecasts / Predictability of Costs
Programme Deliverability
Collaboration / whole team involvement
Information sharing / transparency
“Ownership” of the process
Innovation
Whole-life / operational efficiencies
Performance measurement
Quality
VALUE FOR MONEY
Information sharing / transparency

10. SOME CONCLUDING THOUGHTS AND COMMENTS ....
HFS Framework is maturing in Scotland - over 30 projects to date
Potential to out-deliver traditional procurement
Real engagement with PSCP and the market
Requirement for more flexibility?
Evidence of framework achievements
- Pro Cure 21
- 200 Schemes
- £3.7bn Programme
- over 90% on time and budget
- no litigation on any scheme
“Success stories” in Scotland
- Royal Victoria Building
- St John’s Hospital

11. GEORGE CURLEY
Associate Director of Facilities
NHS Seminar - 30th March 2010

12. INTRODUCTION
National Framework
• Positives & negatives
• Helpful features
• Limitations
• Need to procure outwith?

13. WHY LOCAL
FRAMEWORKS?
•Benefits of a framework
approach
• Local versus National
• Policy discretions to have
both

14. THE NHS LOTHIAN
EXPERIENCE
• Cost effectiveness
• Flexibility – procurement routes
• Flexibility – approach to payments
• Compensation events
• Development of internal expertise
• Development of external expertise

15. IS IT WORKING?
• Summary of Experience to date
Any Questions?

16. The hub initiative
The SE Territory Pilot
Tuesday 30 March 2010
Chris Mackay
Partner
Direct Dial: 0131 473 6151
Email: chris.mackay@burness.co.uk

17. Introduction
• What is hub?
• How will it interact with national and local frameworks?
• How will hub operate?
• How much support is there for the new hub model?

18. Introduction
Burness role:
• Acting for 9 Public Sector Participants
• Reviewing Hub suite of documents
• Drafting Public Sector Participants Agreement
• Advising in relation to the Competitive Dialogue process to
select the Private Sector Development Partner
• Advising in relation to the evaluation of bids
• Advising on EU Procurement and State Aids
• Supporting SE hub team “close the deal”!

19. What is Hub?
• “The aim of the hub initiative is to improve the effectiveness
of the existing community planning process by providing a
vehicle (hubco) for more effective planning, procurement
and delivery of community based facilities in support of local
services” (ITPD for SE Hub)
• Community services and community-based facilities – ie. non
acute
• Partnership among local public bodies
• Partnership with the private sector

20. Objectives of Hubco
• Provide enhanced local services by increasing joint service working;
• Deliver a sustained programme of investment into community based
facilities;
• Establish a more efficient, quicker and sustainable procurement
methodology for Participants;
• Deliver public sector policy objectives for design quality and sustainability;
• Facilitate and improve stakeholder engagement in the planning of services
and development of facilities.

21. Corporate Structure of Hubco

22. Example – SE Territory – the
Players
• PSDP – one of 3 private sector consortiums who have
completed the Dialogue (Robertson, Miller or Galliford Try);
• Scottish Futures Trust (SFT)
• Participants (public sector stakeholders): NHS Lothian; NHS
Borders; City of Edinburgh Council; Scottish Borders
Council; East Lothian Council; West Lothian Council;
Midlothian Council; Lothian and Borders Police Board;
Scottish Ambulance Service; and Lothian and Borders Fire
Rescue Board.

23. Tender Evaluation of PSDP
Non price – 55%
- Approach to partnering
- Establish and operate hubco
- KPI’s and continuous improvement
Price – 45%
- Quantitative (20%) pricing pro-formas
- Qualitative (25%) including 5 Year Business plan and
DBFM funding

24. Hubco Board
• 3 Directors appointed by PSDP
• 1 Director appointed by SFT
• 1 Director appointed by public sector Participants
• 1 Non-voting Chairman

25. Qualifying Projects: (QP)
(a) Identified Projects – see SE Territory Projects Pipeline slide
(b) All Major Capital Projects defined as all new build projects having
a capital value in excess of £750K (Index Linked) where:
(i) NHS Participant providing primary and community based health services in
the Territory
(ii) NHS Participant and other Participants doing (i) and
NHS is lead Participant
(c) Capital projects identified by one or more Participants re
provision of Community Services in the Territory identified as a
QP in the Territory Development Plan (TDP)
(d) FM Services expressly designated as a QP in the TDP

26. SE Territory Projects: Pipeline
• Westerhailes Partnership Centre (QP) £12M
• Blackburn Partnership Centre (QP) £12M
• Drumbrae Library and Community Hub (QP*) £5M+
• Firhill Partnership Centre (QP) £9M
• Gullane Surgery and Day Centre (QP) £4M
• Dalkeith Community Hub £2M
• Muirhouse Partnership Centre (QP) £35M
• Borders Roxburgh (C) £2.3M
• 3 Primary Schools (part of the SFT schools delivery programme)
* Not automatically covered by Exclusivity

27. TPA – Exclusivity granted to
Hubco by Participants
• Exclusivity under TPA exists for the first 10 years;
• Participants are required to give Hubco first opportunity to bring forward proposals
for Qualifying Projects;
• If Hubco fails to satisfy the Participant(s) requirements, then Participant(s) may
procure through other means (i.e. not use Hubco and go elsewhere)
• Approved Projects (where Hubco do satisfy requirements) will then be procured via
a contract between the Participant(s) and hubco/subhubco who will then subcontract
to the Supply Chain (envisaged to be the PSDP’s preferred contractors/designers
and FM providers).

28. TPA - Exclusivity cont..
• Exclusivity may be withdrawn if Hubco fail to meet track record
tests – linked to Key Performance Indicators;
• Significant performance failures can lead to termination of TPA;
• Exclusivity will be subject to variation by applicable EU/Competition
law!
• Participants of course have the option to request Hubco to procure
other projects not listed above, including FM delivery.

29. Territory Partnering Agreement
(TPA)
• Entered into among Hubco and the Participants (as individual entities);
• Sets out the rights and obligations including provision of “Partnering Services” by
Hubco to the Participants and “exclusivity” granted to Hubco by the Participants;
• Establishes a Territory Partnering Board (“TPB”) consisting of Participants and
Hubco to monitor performance of Hubco;
• TPA has a term of 20 years with an option to extend to a further 5 years with one or
more Participants – key driver is to realise benefits of partnering (continuous
improvement, economies of scale, added value etc) via long-term relationship;

30. On-going Partnering Services
• Hubco are to effectively deliver the Territory Development Plan (“TDP”)
demonstrating value for money;
• Build up long term relationships with Participants;
• Develop and take a lead in the Territory Partnering Board;
• Demonstrate value for money across delivery of services – demonstrate
continuous improvement and market test supply chain etc.
• Review and update TDP to ensure TDP is practical, deliverable, meets
needs of and is supported by Participants.

31. Project Development Partnering
Services
• Hubco prepare Stage 1 Submission for New Project – essentially an information
gathering exercise (site location, future flexibility of a site, design of facilities (stage
C), operational requirements etc);
• If a New Project receives Stage 1 approval from a Participant, Hubco then provides
Stage 2 Submission – more in-depth design (stage E), outline planning
requirements etc) hoping to achieve a Stage 2 approval and thereafter establish a
[subhubco] to enter into contract with Participant;
• Supply Chain Management – establish, manage and demonstrate value for money;
• Funding – Hubco to secure funding for New Projects if required;

32. Strategic Partnering Services
• Strategic Estate Planning – which includes review by Hubco of
estate development options for the Participants prior to
identification of new projects + practical & affordable proposals for
improvement of Participants’ joint estate;
• Community Services – Hubco to support Participants in the
planning of community services across the SE Territory to help
identify opportunities to improve efficiency and cost effectiveness of
services and achieve sustainability aims and targets in the delivery
of community services.

33. SG Funding Support to SE
Territory
• Revenue funding of £1.4M over 5 years
• Capital enabling funding of £6.5M split across projects with
geographical spread
• Equity contributions say £1K per Participant = £9K
• Working Capital Loan £100K - £300K at same rates as
Private capital loan injected by Private Sector Development
Partner

34. Contact Us
• Chris Mackay
• Partner
• +44 131 473 6151
• chris.mackay@burness.co.uk

35. Questions