Agenda item

Report of the Director for Placemaking and Housing. To be introduced by the Cabinet Member for Housing Services, Private Renters and Planning.

 

The report will set out the operation and maintenance contract for the localised communal heating systems also known as energy networks to individual properties and estates, and a separate dormant contract subject to setting up an energy company.

The Cabinet Member Housing Services, Private Renters, and Planning introduced the report which sought approval of operation and maintenance contracts for its portfolios of current and future heating systems provided through DENs.

 

The Cabinet Member outlined the following:

 

-       The Council required the support of specialist contractors to deliver operational maintenance and repairs to communal heating systems (also known as localised, decentralised energy networks) programmes. These programmes were critical to the comfort and safety of residents, supporting Haringey in ensuring it meets its duties to provide safe and decent homes for its tenants.

 

-       Maintenance of these systems required a high level of competency and specialist knowledge as well as access to specialist parts and supply chain. Quality and consistency in service provision was a priority, however the market for provision of this comprehensive service is currently limited.

 

-       The current arrangements relied on a number of different providers operating under ad-hoc arrangements which are vulnerable to changes in provision and performance as a result of having no long-term contract and/or commitment in place.

 

-       The Council cannot allow this service to fail due to lack of suitable contracts and competent resources, which at this time must be outsourced. By ensuring there is a suitable long-term supplier in place, the Council would demonstrate commitment to improving the quality of housing provided.

 

In response to questions from Councillor Cawley – Harrison, the following was noted:

 

-       The efficiencies in the approach taken to procure two ‘sister’ contracts, was explained to be more attractive proposal to the market given provision of this comprehensive service was currently limited.

 

-       The contract cost was subsumed in rent costs and not an additional service charge.

 

-       Residents would continue to report any communal heating issues through the Council process and not through the contract provider.

 

 

 Further to considering exempt information at item 23,

 

RESOLVED

 

1. To note the contents of Appendix A Exempt Report, and

 

2. To approve the preliminary award of the main (Housing) call-off contract to Contractor A for the operation and maintenance of existing and future DENs servicing HRA properties, subject to S20 for a maximum value of £10.2m for a 5-year, plus 5-year contract term, (Contract 1) and

 

3. To approve the preliminary award of a second call-off contract, also to

Contractor A, that would remain dormant, and will only become active if the Council decides to create an Energy Services Company, ESCo, (Contract 2) (see also 4.6 and 6.11 below) but is for maximum value of £10.6m and would co-terminate with contract 1 at the end of its term. Contract 2 will remain dormant subject to any future Cabinet decision whether or not to set up an ESCo. If the ESCo were set up, Contract 2 would be available to be Novated by the Council to the ESCo and then activated.

 

4. To Delegate authority to the Director of Placemaking & Housing, in

consultation with the Head of Legal Services, to finalise and award both of the contracts following completion of the Section 20 process for contract 1.

 

Reasons for decision

 

The Council requires operation and maintenance contracts for its portfolios of

current and future heating systems provided through DENs. The proposed

contracts represent good value for money (VFM) and are expected to

generate savings when compared to the current arrangements/practices

(further information on this is provided in the exempt report).

 

Awarding both contracts simultaneously locks in the current rates which

provide surety of cost and allows for reliable cost projection in relation to

future development commitments such as those at High Road West, where

there is already a level of commitment to create an ESCo. This company

would then have access to the O&M contract that this report seeks award for.

 

Having two similar contracts with Contractor A, allows the Council to offer the

same standards to its residents as a future Council ESCo will offer to

residents in private blocks as and where applicable.

 

Some of the Council’s existing heating systems within the scope of this

contract include leaseholders. The procurement process for contract 1 will

therefore comply with s20 of the Landlord and Tenant Act. This requires that

leaseholders are consulted on the provisional outcome of a procurement

prior to final contract award.

 

If the Council sets up an ESCo (either, for HRW, as a result of the

development moving forward as expected and the Council’s commitments in

the Development Agreement, or, for the borough-wide DEN, subject to a full

business case submission and Cabinet decision), following any novation of

contract 2, the ESCo will manage the (previously dormant) call-off contract

with Contractor A, covering the portfolio of DEN infrastructure

owned/managed by the ESCo. Contract 1 between the Council and

Contractor A for O&M in all HRA blocks will continue covering the scope of

existing and any future DEN infrastructure owned/managed by the Council.

There are efficiencies in the approach taken to procure two ‘sister’ contracts.

 

Entering the ESCo contract prior to either a decision regarding the full

business case for the DEN projects or confirmation that the development at

HRW will move forward does not incur costs as there are no contractual

commitments from doing so. For example, the contract does not make any

commitment to a minimum volume of work; and it does not grant exclusivity

to Contractor A for maintenance of new DENs. This was made clear

throughout the procurement process. Therefore, the Council can enter into

Contract 2 in order to secure the time-limited tender for its potential future

ESCo without taking on any liabilities (Contract 2 can effectively be left

dormant until it is needed). This is beneficial as it means the Council will

know exactly what costs and terms could apply to the potential future ESCo’s

operations making the business case assessment more credible. It also

means the Council will have contracts in place to allow it to deliver on its

commitments at HRW / to deliver the proposed borough-wide DEN should a

decision be taken to proceed with this project.

 

The current O&M arrangements for the Council’s modern DEN hardware has

developed over time, in an ad hoc way in response to the short-term need

where there have been limited systems to maintain, and the timing of

handovers have been sporadic. They provide a stop gap solution until they

come to an end, starting with Rosa Luxemburg in December 2023 and then

following on with Walter Tull House and subject to performance Broadwater

Farm. The Council therefore needs to put in place longer term provisions for

these services.

 

Alternative options considered.

 

An on-going contract to ensure the safe maintenance and provision of

heating and hot water to residents is essential. Therefore, ‘do nothing’ is not

an option.

 

The option to contract on a site-by-site basis for new heating systems would

require significant ongoing management and staff time, to procure and

mange individual contracts, as significant growth is expected during the

contract term. This would be less efficient and less attractive to suppliers and

therefore not provide value for money.

 

The option of shorter-term contracts would not return the same levels of

improvement in value for money as longer-term contracts and would be less

efficient from a procurement and management perspective. A longer-term

contract also allows for greater risk transfer to the provider.

 

The option to enter contracts longer than 5 + 5 years restrict the Council’s

ability to take advantage of a considerable evolution in technology, skills and

service provider market for operation and maintenance services over the next

decade. Therefore A 5-year contract with an option for a 5-year extension is

considered a suitable compromise.

 

The option to include all (i.e., older sites) was considered, however there

would be limited benefit due to:

· Many of the KPIs in the contract relate to features which are not present

in older systems, and

· The risk transfer to the service provider is limited where the Council

cannot evidence the condition of the systems or provide commissioning

records, and where older systems undergo major refurbishment, it will be possible to bring them into the contract scope.

 

Not entering into Contract 1 could result in significant disruption to residents whilst the Council extends and implements a range of ad-hoc short-term contracts or undertakes an additional separate procurement for the interim period. This would take additional time and resources and the current costs for these ad hoc contracts are higher than those within Contract 1. Not

entering into Contract 2 will mean the Council would a) potentially be

unprepared to fulfil its responsibilities at HRW and b) need to assess the

business case for the potential future ESCo without a clear understanding of

the terms and costs that company might face for O&M. However, entering

into Contract 2 does not create any liabilities for the Council or prejudice the

decision on whether or not to proceed with setting up an ESCo, If the ESCo

does not materialise, Contract 2 can simply be left dormant until it expires.

 

An option to procure a turnkey design, build, operate and maintain contract for the wider DEN infrastructure was considered and rejected due to a lack of competition in the market for such a contract. Instead, separate design and build, and operation and maintenance (O&M) contracts will be required, with the option to transfer the schemes on to these contracts at the end of defects.

 

An option to procure a turnkey design, build, operate and maintain contract for the energy infrastructure at High Road West was considered and rejected due to the earlier stage of development of the High Road West scheme at the time the procurement was launched and because most of the infrastructure at High Road West will be designed and built by the Council’s development partner. Therefore, High Road West has been included within the scope of the potential future ESCo O&M contract.

 

The options for ESCo contracts on a site-by-site basis, and shorter/longer

contracts were also considered and rejected for the same reasons set out in

5.2 above.