A lesson in road contract collaboration

Alan Titchall looks at the unique roading agreement between four district councils in the South Island that sets a precedent for road contract work collaboration. Based on a presentation by Ashley Harper and Suzy Ratahi at Road Infrastructure Management Forum 2016.

Since April 2014 the Ashburton, Mackenzie, Timaru and Waimate District Councils have collaborated on their road resurfacing and maintenance with efficiencies for both local taxpayers and contractors.

The road operations and maintenance activity for the collective region was procured by each of the four district councils via a single common specification with a schedule of quantities relating to each council.

The long process by which this was achieved, through the new Mid-South Canterbury Collaboration Group, was presented at the 2016 Road Infrastructure Management Forum in Rotorua earlier this year.

The presenters were Ashley Harper and Suzy Ratahi. Ashley is the group manager District Services at Timaru District Council and has been responsible for council’s infrastructure since 1989. Suzy has been the roading manager for Mackenzie District Council for the past four years and was involved with the development and writing of the common contract document.

The combined network of the four councils is large; containing 6000 kilometres of mostly rural network roads and 740 bridges. It is also extremely diverse, with each district, from coast to high country, facing different weather challenges.

After three years of intense work together a collective procurement process between the four districts was settled with contractors in September/October last year. New collective contracts contain a mix of unit rate and lump sum items for road maintenance service and, collectively, have a value of $60 million over a five-year term.

The beginning

“Three years ago three district councils [Mackenzie, Timaru and Waimate] set off on a journey with a lot of technical discussions, workshops, and presentations,” says Ashley.

“Elections in the middle of it all [October 2013] resulted in delays and then a change of mayors at Waimate and Timaru. Discussions restarted early 2014 and it all came to a head in April 2014 at a summit meeting between the mayors, chief executives and technical staff.

“The three councils of Mackenzie, Timaru and Waimate got their heads together and agreed on a Memorandum of Understanding [MOU] in June that year that was relatively easy and documented into three to four pages.”

The MOU covered shared service delivery of both road asset management and shared operations.

“In hindsight it turned out to be a great document in terms of giving guidance on where we were meant to go for the next two years. Along the way Ashburton was kept in the communication loop and it joined the MOU in August 2014.”

A key move at this point, says Ashley, was the appointment of an independent project manager – Peter Hall. “We all believe this was a catalyst in getting results.”

Technical liaison was critical, says Ashley. “This is where the gains were determined.”

The MOU described a single contract for road resurfacing for two years from August 2015.

“That didn’t mean to say it was easy. Previously it was done quite differently. One of the councils had annual contracts. Getting people on the same page to do the same thing was a real challenge.”

Resurfacing was placed into a single contract (with one specification) for two years and under joint procurement (using lowest price procurement) for three councils – Mackenzie, Timaru and Waimate. This was won by Downer NZ – after bids were received ranging from $8.48 million to $8.55 million. This contract involves multi-party funding agreement that protects Timaru District Council – the principal to the contract. A TDC land transport manager is the engineer to this contract, and three territorial local authority (TLA) engineering supervisors represent the separate council networks. This was also applied to the four collaborative road maintenance contracts.

Maintenance contracts

In August 2015 road operation and maintenance tenders were called, and by the end of October two unconditional and two conditional tenders had been accepted. In December last year the four, five-year road maintenance contracts started.

The tendering and procurement process (and documentation) for these contracts was a long process says Suzy. “There was robust debate over number, scope and scale, and duration of these five-year contracts that had started before Ashburton came on board.”

Not only did the four councils have to agree on common contract specifications, but it involved unique aspects for each district to be detailed in the Common Appendices, and had to involve a common basis of payment.

A tender requirement was Road Assessment & Maintenance Management software contractor Pocket RAMM integration. Many contractors who eventually put in a tender bid for a contract failed in this respect.

Says Ashley, “Our technical people said we need RAMM as we need good data, and we need to own the process of how that is collected.”

There were four tenders advertised with identical calling and closing dates. Conditional tendering was permitted, he says.

“A contractor could offer to do more than one area/contract, but this was conditional on them winning a contract.”

An area of concern for the four council chief executives was that the tendering process wouldn’t disadvantage their council. Mackenzie and Waimate being the smaller areas didn’t want to be swamped out in the pricing process and to this effect, transfer payments were allowed between districts that had to be approved by the NZ Transport Agency.

The tendering process involved a compulsory briefing, presentations and interviews.

The result

The tenders attracted seven contractor tenderers and 25 bids (15 unconditional and 10 conditional).

“We ended up with a lot of documentation to fill a tender room, which generated a lot of work after tenders closed,” says Ashley.

Evaluations were concurrent for the four contracts and done by a tender evaluation team (one representative from each council) with an independent chair.

They used the Price Quality Method (PQM), which takes in both quality and price in the selection of tenders, which is said to be a more sophisticated and transparent adaptation of Weighted Attributes – the most commonly used tender evaluation method.

PQM uses three parameters: The scale of the job (represented usually by the engineer’s estimate or the median price or in this case, the lowest price received); the importance of quality to the project (ie, the weighting assigned to quality); and the bidders’ scores on their Non Price Attribute information.

This formula-based evaluation distinguishes the difference in quality between tenderers by translating the non-attribute grades to a Supplier Quality Premium (SQP). This is effectively a dollar value that corresponds to the additional quality represented in the attribute scores of each bidder. The larger the project, the more the weighting on quality, and/or the better the non-price attribute scores are, the higher is the SQP for any bidder. That SQP is then deducted from their price; and the lowest adjusted price is then the preferred tenderer.

This method is labour intensive, for suppliers and valuation team, but provides a transparent trade-off between the value add from the quality component of each bidder’s response, and their price.

The results were that Fulton Hogan (the incumbent) won the Ashburton and Timaru districts with two unconditional tenders and Whitestone Contracting won Mackenzie and Waimate districts with a conditional tender.

Although Whitestone was not the incumbent it offered the Mackenzie contract a ‘discount’ if it won the Waimate tender. This conditional tender now involves Mackenzie making a transfer payment to Waimate to compensate it.

What was learnt?

Suzy says it took over 12 months to get contract specification aligned. “Collaboration takes a lot of discussion, negotiation and time and it is resource hungry.”

Throughout the debate there was a lot of learning about each other’s management practices and asset management, she iterates, reflecting different management practices among the four unique networks.

“In the 87 scheduled items in the contract the only one we all couldn’t agree on was ice gritting. The two biggest councils are coastal and don’t have huge issues with ice, whereas Mackenzie is an alpine area.”

Ashley adds that current NZTA procurement rules are inhibitive during the tender evaluation process.

“At the end of the day, two thirds of the bids could be discounted because of high price or low quality.

“If we could have dismissed these from the process … then the work would have been over in just a couple of days [rather than weeks] and the result would be much clearer and much sooner, and the contractors wouldn’t be left waiting.”

Ashley also says that, unexpectedly, local market conditions (especially the effect of the two-year NZTA NOC in the district) had a “large influence” on the tendering process and determining price.

The Mid-South Canterbury Collaboration Group now believes it has produced a standardised collaboration document that can be used nationally by other councils.

“It is all about the people involved,” says Ashley, “and we had a great team that has made it work.

“The challenge is to ‘carry-on’ the task and cement the gains we have made through collaboration.”

These involve further MOU objectives around shared work in the area of RAMM data management; sharing resources and skills in areas of corridor and asset management and business cases for the 2018-2021 NLTP; and even collaborating on 30-year infrastructure strategies.