New roading maintenance contract

The Queenstown Lakes District Council considered the form of its new roading maintenance services contract at an extraordinary Council meeting held last week. The Council’s present contract is held by Downer EDI Works and began in April 2004 but is due to expire on 30 September, 2009.

The contract covers roading and maintenance services throughout the district, as well as environmental maintenance services (eg, snow clearing, grass spraying.) The value of the contract was approximately $6 million per annum.

Last week’s meeting was held in a ‘non public’ forum to allow ongoing negotiations with the new contractor to continue. “Council is currently negotiating with a preferred supplier and the outcome of these negotiations could be prejudiced if the commercial details were made public,” QLDC Mayor Clive Geddes said. It was decided at the meeting, however that the nature of the new contract could be made public, he said.

The new contract would be different from the traditional ‘measure and value’ contract: “The main disadvantage of this older type of contract was the lack of clear information to the Council about what it cost to maintain roads and the opportunity to discuss better alternative solutions directly with the contractor,” Mr Geddes said.

Current contracts meant Council received a price for the job with little transparency about what the final cost of the job, in terms of labour, plant and overheads turned out to be. It left the Council not knowing whether the treatment chosen was in fact the most effective and the best value for money.
At last week’s meeting the Council approved the negotiation of a ‘Target Price’ New Engineering Contract (NEC). This type of contract was developed internationally in recent years (now the United Kingdom’s favoured form of infrastructure services contract) and offered a more ‘open book’ style of relationship.

“The big advantage is an overriding principle of partnership and co-operation that means we can look at each piece of work, agree on the best way to solve it and pay for the work that is done,” Mr Geddes said. This type of contract was much more collaborative, with the Council and the contractor working together in a partnership.

Under the new contract the Council would set the budget and the level of service required, with the contractor being paid the actual cost, plus a margin. If the contractor and the Council together found a more economic way to do the job then the savings would be shared between the parties. “It’s a fair arrangement for the contractor and the community,’ Mr Geddes said.
The contract does require more contract management than traditional forms of contract but this additional staffing had been provided for under the new Council Infrastructure Services department, which would work closely with the successful contractor, participating in the management of work and decisions on the programme: “It increases the visibility of true cost and ensures the delivery of a quality service that will ultimately provide greater value for money,” Mr Geddes said.

The Council had also satisfied itself that the new contracts met New Zealand Transport Agency (NZTA) requirements, given that NZTA funded 43% of the maintenance work undertaken in the district. “This was a very important factor in our considerations,” Mr Geddes said.

Moving forward the Council had asked for more information about the specific Key Performance Indicators (KPIs) that the new contractor would need to fulfil before it authorises signing of the new contract. This information would be presented to the Council at its August meeting. “Council needs to agree the KPIs and ensure they are in place before the contract starts on 1 October as they are critical to the contractor’s performance,” Mr Geddes said.

The proposed term of the contract was three years, plus one, plus one - subject to satisfactory performance. The Council had also agreed to release large parts of the report prepared by officers for the recent closed meeting. “Only information considered to be commercially sensitive in the ongoing negotiations has been excluded,” Mr Geddes said.