Isle of Wight Council – Highways PFI Outline Business Case – December 2009

Isle of Wight Council – Highways PFI Outline Business Case – December 2009 1

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Index

1. Executive Summary

1.1 Introduction

1.2 Background

1.3 Strategic Context

1.4 The Need

1.5 Scope

1.6 Benefits

1.7 Achieving Value for Money

1.8 Affordability

1.9 Programme Delivery

1.10 Member and Stakeholder Support

1.11 Conclusion

2. Strategic Case

2.1 Introduction

2.2 Pathfinder Project

2.3 Local Background

2.4 Strategic Policy Context

2.5 National Policy Context

2.6 Regional Policy Context

2.7 Local Community Strategy – Eco Island

2.8 The Isle of Wight Economic Strategy

2.9 Isle of Wight Council Corporate Plan – One Island

2.10 The Island Plan

2.11 Local Transport Plan 2006 – 2011 (LTP2)

2.12 Area of Outstanding Natural Beauty (AONB) Management

Plan

2.13 Historic Built Environment

2.13.1 Public Realm

2.13.2 Archaeological Heritage

2.13.3 Natural Environment – Species and Habitats

2.13.4 Historic Environment Action Plan (HEAP)

2.14 Transport Asset Management Plan


2.15 The Network

2.15.1 Asset Inventory, Condition and Survey Data

2.15.2 Road Pavement Condition

2.15.3 Street Lighting

2.15.4 Traffic Signals

2.15.5 CCTV

2.16 Current Service Delivery and Performance

2.16.1 Current spend on Island Roads and Bridges

2.17 Drivers for Change

2.17.1 The Service Gap

2.17.2 Carriageways

2.17.3 Footways

2.17.4 Bridges and Other Structures on the Highway

Network.



2.17.7 CCTV

2.17.8 Drainage

2.17.9 On and Off Street Car Parking

2.17.10 Major Works – Bouldnor Road

2.18 Project Description/Overview

2.19 Project Scope

2.19.1 Roads

2.19.2 Structures

2.19.3 Street Furniture

2.19.4 Footways


2.19.6 Street LIghting

2.19.7 CCTV

2.19.8 Grass Cutting and Street Cleansing

2.19.9 On and Off Street Car Parking

2.19.12 Bouldnor Road Improvement

2.20 Standards of the Project

2.20.1 Core Investment Period

2.20.2 Post CIP

2.21 Conclusion


3. Economic Case

3.1 Introduction

3.2 Options Appraisal

3.3 Service Improvements and Community Benefits

3.3.1 Time savings from higher traffic speeds

3.3.2 Changes in travel times

3.3.3 Vehicle operating cost savings

3.3.4 Reduction in the number of accidents

3.3.5 Reduction in the Council’s public liability payments

3.3.6 Reduction in accidents and street crime

3.3.7 Time savings from the removal of weight and width

Restrictions

3.3.8 Efficiency gains

3.4 Value for Money Assessment (TQAT)

3.5 NATA

3.6 Assessment of Funding

3.7 Preferred Investment/Service Delivery Option

3.8 Conclusion

4. Commercial Case

4.1 Introduction

4.2 Procurement Appraisal for PFI

4.3 Procurement Process

4.4 Competitive Dialogue (CD)

4.4.1 Evaluation Criteria

4.5 Output Specification

4.5.1 Performance Requirements

4.6 Project Agreement

4.7 Payment Mechanism

4.8 Derogations from SOPC4

4.9 Commercial Issues

4.9.1 Wharf Facilities

4.9.2 Isle of Wight Mineral Background

4.9.3 IWC Property Considerations

4.10 Market Soundings/Market Interest

4.11 Project Data

4.12 Encouragement of Competition


4.13 Bankability

4.14 TUPE

4.15 Insurance

4.15.1 Current Insurance Arrangements

4.15.2 Insurance Arrangements under PFI

4.16 Conclusion

5. Financial Case

5.1 Introduction

5.2 PSC Base Costs

5.2.1 Core Investment Period (CIP)

5.2.2 Lifecycle, Operations and Maintenance Costs

5.3 Shadow Bid Model

5.3.1 Shadow Bid Costs

5.4 Affordability

5.4.1 Budgetary Contribution

5.4.2 Cash flows from PFI Credits

5.4.3 Interest on cash balances

5.5 PFI Credits and Calculation Methodology

5.5.1 Gap Funding

5.5.2 Revenue Abatement

5.5.3 PFI Credit Requirement

5.5.4 Sensitivities

5.6 Preferred bidder debt funding competitions

5.7 Value for Money

5.7.1 Pre and Post Optimum Bias

5.7.2 Quantitative & Qualitative Assessment

5.8 Initial View on Accounting Treatment

5.9 Financial Case Summary

6. Management Case

6.1 Introduction

6.2 Project Management & Project Governance Structure (Pre

& Post OBC)

6.2.1 Project Team Structure – to OBC

6.2.2 Project Team Structure – Post OBC

6.2.3 Contract Management Team – Post contract award


6.3 Expert External Advisors

6.4 Meetings

6.4.1 Internal

6.4.2 External

6.5 Project Delivery Plan and Timetable

6.6 Operational phase and contract monitoring

6.7 Project Interface and Dependencies

6.8 Stakeholder Consultations and Communications Strategy

6.8.1 Local Residents

6.8.2 Network Users

6.8.3 All Council staff

6.8.4 Statutory Undertakers

6.8.5 Local Suppliers

6.9 Sponsorship and Support

6.10 Risk Management

6.10.1 Risk Escalation

6.10.2 Current Risk Status

6.11 Data Management

6.12 Gateway Reviews/Independent Scrutiny

6.12.1 Gateway Reviews

6.12.2 Independent Scrutiny

6.13 Statutory Processes

6.14 Readiness to Proceed to Procurement


Appendix Number Appendix Name

1 Cabinet Report

2 Cabinet Minutes

3 Letter of Support from Southampton University

4 Inventory and Condition Data

5 Technical Modelling Process

6 Core, Non-Core and Retained Services

7 Justification of Scope Change from the EoI

8 Justification of Bouldnor Road

9 Traffic Modelling

10 Justification of CIP Duration

11 Non-Financial Options Appraisal

12 NATA

13 Time Savings and Network Improvements

14 Estimated Costs of Required Work

15 Draft OJEU Contract Notice

16 Project Plan

17 Key Aspects of the Output Specification

18 Derogations from SOPC4

19 Prior Information Notice (PIN)

20 Letters of Support from Soft Market Testing

21 A Basic Guide to TUPE

22 Admitted Body Status

23 Pension Rights

24 Shadow Bid Model

25 Annuity Based Affordability Model

26 Qualitative and Quantitative Assessment

27 Monte Carlo Results

28 Letters of Support from External Advisors

29 Communications Strategy

30 Letter of Support from Unison

31 Procurement Cost Breakdown

32 Risk Management Strategy

33 Risk Register

34 Gateway Review Report

35 Industry Day Report

36 Member Review Board Terms of Reference

37 Soft Market Testing Update

38 Section 151 Officer Letter


Glossary

AONB − Areas of Outstanding Natural Beauty AADT − Annual Average Daily Traffic BCS − Bridge Condition Score BV − Best Value BVPI − Best Value Performance Indicator CCTV − Closed Circuit Television CD − Competitive Dialogue CFT − Call for Final Tender CIP − Core Investment Period CLG − Communities and Local Government COPLR − Code of Practice for Litter and Refuse CSS − County Surveyors Society CVI − Coarse Visual Inspection DEFRA − Department for Environment and Rural

Affairs DfT − Department for Transport DNO − Distribution Network Operator DVI − Detailed Visual Inspection EoI − Expression of Interest EU − European Union FBC − Final Business Case FCI − Footway Condition Index GI − General Inspections GIS − Geographical Information System HEAP − Historic Environment Action Plan HGV − Heavy Goods Vehicle HMT HM Treasury HR − Human Resources IFRS − International Financial Reporting

Standards IoW − Isle of Wight ISDS − Invitation to Submit Detailed Solutions ISOS − Invitation to Submit Outline Solutions ISP − Island Strategic Partnership IWC − Isle of Wight Council LGPS − Local Government Pension Scheme LTP − Local Transport Plan MRB − Member Review Board MIS − Management Information System MOSLAR − Maintenance of Street Lights and Roads NATA − New Approach to Appraisal NCI − Network Condition Indicator NHS − National Health Service NI − Network Indicator NJUG − National Joint Utilities Group NPV − Net Present Value OB − Optimism Bias


OBC − Outline Business Case OJEU − Official Journal of the European Union PB − Project Board PFI − Private Finance Initiative PI − Principle Inspections PIN − Prior Information Notice PMS − Pavement Management System PQQ − Pre Qualification Questionnaire PUK − Partnerships UK PRA − Parapet Risk Assessment PS − Performance Standards PSC − Public Sector Comparator RCI − Road Condition Indicator RoW − Rights of Way RPIX − Retail Prices Excluding Mortgage

Payments RSS − Regional Spatial Strategy SAC − Special Areas of Conservation SCRIM − Sideways-force Coefficient Routine

Investigation Machine SEEDA − South East England Development

Agency SINC − Sites of Importance to Nature

Conservation SMT − Stakeholder Management Tool SoPC4 − Standardisation of PFI Contracts –

Version 4 SPA − Special Protection Areas SPV − Special Purpose Vehicle SRB − Single Regeneration Budget SRO − Senior Responsible Owner SSSI − Sites of Special Scientific Interest TA − Technical Advisor TAMP − Transport Asset Management Plan TQAT − Treasury Quantitative Assessment Tool TRIP − The Road Information Programme TUPE − Transfer of Undertakings (Protection of

Employment) Regulations UC − Unitary Charge UKPMS − United Kingdom Pavement Management

System UTC − Urban Traffic Control VFM − Value for Money


Foreword

It is with great pleasure and expectation that we endorse this Outline Business

Case. The condition of Island roads – and the need to improve them – is regularly

highlighted by residents as an issue of great, if not most, importance to them. That

in itself is reason enough to be progressing the Highways PFI. However, what is so

exciting about the Project is that it is a catalyst for much more far-reaching benefits

to the Island, its economy, its environment and for the opportunities we offer

residents.

This document sets out how we plan to maximise these opportunities through what

is the most comprehensive project of this scale ever undertaken on the Island.

Throughout its drafting, our PFI team has sought to identify and maximise every

possibility this huge investment to our community will bring. The Council sees the

PFI as a key project around which Council policy will be interwoven for years to

come. The Project will in some way touch the lives of all residents – the challenge

for us is to ensure it does so in ways that will benefit them most. That is why we

have placed such emphasis on complementing the aims of our Eco Island agenda,

on why we believe training and education is an integral part of the PFI and why we

believe the maximum economic benefit should be accrued from every single penny

of investment the PFI will bring to our Island.

Our challenge is to be fully inclusive - to ensure that the whole community not only

understands the implications of the PFI but also wants to engage with the Project,

understand its possibilities and enjoy a dividend from it. We should not lose sight of

the fact that the Project will help define our economic prospects for many years to

come. We must remember that those who perhaps stand to gain most from the

Project are the next generation, such is the longevity of opportunity, and such is the

scope of possibility. While we as Leader and Chief Executive put our names to this

document, we hope that our aspirations will be shared by the whole community.

Councillor David Pugh Steve Beynon

Leader of the Council Chief Executive



1. Executive Summary

1.1 Introduction

The Isle of Wight Council has developed a holistic approach to delivering the

Highways PFI, seeking to bring all relevant aspects of highways services within

the single delivery PFI mechanism. The Highways PFI will upgrade the Island’s

adopted highway network between fence to fence along with associated assets

and streetscene and will maintain and operate that network throughout the life of

the Project. The PFI Project will raise the standard of the highway, offer a better

service, improve safety and enhance the street appearance.

1.2 Background

The Department for Transport (DfT) selected the Isle of Wight Council (IWC) as

one of three “pathfinder” Highways PFI Projects in March 2008. The Island’s

highway network has suffered from years of under investment and is badly in

need of significant investment to bring it to an acceptable standard. Without such

major investment, restrictions of the network will continue to grow to a point that

the highway network will not be operated in a safe manner. The approval of the

IWC’s Expression of Interest has therefore given the Council the impetus needed

to rehabilitate and operate a safe highway network.

1.3 Strategic Context

The Council’s and its partners’ vision is to make the Island a world renowned Eco

Island with a thriving economy and a real sense of pride where residents and

visitors enjoy healthy lives, feel safe and are treated with respect. The Island,

despite being part of the more prosperous South East region suffers from low

productivity, low wages and low skill levels. We are determined to improve the job

opportunities and create a sustainable economy whilst we address our failing

transport infrastructure. The Highways PFI has been developed to align itself with

the national, regional and local strategic objectives by placing sustainable

development at the heart of the Island’s regeneration plans. The Project, in

addition to offering a higher standard of highway services, will help to create a

significant stimulus to the local economy, offering an opportunity to regenerate

parts of the Island and create highway maintenance related industry on the


Island. With an improved transport network and a lower wage based economy,

the Island will also be better placed to attract inward investment.

1.4 The Need

The Island’s highway network has suffered from years of less than required levels

of investment. The condition of the roads, footways and street lighting has

reached a level where weight and width restrictions are now becoming a regular

feature. The Island’s roads condition has fallen to below the bottom quartile of all

the national highway condition indicators. The Island wide customer survey

indicates that the state of the roads is now the biggest concern for the residents

and visitors. The need to refurbish the Island’s highway network is therefore

overwhelming.

1.5 Scope

The Council has adopted the “fence to fence” approach to defining the Project in

order to achieve considerable synergies and efficiencies in the delivery of

highway related services. This approach also enables the Council to limit

contractual interfaces to the minimum to deliver a holistic service with single point

responsibility. The Highways PFI Project will deliver the upgrading and

maintenance of the roads, bridges, retaining walls, footways, cycleways, street

lighting, CCTV, traffic controls, on and off street car parking, street furniture,

grass cutting and street cleansing. The CCTV and off street car parking will be

funded by the Council. The Council has carried out soft market testing to

ascertain the market appetite for the scope and is pleased to receive

considerable support for the approach being taken.

1.6 Benefits

The Highways PFI Project will upgrade the Island’s infrastructure and provide a

much improved highways service to Islanders and tourists alike. These direct

benefits will be derived from smoother carriageways and footways, better lighting

and better quality cycleway for cyclists. The softer benefits of safer, clean, well lit

streets will have a major impact on building higher self esteem among the local

citizens and help to contribute towards shaping a community that is proud to be

part of a naturally beautiful island that has built a sustainable economy around a

major investment on its highways. The Council is working with organisations

such as the Isle of Wight Chamber of Commerce, Business Link and Solent


Innovation and Growth Network to develop the local industries to become ready

for delivering the works at sub contractor level. The Council is also developing its

strategy to work with local schools, Isle of Wight College and universities to build

the Island’s skills base to ensure there is enough capability and capacity to

support the Highways PFI over the 25 year period. This Council believes

developing the local industry and educational base can help to regenerate the

Island and retain a very high proportion of the PFI investment within the Island,

producing a multiplier growth effect for the local economy.

1.7 Achieving Value for Money

The Council’s holistic approach to delivering highway related services will help to

achieve significant synergies and scale benefits. In addition, the Council will be

using carbon footprint as a criteria to better utilise the Island’s mineral resources,

encourage efficient use of energy, promote the use of local labour, all of which

will have a significant impact on reducing the cost base. The Isle of Wight is

determined to produce a highway refurbishment solution that addresses some of

the major structural issues of the infrastructure but beyond that, it has taken a

pragmatic approach to raise the average condition by classification of road

usage. At the lowest level of usage, the level of upgrade is kept to a minimum to

deliver a less invasive treatment, appropriate for the Isle of Wight traffic

conditions.

The Council has demonstrated, using the DfT’s New Approach to Appraisal

(NATA), that the project delivers sound economic benefit. In addition, there are a

number of non-quantifiable, qualitative benefits which have been captured in the

appraisal. The Council has developed a shadow bid model in line with the HM

Treasury methodology and compared it with the Public Sector Comparator to

demonstrate that this Project delivers value for money.

1.8 Affordability

The Council has built up a robust inventory of all its assets and a comprehensive

database of asset condition. Using this, it has built a Cost Model which provided

the basis for the PFI Shadow Bid Model. The Council has taken the opportunity to

model the current financial market uncertainty and taken the worst market

conditions at the beginning of this year to calculate the PFI Credit requirements.

On the basis of this conservative estimate, the Council is seeking a PFI Credit of


£364.6 million. The Council has increased its contribution from previously

allocated budgets to £9.02 millions per annum including client side management

cots to deliver this Project.

1.9 Programme Delivery

The Council has put in place a robust governance structure, a dedicated

Programme Delivery Team led by a very experienced Programme Director,

supported by in-house professional engineers, accountants, procurement

specialists and lawyers to bring together the necessary local highway background

and experience. Supporting the in-house team is a strong group of external

advisors, who bring a wealth of PFI experience. The Council has paid particular

attention to building a single “integrated project team”, setting up a dedicated

office where advisors and the Council officers work in a single team.

The Programme Director has developed a deliverable programme and has

estimated the need for a procurement stage budget of £7.6million. The Council

has formally approved this programme and budget and has made a strong

commitment to making other shared corporate resources available. The Council

is increasing the full-time capacity of the in-house PFI Team, post OBC

submission to enter the procurement phase. The Council has further developed

the Contract Management structure post financial close. The post-OBC structure

will provide the foundation for building capability for the longer term Contract

Management team. Those who are involved in the competitive dialogue phase

will gain considerable insight into contract negotiations and the final contractual

terms agreed with the Service Provider.

The Council has built an excellent inventory and condition database and this will

be made available as part of the data room to bidders. This information is in GIS

format and a video of the full network is also available. The Council now has a

very high degree of confidence in its data. The condition assessment surveys will

now be repeated annually to maintain the robustness of the data.

With the combination of a strong governance framework, adequate resourcing,

experienced project leadership, deliverable time scales and an excellent asset

base, the Council now has all ingredients for successful Project delivery.

Moreover, it has a high degree of confidence in delivering a Project with an

appropriate commercial package suitable for the Isle of Wight conditions.


1.10 Member and Stakeholder Support

The Highways PFI Project has strong all party support. The Project was initially

developed under Island First (a Liberal Democrat/Independent administration)

and has continued to progress under the Conservative administration. The

Project plays a vital role in supporting all party aims of creating sustainable

employment on the Island.

The Council cabinet approved the Outline Business Case on 11 August 2009.

The accompanying report and the minutes of the meeting are in Appendix 1 and

Appendix 2 respectively. Members have delegated appropriate authority to the

Project Board and the Project Sponsor to make all procurement decisions

following the approval of the OBC until the Preferred Bidder selection and

appointment.

The Project has wide support among the Island’s stakeholders, businesses,

community groups and partners who are aware of the significant social, economic

and regeneration benefits the Project will bring to the Island. The Council staff

who are likely to be affected by the Project are regularly briefed and the Highway

PFI Project’s own intranet site provides regular updates.

1.11 Conclusion

The Council values and protects the pathfinder status it gained following the

successful submission of the Expression of Interest. It has now developed the

Project taking a practical and pragmatic approach to developing an attractive but

challenging package for the market, in a sensible timescale backed up by a

strong delivery team. The ethos of this team is “partnership working” and that

spirit will continue, even through the dialogue period, with the ultimate aim of

delivering a “win-win” approach to this Project. The Council is now ready to

embark on the procurement stage of the Project, following approval of this

Outline Business Case.



2. Strategic Case

2.1 Introduction

The Isle of Wight Council and its strategic partners have grasped the opportunity

to address some of the major challenges that are fundamental for the

regeneration of the Island. The Council is leading the way by implementing both

challenging internal reform and modernisation, and external service reforms in

the education and highways maintenance sectors. These reforms are driven by

the Island’s strategy, the Eco Island Vision 2008-2020, for a sustainable

community that thrives amidst the natural beauty and surroundings.

The Highways PFI forms an integral part of the strategic reform to increase the

capability and capacity of the Island and improve its attractiveness for inward

investment. The Highways PFI is seen as the significant catalyst not just for

improving the condition of the highway network, but also to create a road

construction and maintenance industry and its supply chain, using local natural

and physical resources. The Council and its Strategic Partners are working

towards an economic regeneration programme, underpinned by the Eco Island

vision, to derive significant economic benefits, for example through a multiplier

effect from the Highways PFI investment over the 25 year life of the project.

External Drivers for change stem from National, Regional and Local Policy.

These in turn relate to National Planning Policy Guidance, the special policies in

the South East Plan relating to the Isle of Wight, which underpins the Isle of

Wight Community Strategy, the Isle of Wight Economic Strategy, and AONB

Management Plan formulated and agreed with local partner organisations. Within

this context Internal Drivers are identified from the strategies and policies

developed by and within the Isle of Wight Council, including the Isle of Wight

Development Plan and Local Transport Plan.

The Council has a clear vision for the Highways PFI which is:

To create an efficient highway network and public realm, providing

sustainable, high quality, value for money service to residents and visitors,

whilst acting as a catalyst for social and economic regeneration of the

Island.


Based on this vision, the Council has set the following Project Objectives:

• To ensure the provision of a high standard, fit for purpose highway

network to meet the needs and aspirations of residents, business and

visitors for the movement of goods and people.

• To promote sustainable transport options and initiatives by ensuring the

availability and maintenance of the whole physical highway and

appropriate traffic management.

• To provide a comprehensive and seamless service for all parts of the

highway, fence to fence, both in built up areas and the countryside with

appropriate standards and use of materials to reflect local

distinctiveness and character.

• To create a safe highway environment within the context of a well

managed public realm/whole street scene

• To create a highway maintenance industry that acts as a stimulus for

the economy.

The Project will be developed to deliver these objectives by designing an

appropriate contract structure defining the project which can be achieved within

the affordability envelope.

The Isle of Wight Highways PFI is a unique Project. In an Island context,

surrounded by water, there are no overlapping local authority boundaries with

neighbours or trunk road network that come under Highways Agency

responsibility. The highway boundaries, ownership and responsibilities are

therefore clearer in comparison to any other local authority on the mainland. As

one of the three pathfinder schemes, it is also well placed to provide valuable

knowledge, direction and lessons for future tranches of maintenance PFI

programmes. In particular, the Council intends to explore new opportunities,

innovative approaches, and future proofing to introduce advances in technology

during the life of the PFI. It also intends to build a locally based highway industry

with its partners in the education sector, industry and the PFI provider.


2.2 Pathfinder Project

In technical terms, the highways on the Island are largely rural in nature, in an

area of outstanding natural beauty, with pockets of urban roads surrounding the

local towns. The pathfinder approach taken by the Council will provide a number

of opportunities to learn lessons for the future and share knowledge for the

benefit of the highway industry:

• The Council has built up a complete list of its highways inventory and condition.

Using this data, it is building a suit of condition indices using certain key

parameters. The Council is keen to reflect the island conditions in its

deterioration model and to ensure an affordable specification. Similarly it has

developed skid resistance policy and carriageway and footway condition

models. Standards appropriate to the Island needs will also be appropriate to

rural and semi rural communities elsewhere in the UK.

• The Council will record progress and key issues faced at each of the key stages

and to share solutions developed with DfT and the other pathfinder authorities.

• The Council is setting in place the foundation for a collaborative framework with

schools, Isle of Wight College, University of Southampton, other local

universities and other educational institutions to build the technical capability

and capacity needed to create an Island based Highways Maintenance

Industry. A supporting letter from University of Southampton is attached at

Appendix 3. The Island is in a unique position to use the investment on the

roads over the 25 years project period to regenerate the local economy

through planned, strategic investment in the educational sector.

• The Council intends to seek proposals from bidders for setting up training and

apprenticeship schemes in association with the educational sector.

• The Council aims to create an economic regeneration climate that delivers

visible improvements across the Island and for Islanders and which acts as the

trigger for major regeneration. The economic regeneration benefit of

investment in transport projects is usually very difficult to measure, but the

Island context offers an ideal contained market place to measure investment

and economic growth.

• The Council is keen to work with other local authorities, universities, research

organisations and international highway authorities to share the benefits of the

experience gained from the PFI model maintenance procurement.


2.3 Local Background

The Isle of Wight, a diamond shaped island, separated from the UK mainland by

the sinking of the Ancient River Solent during the Bronze Age to become an

island in its own right. The Island, separated from the south coast by the Solent,

measures approximately 13 miles by 23 miles along its diagonals and covers an

area of 38,014 hectares.

The Island has a rich history dating back to the Duke of Warwick, the first King of

the Isle of Wight, to Charles I being held as a prisoner in Carisbrooke Castle, and

Queen Victoria’s favourite home Osborne House, which still stands proud on the

Island. In 2009 however, the Island is now part of the England and Wales Local

Authority system and has Unitary Authority status.

The Island has a unique and important natural environment, which is protected by

national and local designations. A majority of the Island is rural in character with

isolated farms, hamlets and villages and with over half the area designated as

Areas of Outstanding Natural Beauty, (AONB). Much of the coastline is defined

Heritage Coast and the majority of the coast and some inland areas are

designated for European and/or International nature conservation of wildlife

species and habitats. There is a cluster of five areas designated as the Isle of

Wight AONB, 41 Sites of Special Scientific Interest (SSSI), 28 existing and 4

proposed Conservation areas and 34 kms of heritage coast. The Island has over

2000 listed buildings of which 28 are Grade 1, including the historic Osborne

House and Carisbrooke Castle.

Travel to and from the Island is via privately operated and un-subsidised vehicle

and passenger ferry services. The vehicle ferry routes are between Lymington

and Yarmouth in the West, Southampton and East Cowes centrally and

Portsmouth and Fishbourne in the East, creating pulses of traffic generation onto

the highway network. High speed passenger boat services are from Southampton

to Cowes, Portsmouth to Ryde and a hovercraft service runs from Southsea to

Ryde.


The County Town of Newport is centrally located with a primarily radial road

network linking the other main settlement areas such as Cowes, East Cowes,

Ryde, Sandown, Shanklin and Ventnor, distributed around the coast. There is a

coastal road system, linked by the Floating Bridge at Cowes, encircling the Island

which is valued by tourists and Islanders alike. The Island has an integrated

public bus network, but services are not available in some rural areas. Island

Line, part of the Stagecoach South Western Trains franchise, operate the eight

and a half mile of passenger railway serving the towns of Ryde, Brading,

Sandown, Lake and Shanklin. A leisure steam railway operates between Wootton

and Smallbrook.

In the absence of a comprehensive public transport network, the largely rural

community relies heavily on private transport. The 2001 census data showed that

compared to England and Wales, the Islanders have slightly higher car

ownership; some 64,000 cars/vans were recorded in the census, some 0.49

cars/vans per person or 67 per km. In addition, there is the daily influx of

passenger and heavy goods traffic, to meet the day to day needs of the

Islanders.

The Island’s 803 km of road network has become the lifeline for the Islanders,

playing a vital role in the social, commercial and recreational life of the

community. However, the conditions of the roads have deteriorated over the

years and many roads are no longer fit for purpose. Currently seven roads have

weight restrictions whilst a large number have width restrictions. The failing road

network is considered to be one of the key factors contributing to a slow down in

the economic regeneration of the Island.


The 2001 census recorded an Island population of 132,731. The Island’s

population distribution is skewed towards the elderly in comparison to national

averages; over 28% of the population were aged 60 years or over, compared with

around 20% for England and Wales; at the other end of the scale, those aged 16

years and under were significantly lower at around 18%. The skewed age

distribution reduces the available pool of economically active citizens, impacting

the economy of the Island.

The public sector is one of the major employers in the Island – namely, the Isle of

Wight Council, NHS, the Prison Service and the Police. The Island also supports

a number of specialist niche industries – wind turbine research and development,

radar, electronics/communications, yacht/boat building, composite and resins,

pollution control equipment, Royal National Lifeboat Institution inshore lifeboats,

cosmetics and fashion.

The Island’s economy is heavily dependent on the tourist industry and during the

summer months the Island’s population can double, with total numbers of visitors

reaching about 2.7 million each year. This can also lead to traffic volumes

doubling during the summer months. The majority of the World’s leading

yachtsmen and women descend on the Island during Cowes week. The Island’s

Music Festivals and Walk the Wight are now nationally famous events attracting

many thousands from far a field. The Island is a paradise for walkers, cyclist and

horse riders. It has over 851km of Rights of Ways traversing through some of

most beautiful parts of the Island.


Whilst the Island sits geographically within the south-east of England it does not

benefit fully from the regions prosperity. The Island has pockets of deprivation

and five wards fall within the 20% most deprived areas in England. The rate of

unemployment has continued to reduce from the historical highs of 10% in the

mid 90’s to currently nearer 4% but much of the employment is seasonal, with

high dependency on the tourist industry. Recent economic changes have further

affected locally based industries causing an increase in the claimant count. The

Island has the second lowest average wage in the UK.

The image of an Island full of natural outstanding beauty, buzzing with an influx of

tourists in the summer, sits in stark contrast with the huge need for economic

regeneration, better employment opportunities, and improved standards of living.

Isle of Wight Council works closely with the South East England Development

Agency and stakeholders to support and develop the Island’s economy through

regeneration programmes, business critical infrastructure and targeted business

support. The Island's economy is now well placed to continue to grow, particularly

drawing on its environmental assets and strengths in growth sectors such as

renewables, aerospace, composites, tourism and marine related industry and

quality infrastructure/well maintained roads are critical to supporting this.

2.4 Strategic Policy Context

The Council’s vision of making the Island a great place to live, work and visit is

being achieved through an integrated series of underlying strategies and policies

consistent with regional and national policies. In this context, the Highways PFI

Project has been developed in line with National and Regional Strategies and is

driven by local strategy and policies as shown in the following diagram.


2.5 National Policy Context

The Chancellor of the Exchequer, in his pre-budget statement in November 2008

set out the Government’s long-term economic goal - to secure and maintain

economic stability, in order to achieve its objective of a fair society where there is

security and opportunity for all. Its aim is to raise the rate of sustainable growth,

and achieve rising long term prosperity and a better quality of life with economic

and employment opportunities for all.

The 2004 Government White Paper “The Future of Transport, a network for

2030” sets out the Government’s vision for transport up to 2030. It recognises the

need for a transport network that can meet the challenges of a growing economy

and the increasing demand for travel, but a network that also achieves

environmental objectives. This strategy is built around three key pillars –

sustained investment, improvement in transport management, and planning

ahead. This means coherent transport networks providing a more reliable and

free-flowing service for both personal travel and freight.

The Government’s Climate Change Bill introduces a legally binding target to cut

greenhouse gas emissions by at least 80 per cent by 2050, the most ambitious in

the G8, building on plans to deliver a one-third reduction in emissions from 1990

levels by 2020.

Against this back drop of the need for long term economic stability, supporting

increasing demand for travel whilst continuing to reduce greenhouse gas

emission, the Department of Transport announced a Highway Maintenance

Pathfinder Programme.

The Government ten-year Plan, Transport 2010, sets out the Strategy for

modernising the transport network nationally. The Plan sets several strategic

objectives including the elimination of the maintenance backlog on local roads,

bridges and street lighting. In addition, the July 2004 White Paper, The Future of

Transport - a network for 2030, reinforces the strategic importance of the

transport network in promoting sustainable, national and local economic growth

and in enhancing social and environmental well-being.


2.6 Regional Policy Context

The South East is a major gateway to Europe and beyond and is the most

prosperous region in England. Even though the Island is part of the South East

Region, it does not share proportionately in the wealth of the Region. However,

the Island has a rich history of innovators and entrepreneurs who have made

valuable contributions to the South Eastern and the national economy. Sustained

inward, private, investment relies heavily on appropriate regional and national

strategies to support transport and other infrastructure development.

The Regional Spatial Strategy (RSS) for the South East of England, known as the

South East Plan, published in May 2009, sets out the long term spatial planning

framework for the region over the next 20 years. The Plan is to develop a

healthier region by achieving more sustainable development, protecting the

environment and combating climate change.

A healthier region means working to improve, among others things, the provision

of community transport facilities, sustainable transport links, a feeling of security

and an approach to a sharing the benefits of regeneration. The South East Plan

will deliver these through local policies which, in the case of Isle of Wight, will

focus on maintaining a high quality of life whilst increasing prosperity and

opportunities for the Islanders, at the same time nurturing and enhancing the

environmental assets, and promoting the efficient use of resources.

The Regional vision is “By 2016 the South East will be a world class region

achieving sustainable prosperity.” The Region faces increasing challenges from:

• Globalisation – increasing competition but an opportunity to build on past

Entrepreneurial culture,

• Smarter growth – higher levels of prosperity per head without increasing

ecological footprint,

• Sustainable Prosperity – innovating to provide economic prosperity within

environmental limits.

Investment in the Isle of Wight’s Highways PFI is aimed at strengthening the

highways network and transport across the Island to enhance its attractiveness

as a place for investment, thereby contributing to the success of the Region and

the Island. The Island has a relatively low cost base and an eco friendly business


environment which, with the support of SEEDA, is being revitalised through

economic regeneration. The Highways PFI is the key strand that runs through

this regionally supported regeneration and development.

2.7 Local Community Strategy - Eco Island

The Island’s local strategic partnership is known as the Island Strategic

Partnership (ISP); the ISP is made up of leading organisations in the Island

including the Isle of Wight Council, the Health Authority, the Police, Voluntary and

Community Organisations, IW College, the Chamber of Commerce, Business

Community and Government Departments. The Community Strategy “Eco Island”

sets the vision for the next decade by aiming:

“to be a world renowned Eco Island, with a thriving economy and a real

sense of pride, where residents and visitors enjoy healthy lives, feel safe

and are treated with respect”

The four main themes that underpin the strategic vision are:

• Thriving Island,

• Healthy and Supportive Island,

• Safe and Well-kept Island,

• Inspiring Island.

This Island Vision is being delivered through a series of prioritised policy

initiatives and the Highways PFI is one of the vital delivery mechanisms for

achieving this vision.

Through this vision the ISP is committed to protecting and enhancing the Island’s

natural beauty; creating wealth and reducing carbon footprint; supporting

economic development and regeneration; reducing crime and fear of crime; and

enhancing how our local area ‘looks’ and ‘feels’. The Highways PFI is being

developed to support each of these areas and is the cornerstone for the final

Project options presented in this OBC. The ISP is now committed to deliver, by

2020, the lowest carbon footprint in England and renewal of infrastructure to the

highest ecological standards.


2.8 The Isle of Wight Economic Strategy

The Isle of Wight Economic Strategy supports ‘Investing in success to produce a

more mixed economy, creating opportunities for increased inward investment and

sustainable prosperity by prioritising quality of life.’ The strategy cites the road

infrastructure on the Island as one of the key weaknesses for attracting inward

investment and the Highways PFI is seen as vital to both cementing and

reinvigorating a fragmented highway maintenance industry on the Island and

providing an attractive and fit for purpose road infrastructure.

2.9 Isle of Wight Council Corporate Plan - One Island

The IWC Corporate Plan, known as “One Island,” provides the vehicle for

delivering the Eco Island strategy through a number of delivery strands.

Whilst focusing on the external delivery, the Council also has an internal

modernisation programme, known as “One Council”, equipping the Council with

the appropriate infrastructure, capacity and capability which is fundamental to

delivering the much wider vision.

The Highways PFI is an integral part of that transformation vision; the Council

has taken a strategic decision to bring in an experienced Programme Director

and build a team around him using the Council’s own internal staff and

experienced expert advisors to gain maximum skill transfer. The Highways PFI

programme is also setting the standards for all projects and programmes in the

Council and a Governance and scrutiny framework appropriate for major complex

projects is now in place. The Highways PFI also forms the cornerstone of the

Council’s contributions towards creating a sustainable, thriving economy for the

Island. Plans are already under development to engage with schools at all levels

to create interest in civil engineering and allied highway maintenance industries,

to set up technical study programmes and apprenticeship as part of the PFI, and

to build technical capability and a highway maintenance industry on the Island. In

addition, the Council, along with its strategic partners, are working with the local

industries, both those directly connected with highways and the remaining supply

chain to provide them with the best possible opportunity to prepare for and

engage with a future PFI provider. This has the potential to reduce the cost for

the future PFI provider and hence the cost of the PFI for the public purse whilst

creating the impetus needed to pump-prime the Islands economy.


The Council, along with its strategic partners, is setting the key educational and

employment plans in place and will be working with educational institutions to

make this a reality over the next four years and to sustain engagement

throughout the 25 year project period. The aim is to create economic benefit and

legacy that will outlast the PFI programme and create wealth for the Islanders

and therefore the nation, significantly higher than the direct investment made in

the Island’s highways.

The framework below shows the strategic link between the Eco Island Strategy,

One Island Plan and the Highways PFI programme.


2.10 The Island Plan

The Local Development Plan, the Island Plan, is in the final stages of the

statutory approval process, but its Core Strategy is used to set the planning

vision for the Island through to 2026. Building and creating sustainable

communities is central to the Sustainable Community Strategy that is focused on

delivering the Eco Island vision.

The Island sustainable travel plan supports a multi-modal transport strategy. This

relies on the highway network for public and private transport, whilst the Rights of

Way network provides the vital links for walking, cycling and riding; the

combination of the two provides a highly integrated interlinked transport network

across the Island. The public therefore rely on a good transport network for

people and goods to travel from wherever they are to destinations of their choice,

both on and off the Island, with safety, reliability, ease of access, and at a

convenient time. The Island is a renowned destination for walking and cycling,

not only through celebrated annual events, but as a real means to getting around,

delivering a healthy Island both in terms of benefits to the population and the

environment.

The strategy aims to achieve improved transport infrastructure, travel plans and

improved public transport provision and an increase in opportunities for walking

and cycling. The aim is to offer people more choice about the ways in which they

travel, whilst seeking not to penalise those for whom the car is the only realistic

solution.

Car ownership on the Island continues to remain relatively high, due in the main

to the rural nature of the Island, which places additional reliance on the car for

certain types of journey. However, during the summer season the traffic on the

Island changes significantly with the influx of tourist traffic.

The ferry ports, both passenger and vehicle services, are important gateways to

the Island. The numbers crossing the Solent for business or pleasure have

increased steadily over time and this increase in cross-Solent traffic, coupled with

increased car ownership and use, has further added to the transport challenges

the Island faces.


A number of new and improved Park and Ride facilities are being promoted to

reduce congestion. Whilst the improvement, maintenance and management of

the highway network alone cannot deliver all of the aspirations set out in the

strategy, it will make a significant contribution to delivering the strategy. The PFI

Project will provide a focused and comprehensive means of injecting much

needed resources to overcome past backlog maintenance and, once appropriate

standards have been met, maintain these over the longer term. As such, a high

quality, fit for purpose highway network should become a consistent, reliable and

integrated part of the Island’s infrastructure to support implementation of other

strategies and policies.

2.11 Local Transport Plan 2006-2011 (LTP2)

The Local Transport Plan sets the policy framework for determining the transport

needs of the Island, and brings together the transport policies and strategies in a

cohesive manner. The statutory Isle of Wight Local Transport Plan was adopted

in March 2006 and sets out how transport will be improved on the Island over the

period 2006 -2011. The Plan was approved by the DfT and developed through

extensive consultation to achieve the following objectives:

• To increase accessibility for all.

• To encourage and support economic prosperity and regeneration.

• To make Island roads safer.

• To improve local air quality and conserve and enhance the environment.

• To tackle congestion.

• To ensure effective management of the highway network.

• To achieve value for money solutions.

The LTP supported the development of the PFI bid and acknowledged the key

role that the initiative would have in delivering the Plan and in particular the road

maintenance and road safety targets set out in the Plan. The PFI will clearly be

instrumental in delivering a large part of the LTP strategy which is set out below;

• The Plan seeks to promote alternatives to the car and reduce congestion

and pollution

• Increased numbers of people will walk or cycle using improved

cycleways, footways and pavements.


• The Plan seeks to reduce traffic accidents through a range of

engineering solutions and hearts and minds initiatives.

• The road infrastructure on the Island will be maintained to good

standards, and will assist the public transport network using it.

• Provide investment in a safe, well maintained road system, including a

network for buses, lorries and coaches, through for example the private

finance initiative.

The 2006 LTP set a series of ambitious targets for achieving high quality

highways by 2010 - to have no overall deterioration in the condition of the

principal and the unclassified road network, footway condition and to reduce

death and injury on roads. Although 2010 is now recognised as an unachievable

date, the target standards will be achieved on completion of the PFI Project core

investment period.

The LTP incorporates a Rights of Way Improvement Plan, the primary aim of

which is to ensure the most effective use of the Rights of Way network. The Plan

recognises the significant contribution that the Island’s 851 km of non-vehicular

highways make to sustainable transport on the Island. It also seeks to ensure that

the Rights of Way network continues to be managed as an important component

of the overall highway network. The Rights of Way Improvement Plan is wholly

concerned with improving facilities for walking and cycling away from road traffic

and will therefore assist in delivering the quality of life objectives of the LTP. The

inclusion of cycleways within the PFI scope will contribute towards achieving that

objective for Islanders and visitors alike.

Whilst the current LTP2 does not cover the whole period of the PFI contract, the

5 year renewable plan will continue to build the Eco Island theme, consistent with

the Highways PFI Project.

Revised LTP guidance is expected in the summer of 2009 and whilst there may

be some changes from the original draft it is anticipated that the final guidance

will still require local authorities to produce a two part plan, including the overall

strategy and detailed delivery programme.


The draft guidance indicates that the plan should take account of the following

five key goals:

• Tackle climate change.

• Support economic growth.

• Promote equality and diversity.

• Contribute to better safer, security and health.

• Improve quality of life.

The PFI Project will support these goals and will be a fundamental part of the

delivery programme.

2.12 Area of Outstanding Natural Beauty (AONB) Management Plan

The Island has a unique and important natural environment, which is protected by

national and local designations covering both landscape and ecology to help

protect the character of the Island. The Isle of Wight AONB Partnership is a

broad based independent organisation with representatives from many local,

regional and national organisations and individuals with a direct interest in the

AONB. It seeks to ensure a co-ordinated approach to the conservation and

enhancement of the AONB.

The minor and unclassified road network and cycleways, are often key features in

the AONB landscape. Coastal roads, highway verges and hedgerows that form

the boundary define the contours of the undulating landscape; the unclassified

roads contain a number of historic signs which form the rural character; lighting in

rural areas is managed sympathetically to prevent light pollution. The treatment of

the cycleways and the coastal roads in particular, will play a crucial part in

preserving the natural landscape and ecology. The management of the natural

environment is therefore an integral part of highway management. Both the

investment programme and the services of the PFI Project will need to be

sensitive to areas of outstanding natural beauty and the natural environment

through carefully designed output specification requirements.

The aims and objectives of the IWC Highways PFI Project are consistent with the

national economic, transport and environmental policies, enabling these to be

delivered at local level, in order to achieve the nationally set objectives. The Isle


of Wight Council Highways PFI is one of the three Highways pathfinder projects

and will provide a constructive model for delivering highway maintenance and

operations in a largely rural context. The uniqueness of the Island’s road network,

characterised by the following, provides a valuable benchmark for future policy

and standards development:

• a largely rural road network;

• a largely captured economy allowing;

o correlation between transport investment and economic

regeneration

o a significant proportion of the investment and multiplier effects to

remain in the Island to regenerate its economy,

• an operational regime for delivering a comprehensive highways service in

an environmentally sensitive area.

This PFI Project clearly meets national regional and local strategic objectives by

removing the backlog of highway and street lighting repairs, providing a long-term

service strategy to maintain assets at an acceptable and appropriate standard,

over a long period, by environmentally sympathetic and sustainable means.

The IWC Highways PFI, together with the other two Highways pathfinder

projects, will provide the Department for Transport with an ability to develop

national standards to cover the full spectrum of highway network characteristics

across local authorities in England and Wales.

2.13 Historic Built Environment

2.13.1 Public Realm

The visual impact of highway works can significantly affect the quality and

appearance of the public realm. This is particularly important in designated areas

such as AONB’s, conservation areas or directly affecting the setting of listed

buildings and historic assets. Traditional materials for surfacing, kerbs, structures

and other details should be maintained or replicated.

In addition there are some remaining traditional street lamps, railings, signs and

other structures which make an important contribution to the locally distinctive


character of towns and villages. Any historic street furniture will therefore be

recorded and retained.

The overall quality and appearance of the Island’s public realm is important to

residents and businesses and directly affects the tourist industry. The use of

appropriate design and materials should therefore be given prominence in the

output specification.

2.13.2 Archaeological Heritage

The Island has in excess of 6500 known Archaeological Sites and Monuments. In

addition there are other Scheduled Monuments and Areas of High Archaeological

Potential. It is unlikely that the reconstruction and resurfacing of carriageways will

result in disruption of any archaeological site; however, the Council will set out all

known sites to prevent the PFI Provider unwittingly trespassing into these areas.

Where the refurbishment of the highway is likely to encroach into an identified

site, the PFI Provider will be required to carry out a comprehensive assessment

and develop appropriate mitigation measures.

2.13.3 Natural Environment - Species and Habitats

The Island is home to a number of rare and endangered species and also to

significant and varied areas of sensitive habitats. Works within the boundary of

the highway and cycleways have the potential to adversely impact on these or

nearby species and habitats.

Whilst the highway surface itself does not form a natural habitat, verges, hedges,

banks, ditches and roadside trees contribute to the natural environment. Natural

habitats are recognised through a hierarchy of designations from those of local

importance such as Sites of Importance to Nature Conservation (SINC), national

Sites of Special Scientific Importance (SSSI), through to European Special

Protection Areas (SPA) and Special Areas of Conservation (SAC) and wider

international designation as Ramsar Site for wetlands and wildfowl. Some

species have specific protection under UK or international legislation.

The PFI Provider will be expected to develop highway schemes that protect the

natural environment for these species. Good practice and protocols built into the

maintenance of highways and verges in rural environment will ensure that the


natural environment will be protected and enhanced throughout the PFI contract

period.

2.13.4 Historic Environment Action Plan (HEAP)

The HEAP contains the historic roads, tracks and lanes and their associated

boundaries, hedgerows and earthworks. These are described in the "Historic

Routeways" HEAP report. The HEAP requires early liaison with the County

Archaeology Service, the Conservation and Design Team and the AONB Unit to

ensure that any work does not have an adverse effect on the historic

environment. These requirements will form part of the Output Specification and

the PFI Service Provider will be required to carry out the required consultations.

2.14 Transport Asset Management Plan

A Transport Asset Management Plan (TAMP) was produced, in partnership with

Chris Britton Consultants, during 2006 to aid knowledge based decision making.

The highway inventory was initially prepared by John Reid Consultants. This has

now been updated to take into account the fact that the Isle of Wight Council has

been chosen as a pathfinder Highways Maintenance PFI authority.

The TAMP is the Council’s primary document for detailing the standards and

priorities applied to maintaining the Island’s transport network for all users. The

plan mirrors the proposed PFI since it covers all elements of the transport

infrastructure. The TAMP will serve as a baseline to the PFI Project.

2.15 The Network

Existing assets that will become the components of the Project can be

summarised as follows:

• Highways (803km in length)

• Cycleways (31 kms)Bridges and Structures

• Footways and Kerbs

• Drainage

• Safety Fencing

• Street Lighting

• Street Furniture

• CCTV


• Grass Cutting

• On/Off Street Car Parking maintenance

2.15.1 Asset Inventory, Condition and Survey Data

The Council has built an exceptionally thorough record of its assets, and

repeatedly surveyed the network to improve the confidence level in related

condition data. The information is fully digitised and held in layers linked to an in-

house Geographic Information System (GIS) and will be available in the Project

Data Room. The Council will continue to survey assets and maintain records up

to the point at which responsibility is handed over to the PFI Provider.

A full inventory of street lighting, illuminated signs, bollards and other electrical

apparatus (e.g. CCTV), linked to a GIS system and including substantial column,

lantern, control and supply data forms part of the commercial database, together

with annual assessments of condition of the entire stock.

The asset inventory information available in the Project Data Room is outlined

below:

a. A detailed inventory of all bridges and retaining walls supported by six-

yearly Principal Inspections (PIs) and bi-annual General Inspections (GIs)

of all structures on the highway network. Complete data for the last three

rounds of both PIs and GIs will be kept in the Data Room.

b. A full inventory of all street lighting points and illuminated road signs,

bollards verified by an independent sample site survey based on inspection

of 272 lighting points on the 32 streets selected at random across the

network indicated an error rate for the street lighting inventory of just 1%.

c. A drainage inventory made up of surface features, gullies and manholes,

has been completed and partial information is available on underground

features such as pipe locations and size. The sub-surface inventory is

about 60% complete but with an accuracy of 90+%. Some "poor" condition

drains have CCTV footage coverage to compliment visual surveys.


d. Car parking inventory data on the primary assets, including ticket

machines, the number of parking spaces (on and off-street), their locations

and type of surfacing.

e. Full inventory data for all other assets including:

• Traffic signals (with age profile data)

• Road signs and street nameplates

• Street furniture (bollards, benches, bins, shelters, planters)

• Safety fencing

• Highway trees.

A summary of the assets covered in the asset data base is set out below;

Appendix 4 sets out the details.


Asset Item Quantity Unit

Type

PEDESTRIAN GUARDRAIL 13.1 kmSAFETY BARRIER 2.3 km

GULLY 19626 no

MANHOLE 8512 no

LINEAR DRAINAGE CHANNEL 4.2 km

CARRIER PIPE 370 km

CULVERT 189 no

CARRIAGEWAY - A ROAD 128.3 route km

CARRIAGEWAY - B ROAD 92.1 route km

CARRIAGEWAY - C ROAD 171.9 route km

CARRIAGEWAY - UNCLASSIFIED 410.4 route km

HIERARCHY 1 (to be used for PFI

Output Specification) 105 route km







FOOTWAY - 1, 1a and 2FOOTWAY - 3 and 4

Rights of Way Cycleways (see para 1.7.6) 31 km

KERB 1031.2 kmSOLID CHANNEL 145.6 km

ROAD SIGN (NON-ILLUMINATED) 14815 no

STREET NAMEPLATE 3501 noROAD STUD 127.1 km

STREET LIGHT 12068 noILLUMINATED SIGN OR BOLLARD 2438 noCCTV 76 noTRAFFIC SIGNAL 78 sets

BRIDGE 119 noRETAINING WALL 599 no

BOLLARD 3812 noHAZARD MARKER 4634 no

SHELTER 241 no

BIN 1046 no

SEAT 1027 noPLANTER 219 no

Landscape TREE 1715 no

ON STREET TICKET MACHINE 70 noOFF STREET TICKET MACHINE 79 no

PAY-AND-DISPLAY ON-STREET

PARKING SPACE890 no

PAY-AND-DISPLAY OFF-STREET PARKING SPACE

4899 no

FREE OFF-STREET PARKING SPACE 1009 no

PAY-AND-DISPLAY ON-STREET

PARKING ZONE15 no

PAY-AND-DISPLAY OFF-STREET CAR

PARK52 no

FREE OFF-STREET CAR PARK 29 no

INVENTORY DATA

Structures

Car Parking

767.22 km

Street Furniture

Footways

Kerbs and

Channels

Road Signs

Electrical Items

ASSET

Drainage

Pavements

Safety Fencing


The following information on asset condition will also be available in the Project

Data Room;

1. A video of the entire network is available from SCANNER. This provides

additional information to the basic numerical data, and enables a view of the

network without having to repeatedly drive it.

2. SCRIM for the A, B and C class roads measured annually.

3. Annual SCANNER data for all A, B, C and unclassified roads. This

information is also available broken down into road hierarchies 1 to 4. A mini-

SCANNER survey has recently been used to provide the information on the

unclassified road network.

4. Historic Annual Coarse Visual Inspection (CVI) data for the unclassified road

network. (now superseded by use of mini scanner).

5. 100% Detailed Visual Inspection (DVI) data for all categories of footways for

the last year along with historic data for category 1 and 2 footways.

6. Deflectograph data for all A class roads, together with those B and C class

roads that are subject to substantial HGV traffic.

7. A full inventory and condition data of kerbs, channels (solid and linear

drainage), edgings, street furniture, road signs, safety fencing and bollards.

2.15.2 Road Pavement Condition

The highway network has been reclassified into hierarchy 1 to 4 as follows:

• Hierarchy 1 (H1) >10,000 vehicles

• Hierarchy 2 (H2) 5-10,000 vehicles

• Hierarchy 3 (H3) 2 – 5,000 vehicles

• Hierarchy 4 (H4) <2,000 vehicles

The reclassification allows better matching of required carriageway standards to

actual vehicle usage.


The Council, through its consultant WDM Ltd, commissioned a survey condition

assessment model to calculate the carriageway/footway backlog and on-going

lifecycle requirements of the network incorporating suitable hand-back provisions.

Through the model, industry standard survey data is translated to an output

based performance measurement which is repeatable, transparent, and

accurately reflects asset condition at specified milestones during the project life.

The model operates at three levels; network hierarchy, condition banding, and

road section criteria. An overall hierarchy based Network Condition Indicator

(NCI) is generated to reflect the specific needs of the network where differing

target criteria are applied depending on the road hierarchy to which it relates.

Surface condition (SCANNER) together with skid resistance (SCRIM) and

residual life as a measure of structural strength (Deflectograph) are used as

survey inputs. Individual thresholds are set to represent the required service

levels. The use of nationally recognised survey methods will give prospective

Service Providers confidence in the resulting information and allow future

predictions based on the trend analysis of previous annual data.

SCANNER surveys are to be used for all Hierarchies 1-4. The DfT national

indicator, the Road Condition Indicator (RCI), allocates road lengths, or networks,

into three condition bands Red, Amber, and Green. “Red” indicates a length of

highway “where maintenance should be considered”. For Hierarchies 1 to 3 the

prime NCI will be a maximum % of RCI by length; the value chosen reflects the

performance of good standard of service. As “Red” levels can be maintained or

reduced by allowing the “Amber” band to increase at the expense of the “Green”

the NCI will be required to have default levels of Amber and Green.

Previously, Coarse Visual Inspections (CVI) have been used as the basis for

Hierarchy 4 roads condition. In a move to embrace innovation, SCANNER output

has recently been developed nationally for unclassified roads and these now form

the basis from which IWC models Hierarchy 4 condition.

In order that an indicator cannot be influenced by visual assessment of the

surface alone the NCI for Hierarchies 1-2 will include an assessment of

“strength”, from Deflectograph. Safety must also influence the indicator; skid

resistance from CSC values will provide the necessary inputs. Upper threshold of


RCI, and/or intervention levels for individual parameters will act as trigger for

maintenance.

The national indicator for footways (Class 1 and 2) will form the Footway

Condition Index (FCI), based on the results of DVI surveys. A lower standard FCI

will apply to Class 3 and 4 footways to reflect an appropriate service level.

The detailed operational aspects of the technical modelling process are

discussed in further detail at Appendix 5.


The table below provides an overview of the age and stock profile of the street

lighting asset.

Age Steel Conc Alum Wood

Pole Other Total Profile

0-10 Years 3535 0 0 145 19 3699 30.65%

10-20 Years 3149 8 55 292 40 3544 29.37%

20-30 Years 429 259 1033 456 13 2190 18.15%

30-40 Years 235 468 1483 161 1 2348 19.46%

40-50 Years 39 61 103 36 48 287 2.38%

Total 7387 796 2674 1090 121 12068

Profile 61.21% 6.60% 22.16% 9.03% 1.00% 100.00%

In addition there are 2,438 illuminated signs and bollards.

Electrical Supply Network: Information within the Street Lighting and Illuminated

Traffic Signs Inventory indicates that between 2% and 5% of the electrical supply

network consists of private cable network. The remaining 95% to 98% of the

electrical supply network is provided by the Distribution Network Organisation

(Southern Electric).


The Council has assessed the condition of the Traffic Signals asset throughout

the Island to determine the level of refurbishment/upgrading required. The

assessment works have indicated that the asset is in very poor condition and

could result in electrical safety issues in the future.

Details, including age and stock profile of the Traffic Signals are provided below:


Age Sites Sites

Profile

Signal

Points

Signal

Profile

0-10 Years 51 66% 304 76%

10-20 Years 24 31% 90 22%

20-30 Years 2 3% 6 2%

30-40 Years 0 0% 0 0

40-50 Years 0 0% 0 0

Total 78 100% 400 100%

2.15.5 CCTV

The Council has assessed the condition of the CCTV asset throughout the Island

to determine the level of refurbishment/upgrading required. This assessment

indicates that the asset is in poor condition. The Council is currently progressing

a CCTV refurbishment scheme for which tenders were returned in May 2009; the

scope includes an increase in the number of cameras, refurbishment of the

control room and maintenance of the existing stock.

2.16 Current Service Delivery and Performance

The majority of the Council’s highways related services are managed from

Newport, the exception of a Street Lighting office at Ryde. Most of the

professional, technical, administrative and financial functions are carried out in

house with only a small amount of backup from technical consultants.

In relation to works, the Council acts as a commissioning agent and no longer

has a direct labour organisation. Construction and maintenance work is carried

out through annual or framework contracts.

Performance is monitored by a combination of National and Local performance

indicators. Service performance is good regarding cyclical maintenance, such as

highway verge maintenance and street cleansing. However, national indicators

show the Council is generally in the bottom quartile on asset condition

2.16.1 Current Spending on Island Roads and Bridges

Following years of less than adequate investment in the Island’s roads and

bridges, the rate of deterioration has outstripped the rate of investment, resulting

in continually declining standards of service. Last year, the road network

condition had reached such a low point, that the Council had to find additional


funding to prevent further deterioration and road closures. The current levels of

annual spend are:

2006/07 2007/08 2008/09

Capital £

£1,516,897

£750,520

£2,724,633

Revenue £

£1,803,228

£1,661,255

£1,969,766

2.17 Drivers for Change

2.17.1 The Service Gap

The Council's statutory duty under the Highways Act 1980 to maintain the

highway network means that it will be necessary to provide a highway

maintenance service for the foreseeable future.

Paragraph 3.4.1 of "Well-maintained Highways - Code of Practice for Highway

Maintenance Management" published by the UK Roads Liaison Group of CSS in

2005, declares that the purpose of highway maintenance is to maintain the

highway for the safe and convenient movement of people and goods. The core

objectives of highway maintenance are stated as the delivery of:

• Safety;

• Serviceability; and

• Sustainability.

The six most significant elements of work on the Council's highway network are:

1. Carriageways

2. Footways

3. Bridges and other structures

4. Street lighting

5. Drainage

6. Car Parks


The differences between the current and desirable positions (the "Service Gap")

for each of the three core objectives in relation to the most significant elements of

work on the Council's highway network are described below.

2.17.2 Carriageways

Safety

The safety of carriageways can be quantified by:

• Surface skid resistance;

• Number of carriageway Insurance Claims by third parties; and

• Number of urgent defects (ie. those treated within 24 hours)

Surface skid resistance - the skid resistance of A, B and C class roads on the

Council's network is tested annually. The 2008 surveys indicated that 32 percent

of A roads, 22 percent of B roads and 31 percent of C roads are currently at or

below the Investigatory Level.

The number of third party insurance claims relating to carriageway defects

increased by a factor of three in the past five years, as shown in the chart below.

Third Party Claims Relating to Carriageway Defects (June 2009 Data)

The number of instructions to attend highway emergencies due to urgent

carriageway defects, such as potholes, has increased by a factor of three in the

last three years, as shown in the chart below.

162

104

56 47 51

04/05 05/06 06/07 07/08 08/09

Year

Nu

mb

er

of

Cla

ims


Carriageway Emergency Instructions Issued (2 hour response)

These charts indicate an increasing number of events that are compromising the

safety of the carriageway.

Serviceability

The serviceability of carriageways can be quantified by:

• Asset condition; and

• Ride quality (e.g. smooth, pothole free surface);

Asset Condition - Until recently, the general condition of carriageways was

measured and compared nationally using a series of BVPIs which indicate the

percentage of the network where structural maintenance should be considered.

The table below shows the 2007/08 BVPI results for the Isle of Wight in

comparison with the top and bottom quartile thresholds for that year. The Isle of

Wight results mostly fall into the bottom quartile for both unitary authorities and all

English authorities.

Carriageway Condition Indicators 2007/08

Performance Indicator IWC

Actual

07/08

Unitary Authorities All England

Ref Description Top

quartile

Bottom

quartile

Top quartile Bottom

quartile

BV223 % of the principal road

network where structural

maintenance should be

considered

9 3 7 3 7

BV224a % of the non –principal road



10 4 11 5 10

1892

747

581

06/07 07/08 08/09

Year

No

of

Inc

ide

nts


considered

BV224b % of the Unclassified road



considered.

38 7 15.5 8.5 18

Since 1 April 2008, national indicators NI168 and NI169 have replaced best value

performance indicators BV223 and BV224a. However the national indicators are

measured on the same basis as the 2008 best value performance indicators. A

comparison of the BV results and the available NI results are given in the table

below, which shows that carriageway condition continues to deteriorate.

Carriageway Condition Indicators 2007/08 and 2008/09

IWC Actual Performance

2007/08 2008/09

Performance Indicator BV223 NI168

Percentage of the principal road

network where structural maintenance should be

considered

9 12

BV224a NI169

Percentage of the non – principal

road network where structural maintenance should be

considered

10 15

The condition of all categories of the Council's carriageways falls well short of

that achieved by the best performing, or even average performing, authorities

and these gaps can only be closed by a significant increase in investment in the

future.

Ride Quality - Longitudinal Road Profile has been used as a measure of ride

quality. The latest 10m Profile and 3m Profile SCANNER results given in the

table below indicate the percentage of A, B and C class roads that have road

profiles worse than the upper threshold contained within UKPMS.


Road Class Percentage of network above the upper threshold

10m Profile 3m Profile

A 18 12

B 17 14

C 34 27

Sustainability

Some recycling of carriageway material takes place at present, and some in-situ

recycling has been undertaken. There are no carriageways surfaced with noise

attenuating materials on the Council's network.

2.17.3 Footways

Safety

The safety of the footways can be quantified by:

• Number of footway insurance claims by third parties;

• Number of urgent defects requiring treatment within 24 hours

As shown in the chart below, the annual number of third party insurance claims

relating to footways defects is variable but has been on a generally upward trend

in recent years.

Third Party Claims Relating to Footway Defects (June 2009 Data)

As shown in the chart below, the number of emergency instructions to attend to

urgent footway defects has also been on an upward trend but dramatically

increased in 2008/9. It remains to be seen whether that is a random annual

variation or indicative of the impact of a deteriorating network condition.

30 28 27

23 18

04/05 05/06 06/07 07/08 08/09

Year

Nu

mb

er

of

Cla

ims


Footway Emergency Instructions Issued (2 hour response)

Serviceability

The general condition of footways, until recently, was measured and compared

nationally using BVPI 187. The table below shows the 2007/08 BVPI result for the

Isle of Wight in comparison with the top and bottom quartile thresholds for that

year. The Isle of Wight performance falls into the bottom quartile for both unitary

authorities and all English authorities.

Footway Condition Indicator 2007/08

Performance Indicator IWC Actual

07/08

Unitary Authorities All England

Ref Description Top quartile Bottom quartile Top

quartile

Bottom

quartile

BVPI 187

Conditions of

surface footway 46 12 30.3 14 29

Sustainability

Sustainability is not currently a significant factor in the maintenance of highway

pavements.

No recycling of footway material takes place at present.

2.17.4 Bridges and Other Structures on the Highway Network

Safety

Parapet risk assessments (PRAs) were undertaken in 2005 by OPUS and a

priority ranking for upgrade works was derived from its report. Three bridge

218

149153

06/07 07/08 08/09

Year

No

of

Inc

ide

nts


parapet upgrades are being carried out in 2009/10, and more will be undertaken

prior to commencement of the PFI contract.

This assessment of parapets did not include the 600 or so retaining walls which

are the Council's responsibility. It is anticipated that a substantial number of these

will not conform to modern standards.

Serviceability

From a user perspective the key requirements for structures are:

• Structural condition (i.e. safe for use and structurally sound);

• Adequate parapets (in terms of height and strength);

• Full access (no temporary weight restrictions or height limits); and

• Aesthetic appearance. (i.e. evidence of regular routine maintenance)

Structural Condition – The Council calculates a Bridge Condition Score (BCS)

from its inspection data. This is an 'existing condition' score with a numerical

value between 1.0 and 5.0, but it does not recognise structurally sub-standard

elements. For example, a bridge parapet without significant defects would be

given a BCS score of "good", even though that parapet does not meet current

containment standards. The current distribution of BCS values is shown below.

2009 Highway and Car Parks Bridges and Retaining Walls BCS Values

BCS Values Very Good Good Fair Poor Very Poor Failure

1.00 - 1.30 1.31 - 1.80 1.81 - 2.70 2.71 - 3.70 3.71 - 4.70 4.71 - 5.00

No. of

structures 112 (16%) 238 (33%) 306 (42%) 56 (8%) 6 (1%) Nil

Total Number of bridges and retaining walls for Highways Department / Car Parks = 718

Structural assessments are undertaken on an intermittent basis but the majority

were carried out over 10 years ago and reviews are required to re-evaluate the

load-carrying assessment calculations.

The BCS figures demonstrate that the overall 'existing condition' of the bridge

stock is in fair to good condition, however, given that some structural


assessments were undertaken some years ago and as illustrated by the backlog

of PRA’s significant work may be required to upgrade to current standards.

Sustainability

Sustainability is not currently a significant factor in the maintenance of highway

bridges.


Safety

In common with many other local authorities the Isle of Wight has a history of

under investment in its lighting stock. This is compounded by the corrosive effect

of the salt-air which accelerates the degradation of street lighting columns and

traffic sign posts. Consequently, a significant proportion of the IWC street lighting

and illuminated traffic signs asset is in seriously degraded condition due to the

combination of age and environmental conditions. Additionally it is estimated that

50% of the existing lighting levels fall below current European and British lighting

standard requirements. As part of this Project, lighting levels will be reviewed

and modifications made to provide a solution inline with BS5489.

Serviceability

The Isle of Wight has a term maintenance contract arrangement for the provision

of a street lighting maintenance service with SEC Ltd. The contract is operated

under a traditional term contract arrangement procured using the ICE model form

of contract.

The table below, which shows the term maintenance contractor’s self reported

performance in rectifying street lighting faults against the BVPI performance

indicators, indicates a performance levels consistently above target standards.

Ref Performance Indicator Definition Target IOW Actual Performance

05/06 06/07 07/08

BV215a

Average no of days taken to repair a street

lighting fault which is under the control of the

local authority

3 1.89 2.39 1.98

BV215b

Average no of days taken to repair a street

lighting fault where response time is under the

control of a DNO

20 9.01 6.13 9.91


The table below, which details the term maintenance contractor’s self reported

performance in rectifying street lighting faults against the performance indicators

set by the IWC, indicates a performance which would be accepted as a high

standard nationally.

PI Ref PI Definition Target Actual

05/06 06/07 07/08

LPI % Lights in Light 98 99 99 99

Sustainability

Sustainability is not currently a significant factor in the maintenance and

operation of highway lighting.


Safety

The maintenance regime for Traffic Signals is constrained by budget pressures

and the age and condition of a significant proportion of the asset. Reactive

maintenance and fault rectification takes precedence and a vast majority of the

budget is required for these purposes. In some cases pole corrosion is in such an

advanced state that the lantern and brackets need urgent remedial action.

Serviceability

Siemens Traffic Controls maintains the traffic signal network through a term

maintenance contract which is a joint agreement with Portsmouth City Council. A

break clause has been negotiated to allow for termination of the contract to

coincide with the commencement of a PFI contract

Functions specified within the contract include those activities detailed below:

Function Frequency

Electrical testing of all Traffic Signals, loop detection, variable message signs and school warning signs installations

Annual

General Maintenance - Traffic signal poles, lanterns and brackets, push button controls, outstations, MOVA, monitoring and detection systems, electrical and communications infrastructure

Bi-annual

Numbering and renumbering of poles and controller cabinets As required

Cleaning only (additional to general maintenance above):


S

u

s

t

a

i

Sustainability


operation of the traffic control equipment.

2.17.7 CCTV

Safety

In common with many other local authorities, the Isle of Wight has a history of

under investment in its CCTV stock. This issue is compounded by the corrosive

effect of the salt-air which is an important consideration in the delivery of the

service - the sea air affects many of the CCTV masts and cameras.

Consequently a significant proportion of the Council’s CCTV asset is seriously

degraded due to age and environmental conditions

Asset condition surveys have confirmed that some 75 percent of the CCTV

apparatus is in an unsafe condition or suffers from degraded performance.

Sustainability


operation of the CCTV equipment.

> Exterior of all road traffic, pedestrian and light rapid transit signal lenses, wait panels, box signs, variable message signs and school warning signs

Bi-annual

> Interior of wait panels, box signs and fibre-optics Annual

Cleaning only (additional to above on ‘High Maintenance’ sites)

> Exterior of all road traffic, pedestrian and light rapid transit signal lenses, wait panels, box signs, variable message signs and school warning signs

Quarterly

Bulk lamp changes

> Road traffic, wait, pedestrian and light rapid transit lanterns Bi-annual

> Box sign lanterns and School Warning Annual

Respond to faults identified / reported – from inspections, vandalism, accidents

> Priority one faults - emergency faults 2 Hours

> Priority one faults - urgent 4 Hours

> Priority two faults - normal 24 Hours

> Priority three faults - other 7 days

> Priority four faults - outstanding As agreed


2.17.8 Drainage

Safety

Again due to budget constraints, there is a significant backlog of renewals and

improvements, which requires a substantial proportion of the budget being

devoted to reactive maintenance rather than programmed preventative

maintenance. Whilst it is not possible to explicitly assess the effect that the poor

condition of this asset has on safety, it can be conjectured that the presence of

surface water and local flooding does have safety implication. Additionally it is a

recognised nuisance in streets with pedestrian movement.

Serviceability

There are no statutory or local indicators identifying the condition of highway

drainage systems.

Sustainability


operation of highway drainage.

2.17.9 On and Off-Street Car Parking

The Council currently manages both on-street and off-street parking as a co-

ordinated whole via a Civil Enforcement Area. Maintenance is undertaken by

contractors and is supervised by the Enforcement Officers.

Serviceability

The Council is responsible for 15 chargeable on-street parking zones, 52 pay-

and-display, off-street car parks and 29 free off-street car parks/lay-bys. The

condition of the car park surfaces is considered to be generally fair to good but

with some exceptions which fall into the category of poor. However the ambience

of many of them is not commensurate with an area of high tourist demand.

The Council formally inspects its off-street car parks quarterly and encourages its

Civil Enforcement Officers to report defects during their daily visits.

Sustainability

The Council currently operates a proportion of solar powered ticket machines.

Otherwise Sustainability is not currently a significant factor in the maintenance of

car parks.


2.17.10 Major Works - Bouldnor Road

The A3054 Bouldnor Road is the coastal road in the far North West of the Island

and a major access route to the car and passenger ferry terminal in Yarmouth

Harbour. The road runs along the top of a shallow cliff or embankment, supported

by a sea wall at its base. Movement due to ground instability is threatening the

safety and stability of the road above it. This is considered to be both unsafe and

unserviceable.

2.18 Project Description/Overview

The IWC Highways PFI Project follows the “fence to fence” concept to develop a

holistic approach to highway maintenance. The Project provides the best fit with

the Island’s Strategic aims for sustainable development and the Council’s

ambitions for providing a transport network that will both improve the condition of

the highway and act as a stimulus for the Island’s economy. The Project focuses

on the key elements of the highway with an intention to improve the current

network condition to a level where normal levels of maintenance will sustain the

network at steady state. The holistic approach helps to create synergies and

avoid contractual boundaries with third parties within the fence to fence

boundary. The focus is on ensuring that the PFI Service Provider can be charged

with an output based specification that has minimum conflict with Council

retained services thereby enabling the PFI contract to be managed and

monitored effectively.

2.19 Project Scope

The high-level summary of the Highways PFI scope is described below; Appendix

6 sets out the details of the PFI scope and the Council retained services. The

additions to the scope since EOI are discussed in Appendix 7.

2.19.1 Roads

The Island’s 803 km of rural and urban roads that are currently being managed

publicly, will form part of the PFI network. These would include the A, B and C

classified roads and the unclassified roads. The scope will include refurbishment

of all classifications of publicly maintained road network including kerbs and

footways, such that the development of category 1 defects is arrested and the

general condition of the network is raised to position the Isle of Wight’s highway

network at the upper quartile level of Local Authorities when assessed in


accordance with National Indicators. Skidding resistance of the network will be

brought above the investigatory level for the relevant hierarchy. The highway

drainage system will be brought to 100% operational capacity using an output

measure to prevent carriageway flooding. Throughout the PFI period there will be

on-going lifecycle, routine and winter maintenance and operation of these roads

for the remainder of the 25 year period. Roads that are currently privately

maintained will not form part of the PFI scope.

2.19.2 Structures

It is intended that, on completion of the CIP, all structures will have a 40 tonne

capacity. Currently, 10 structures require works to achieve this position.

However, works are currently programmed for some of these structures and the

number will be kept under review throughout the PFI tender period to only include

those not already treated.

Full access - There are currently 8 structures on the network with a temporary

weight restriction. One of these structures belongs to Network Rail. The non-

Network Rail structures will be strengthened as part of the PFI Project and the

restrictions removed. There are currently two bridges with height restrictions on

the network. One belongs to Network Rail (as above) and one to the privately

owned Isle of Wight Steam Railway. There are no plans to remove these

restrictions.

As part of the PFI Project, the assessment and provision of containment in line

with TD19/06 and IAN 97/07 to parapets, piers and soffits for bridges, retaining

walls and other structures will be undertaken and implemented during the core

investment period. Thus, safety deficient parapets will be upgraded and regular

inspections and follow-up repairs will be undertaken to ensure their continued

integrity and functionality. Parapet work will only be considered on retaining walls

greater than 1m high. While parapets on Network Rail bridges will not be

included, since they are not the responsibility of the Council, the PFI Project will

include undertaking risk assessments and carrying out any necessary safety

fence works on the approaches to Network Rail bridges, in order to minimise the

risk of errant vehicles encroaching onto the railway.

Aesthetic appearance is not seen as a major issue, and routine painting and

graffiti removal is currently undertaken as required as part of routine


maintenance. The Council consults with the local community where large-scale

works are undertaken within the AONB to ensure that new or improved structures

are visually acceptable. This will continue under the Project.

The PFI contract will include the normal annual maintenance and lifecycle

replacement works to all structures.

2.19.3 Street Furniture

The Island’s roads contain compulsory, directional and tourist signs, roadside

seating, bus shelters and roadside planters. During the CIP, signage will be

refurbished such that visibility is compliant with current standards. As appropriate,

other assets will be available for use, clearly visible and in a good state of repair.

Again, the upgraded assets will be maintained at the refurbished standard

throughout the PFI contract period. It is intended that the refurbishment and

maintenance of street furniture, coupled with carriageway and footways will uplift

the Island’s street scene.

2.19.4 Footways

The urban roads and town centres have an extensive network of footways. As

part of the CIP works the footways will be upgraded to provide an acceptable

structure and surface, minimising the current defects to reduce the risk of third

party claims. The combination of footway renewal with the carriageway renewal

offers the opportunity to have a single upgrade programme, which will resolve

utility diversions and address drainage issues all at the same time.


The Island has 79 sites of traffic signals that help to control traffic flows at some

of the major junctions. The Traffic Signal associated assets are in very poor

condition and have been identified as a safety hazard. In addition, the technology

is now out of date. It is intended that all traffic signal installations are upgraded to

comply with the relevant standards, reduce the risk of failure and adopt the latest

technology to reduce lamp changes and power consumption in line with the

carbon reduction aims of government.


The 12,068 lighting columns on the Island fall well below the current standard for

lighting of these 8,400 are either life expired or fall below current standards and


these have been defined as ‘non-deemed to comply’ and programmed for

replacement during the CIP. It is assumed that all of the remaining 3,668 will be

renewed on a condition assessment basis as part of the Service Providers

ongoing annual investment programme. The specification will be to current codes

of practice and will require the application of modern technology, such as remote

switching and energy saving equipment and design, through a low carbon

footprint based output specification. The PFI Service Provider will then maintain

the whole system for the PFI contract period.

2.19.7 CCTV

The existing CCTV unit and control room are in poor condition and the Council is

currently undertaking a renewal programme. Consequently, the next round of

lifecycle renewal in 10 years time will be at the end of the proposed 7 year core

investment period. However, CCTV cameras are mounted on special masts or

lighting columns, both of which fall within the project’s “fence to fence” boundary

and replacement would disrupt the project payment mechanism based on lane

availability. Additionally, the power required for CCTV is likely to come off lighting

columns where appropriate and synergies in the maintenance of the CCTV and

street lighting are likely to result in operational cost savings. CCTV is therefore

included within the Project scope and assumes replacement of all cameras after

a ten year life.

The CCTV cameras and control room will be used mainly to operate the network

along with crime reduction and emergency management.

2.19.8 Grass Cutting and Street Cleansing

The fence to fence approach allows all services that need to be carried out on

and adjacent to the highway to be synchronised, deriving maximum efficiency in

service delivery. This integrated approach enables grass cutting to be followed by

street cleansing and drain cleansing to meet the output specification

requirements.

Street cleansing was initially included in the scope but excluded at the

Expression of Interest (EOI) revision in 2008. However, the detailed analysis of

the contract scope and practicality of delivering these intertwined services using

different delivery mechanisms has convinced the Council that it should be part of

the wider Highways PFI Project. In addition, following detailed analysis and soft


market testing, the Council has decided to include all highway grass cutting within

the PFI scope.

2.19.9 On and Off Street Car parking

The “Fence to Fence” approach lends itself to including on and off street car

parking assets as part of the Highways PFI Project. The off-street car parks are

an extension of the highway network, using similar material to the highways.

There are therefore scale and efficiency benefits to be gained by including the

capital and maintenance elements of off-street car parks within the project scope.

The off-street element will be funded by the Council.

2.19.10 Bouldnor Road Improvement

The Council has identified a major road reconstruction project on Bouldnor Road

along the coastal road between Cowes and Yarmouth. This section of the road

has shown signs of significant movements over a period of time and the Council

developed plans for a major refurbishment of this section in 2006. This stretch of

the coastal road is strategically important for the Island and closure would not be

a practical option. The Council made an application for Integrated Transport

scheme capital funding to address the stability of the highway and it was

expected that the refurbishment would have been completed ahead of the

Highways PFI Project. However, based on the latest timescales, funding for the

stability work is unlikely to be available before the PFI works commence in April

2013. Given the strategic importance of this road for the Island, the Council has

decided that it should form part of the Highways PFI Project. This scheme was

not included at Expression of Interest stage. A report on the refurbishment of

Bouldnor Road can be seen at Appendix 8.

2.20 Standards of the Project


The works carried out during the Core Investment Period will be assessed by the

PFI Service Provider from the survey data provided by Isle of Wight Council. The

quantum of the works will be assessed by the PFI Service Provider to meet the

lifecycle and physical requirements of the Output Specification. The latter will be

developed to meet the standards of the Design Manual for Roads and Bridges


and to achieve compliance with the requirements of Well Maintained Highways,

Management of Structures and Well Lit Highways.

The Island’s highway network stands alone and does not allow traffic to divert

across boundaries into another authority’s area. Because of this, the successful

completion of the infrastructure renewal must be very carefully undertaken to

prevent the Island’s traffic coming to a halt. To minimise disruption a traffic

model, (see Appendix 9), has been produced, which will be made available to the

contractor so that the effect of road closures and the use of temporary traffic

control can be analysed prior to any road being attended. A seven year CIP has

also been chosen to allow the major works to be spread over a longer period.

Appendix 10 gives the rationale behind a 7 year CIP.

The Isle of Wight relies heavily on the tourist trade for economic survival. Cost

models for the CIP and also for whole lifecycle maintenance include an allowance

for night time working on major traffic routes. Using the traffic model for guidance

it will be necessary to build, within the contract documentation, constraints on

times of working during the peak holiday periods and, in particular, to avoid traffic

delays in the vicinity of major events such as Cowes Week and the two music

festivals.

2.20.2 Post CIP

The Output Specification for the post CIP period will be developed to require

steady state maintenance of all assets at the condition achieved by the CIP

investment. The operations and maintenance elements of the specification will be

developed to achieve compliance with the requirements of Well Maintained

Highways, Management of Structures and Well Lit Highways.

2.21 Conclusions

The Council’s fence to fence approach to defining the Project scope is a holistic

approach towards PFI Project delivery and one that is welcomed by the Industry.

The current condition of the Isle of Wight Highways network and the service gaps

provides a basis for understanding the scale of the Project. At a strategic level,

the Project is key for the regeneration of the Island and satisfies all of the natural,

regional and local strategies. The Council now believes that there is a convincing

strategic case for investment on the Island’s Highways network.



3. Economic Case

3.1 Introduction

The Economic Case identifies possible options for the Highways PFI, building on

the business need described in the Strategic Case. The Options analysis takes

the Do Minimum option and compares that with seven other possible options,

using a weighted scoring based on the Island’s and the Council’s strategic

priorities. The preferred option is taken forward for the Economic Case using a

NATA style appraisal. The net cost of the preferred option in present value terms

is compared against the present value of benefits to give a Benefit to Cost ratio.

3.2 Options Appraisal

The Council has carried out an initial appraisal of eight options, a Do Minimum

and seven alternative Do Something options, which are briefly described in the

table below.

Option Description

1 Do Minimum: continue with current levels of expenditure and small amounts of

capital investment to maintain the network in its current condition

2 Strategic network PFI including on-going maintenance but no capital works on

the unclassified network

3 Full network PFI including on-going maintenance and street cleansing

but excluding on/off street car parking maintenance.

4 Full network PFI including on-going maintenance but excluding street cleansing

and on/off street car parking maintenance.

5 Full network PFI including on-going maintenance, street cleansing and

on street car parking maintenance but excluding off street car parking

maintenance.

6 Full network PFI including on-going maintenance, street cleansing and on/off

street car parking maintenance.

7 Full network PFI including on-going maintenance and street cleansing

but excluding cycleways and on/off street car parking maintenance.

8 Full network PFI including street cleansing but excluding any lifecycle capital

replacement and on/off street car parking maintenance.


An appraisal system was developed which drew heavily on the Island’s strategic

policy documents. Criteria were taken from the Eco Island Vision 2008-2020,

and the Island’s Local Transport Plan 2006-2011 (LTP2), the Island’s Highways

PFI Expression of Interested submitted to the Department for Transport

supplemented by a number of other criteria. Around 80 criteria and objectives

were defined from the different sources and assembled under 12 sub-headings.

Weightings were applied to the different criteria, based on the strategic

importance, to give a 200 point scoring system as follows;

Overall

weighting

Eco Island: A Thriving; Healthy and Supportive, Safe, Well-Kept

and Inspiring Island.

30

EoI and LTP2 25

Sustainability 20

Political acceptability 15

Affordability and cost 20

Value for money 15

Commercial appetite 10

Environmental 15

Project deliverability 15

Management of risk 10

Innovation and improvement 10

Stakeholder impact 15

Total 200

The appraisal was carried out in a series of workshop sessions and reviewed by

the Project Team and technical advisors. Policy experts were used to challenge

assumptions. The scores ascribed to the different options are summarised below,

full detail is at Appendix 11.


Option Description Score Risk Evaluation

1 Do Minimum: continue with current levels of expenditure and small amounts of capital investment to maintain network in its current condition

0 Substantial sunk costs (project costs) with no benefit. Significant reputational impact as the expectation which has been built is destroyed and leading to questioning of the council’s ability to deliver on strategic projects. No improvement in the risk profile of the network.

2 Strategic network PFI including on-going maintenance but no capital works on the unclassified network

75 Continuing deterioration of the lower status routes and footways. Reputation impact (expectations not met) Failure to maximise opportunity to regenerate tourism.

3 Full network PFI including on-going maintenance and street cleansing but excluding on/off street car parking maintenance.

131 Loss of potential cost savings (maintenance off car parking infrastructure could have been undertaken at marginal rather than full cost)

4 Full network PFI including on-going maintenance but excluding street cleansing and on/off street car parking maintenance.

104 Loss of potential cost savings (maintenance off car parking infrastructure could have been undertaken at marginal rather than full cost) Potential for conflict between street cleansing operation and PFI contractor (bin provision, street/gully cleansing) Potential for conflict between parking enforcement and PFI contractor

5 Full network PFI including on-going maintenance, street cleansing and on street car parking maintenance but excluding off street car parking maintenance.

122 Loss of potential cost savings (maintenance off car parking infrastructure could have been undertaken at marginal rather than full cost) Risk of loss of potential redevelopment opportunities presented by off-street car parks.


6

Full network PFI including on-going maintenance, street cleansing and on/off street car parking maintenance.

166

Option is reliant on the Council finding a capable PFI partner to deliver the full scope.

7 Full network PFI including on-going maintenance and street cleansing but excluding cycleways and on/off street car parking maintenance.

116 Loss of potential cost savings (maintenance off car parking infrastructure could have been undertaken at marginal rather than full cost) Loss of potential cost savings (maintenance of car park surfaces could have been undertaken at marginal rather than full cost). Differential standard of maintenance between cycleways and highways. Risk of further deterioration of the cycleways network which would impact other strategic objectives (health and well-being etc.). Increased cost of cycleways maintenance as a stand-alone operation.

8 Full network PFI including street cleansing but excluding any lifecycle capital replacement and on/off street car parking services

46 Loss of potential cost savings (maintenance off car parking infrastructure could have been undertaken at marginal rather than full cost) . Risk of deterioration following the rehabilitation phase and poor standard of network on handback. Reputation impact as the condition of the highways deteriorates back towards the pre-existing standard


The Do Something options were appraised relative to the Do Minimum, which

therefore has a minimum score. Option 6, a full network PFI with a full range of

services, had the highest score. Options 3, 5 and 7, which all had similar scores

and were the next best options, excluded combinations of on or off street parking

maintenance or cycleways.

Option 6, a full network PFI with a full range of services, was therefore identified

as the preferred option.

The Economic Case for the preferred option as set out in the NATA style

appraisal at Appendix 12 and makes use of standard DfT approaches and values

where possible.

The Economic Case presents a mix of quantitative and qualitative impacts, the

derivation of which is described below with the findings summarised in an

Appraisal Summary Table.

3.3 Service Improvements and Community Benefits

The table below relates different service improvements to the community benefits

they will generate. The principal service improvements flowing from the Project

will be better road surfaces with better skidding resistance and improved street

lighting. The principal impacts flowing from the Project will be time savings from

several sources, savings in vehicle operating costs, reductions in the number of

accidents, reduced levels of street crime and disorder and general efficiency

gains.

Benefit item Better road surfaces and

improved skidding

resistance

Improved street lighting

Time savings from higher

traffic speeds

�

Time savings from fewer

road works and road

closures

�

Vehicle operating cost

savings

�


Reduced numbers of

accidents

� �

Reduced public liability

payments

�

Reduced street crime and

disorder

�

Time savings from

removal of weight and

width restrictions

�

Efficiency savings from

private sector involvement

� �

Efficiency savings from

undertaking the right

options

� �

The basis for estimating each benefit item is set out below and full detail is at

Appendix 13.

The IWC Highways PFI Project is expected to be a 25-year concession starting in

early 2013; benefits are therefore calculated over the 25-year period from 2013 to

2038 inclusive.

Over the first 7 of the 25 years there will be a Core Investment Period (CIP) to get

the network up to a defined standard, with lifecycle maintenance then being

applied for the remaining 18 years. This profile is taken into account in the

estimates made below in the assumptions about the ‘ramp-up’ of benefits through

the CIP and the volume of road works and road closures over the CIP and the

following 18 years.

In recent years the condition of the Island’s road network has been deteriorating.

The highway condition model operated for the Isle of Wight Council allows the

Council to identify the schemes needed to bring the Island’s roads and footways

up to standard and the costs of those schemes. A recent run of the model has

shown that maintaining expenditure at around current levels will mean the

condition of the road network is broadly maintained at today’s level. The Council

has therefore adopted this model run as representing the Do Minimum.


3.3.1 Time savings from higher traffic speeds

Time savings from higher traffic speeds as a result of better road conditions is set

out below. Runs of the highway condition model have been undertaken for the Do

Minimum and for the preferred Do Something. The schemes needed to get from

the Do Minimum to a Do Something are phased over seven years – with the

worst NI score road sections being undertaken first.

It is generally believed that traffic speeds are constrained on sections of road with

poor surface quality. As these sections of road are improved from the Do

Minimum to the Do Something, speeds and journey time reliability will improve

and time savings will be generated. The central estimate assumes that speeds

through these sections of roads of poor quality will increase by 2 mph (3.2 kph).

This assumption is given some substantiation by a small set of timed journeys

undertaken on two pairs of road sections. The pairs of road sections, each

around a mile long, were chosen as being similar in all major respects other than

the quality of the road surface and at least six timed runs were made on each

section of road. The average times and speeds on each are given in the table

below. Speeds were 1.4 mph lower on the poorer of one pair of road sections

and 3.5 mph on the other pair, where Whiteoak Lane has a particularly poor

quality surface; this averages out at 2.45mph lower average speed in comparison

to a similar road in good condition.

Pair 1 Pair 2

Appleford

Road (poor

condition)

Niton Road

(recently

surfaced)

Whiteoak Lane

(poor condition)

Rolls Hill

(recently

surfaced)

Average time,

minutes

01:29 01:26

01:46 01:36

Average speed,

mph

40.5 41.9

34.0 37.5

The Island’s road network has been divided into four hierarchies of road based

on traffic flow, as follows. These values have been used in estimating the


numbers of vehicles which will benefit from an improved road surface on roads in

each category:

Hierarchies Vehicles per day, AADT

1 >10,000

2 5,000 – 10,000

3 2,000 – 5,000

4 <2,000

These flows are combined with the kilometres of road in each category to have

improved road surfaces and the central assumed speed change of 3.2 kph to

give estimates of time savings. The time savings from all the schemes to be

implemented during the CIP are assumed to be built up evenly over the 7 years

of the CIP then maintained over the remaining 18 years of the concession.

3.3.2 Changes in travel times

Changes in travel times from changes in the volume of road works and road

closures are covered in this section. Currently there are around 5,000 job tickets

for road works on the Island each year. The average duration of road works is

estimated at half a day and vehicles are assumed to be slowed down by two

minutes – at, say, temporary traffic lights or in taking a longer, alternative route.

During the CIP, the number of road works might be expected to increase, adding

to delay. From years eight onwards, however, there should be a substantial

reduction in road works and a consequent benefit from reduced delays.

For the Do Minimum, the current situation of around 5,000 job tickets per year

was assumed to continue.

For the Do Something, the modelling of the road network indicated that there

would be some 235 major schemes, with an average duration of three weeks,

undertaken during the Core Investment Period. It was assumed that these

schemes would impose an average delay of five minutes on each vehicle

affected, as in more cases roads would be closed requiring an alternative route to

be taken. It was assumed that the number of job tickets issued for smaller items

of road works would decline steadily over the Core Investment Period and from


year 8 onwards there would be some 500 job tickets issued per year, one tenth of

the current rate.

3.3.3 Vehicle operating cost savings

There is some evidence, particularly from the USA, that the poor condition of

roads can substantially add to vehicle operating and maintenance costs. Work

by TRIP (The Road Information Programme) has indicated that roads in poor

condition can cause additional vehicle costs, from accelerated vehicle

deterioration, additional maintenance needs and higher fuel consumption, of

around $200-300 per vehicle per year.

The USA is different from the UK in the types of cars that people drive, the

condition of the road network and the extent to which they use their cars, so the

values generated by a USA lobby group may not apply in the UK. In the UK,

Potholes.co.uk claims that potholes cost UK road users £320m per year and

since there are 32.4 million registered vehicles in GB this works out at an

average of around £10 per vehicle per year. We assume that the relatively poor

quality of roads on the Isle of Wight would mean that the cost on the Island would

be higher than the average and have assumed a central estimate of an additional

£20 per vehicle per year.

The number of vehicles owned by the Island’s households is recorded as 63,874

cars and vans in the 2001 census. Allowing for growth since 2001 and the cars,

vans, HGVs and buses owned by the public sector, the utilities, the private

sector, bus operators, etc we assume that 75,000 vehicles could benefit from

reduced vehicle operating costs.

Common experience, supported by an analysis of traffic counts, indicates that the

Island’s vehicle fleet increases in the summer months. Traffic count data across

a number of the Island’s roads indicated that summer traffic flows were on

average around 11% higher than flows in neutral months. This increased vehicle

flow, for a period of four months in the summer, was also assumed to benefit

from a saving in vehicle operating costs.


3.3.4 Reduction in the number of accidents

The Island’s road accident data for previous years – the three years from mid

2005 to mid 2008 - has been analysed to identify the accidents in which poor

road conditions might have been a major factor. Over this three year period,

there were 13 fatalities from accidents involving wet shunts and loss of control

where a road’s poor skid resistance was possibly a contributory factor.

Over the 7 year CIP the skid resistance of the road network will be improved

which will allow at least a proportion of these and other non-fatal accidents to be

avoided, depending on the relative contribution of poor skid resistance and other

factors to these accidents. The Council’s general experience is that the

implementation of a road safety measure can normally lead to a reduction of

around one third in the number of relevant accidents. Therefore it is assume that

in the completed Do Something option one-third of these accidents could be

saved. Standard DfT accident values are then applied to the estimates of the

reduction in the number of accidents.

3.3.5 Reduction in the Council’s public liability payments

The Council’s current road-related public liability payments average around

£500,000 per year, though there is considerable variation from year to year. A

major claim, in relation to a fatality for example could push the claim in any year

considerably higher than this. The Council would not be liable for any such

payments if it maintained its proper schedule of road inspections, as we assume

it would in the Do Something.

For the Do Minimum we assume that current levels of public liability payments

would be maintained and that this risk will be transferred in the Do Something.

3.3.6 Reduction in accidents and street crime

Reduction in accidents and street crime as a result of improved street lighting has

been developed using the draft MOSLAR guidance on the impacts of enhanced

street lighting on accidents and the fear of street crime to assess these impacts.

This guidance indicates that benefits might arise from a reduction in night-time

accidents of the order of 12.5% on the Island’s single-carriageway and urban

roads. The guidance also suggests making use of a research finding that


households would be willing to pay £12 per year (2003 prices) for street lighting

improvements, with a reduced fear of crime being one reason for this willingness

to pay.

The street lighting will be improved to new EU standards in the Island’s towns

and some villages where there is existing lighting, resulting in reduction of

accidents and street crime/disorder.

3.3.7 Time savings from removal of weight and width restrictions

The removal of weight and width restrictions will benefit heavy goods vehicle

movements. The number of restrictions to be removed from each category of

road is combined with the average traffic flow on each category of road and the

following proportions of HGV in the traffic flow by category of road. Each affected

HGV is assumed to save 5 minutes from being able to take a more direct route as

a result of the removal of a restriction.

Hierarchies HGVs as % of traffic flow

1 6%

2 7.5%

3 7%

4 4%

3.3.8 Efficiency Gains

Efficiency gains from the following two sources have been taken on board in this

section:

• the transfer from public to private sector management of the road network;

• being able to undertake more effective maintenance measures because of

the availability of more funds.

Better value for money can be expected from two different sources under this

Project. The first source of efficiency gain has been identified generally from

previous PFI projects and is generally attributed to the greater incentivisation

and efficiency of the private sector in doing what the public sector had previously

been doing. We assume that this efficiency gain is worth 15% of the expenditure

under this Project.


The second source of efficiency gain arises from the availability of certainty of

funding over a long period of time under the PFI which means that more efficient

measures can be undertaken. In effect, the repeated application of lower cost,

less effective measures can be replaced by a more effective, higher cost

measure with an overall saving in lifecycle costs.

The Isle of Wight Council is able to point to a number of cases where repeated

minor repairs have been made to sections of road, when the cost effective

solution would have been a more major road reconstruction which would have

removed the need for future repairs. The example of Calbourne Road, Calbourne

given below is a case in point.

Calbourne Road, Calbourne

The need for resurfacing Calbourne Road has been clear to the Council since around the

mid-1990s, but funds were not available.

Now funds are available for a £280,000 resurfacing scheme to be undertaken this year.

In the interim, however, the Council has undertaken a number of minor repairs which would

not have been needed if the resurfacing had been done.

Since June 2006, £26,000 has been spent on minor repairs, not including further expenditure

on infilling numerous potholes.

This is all effectively abortive expenditure, amounting to around 10% of the required

expenditure, made as a result of a lack of appropriate funding, which will be avoided under

the PFI.

The Council assumes that such efficiency savings could be worth a further 5% of

the expenditure under the PFI.

3.4 Value for Money Assessment (TQAT)

The Value for Money assessment is fully described in the financial case, Section

5. A detailed public sector comparator and a shadow bid model have been

constructed. Comparing the PFI shadow bid with the Public Sector Comparator


(PSC), the PFI option is found to be 13.68% Value for Money over the PSC

option.

3.5 NATA

The NATA (New Approach to Appraisal) appraisal process was introduced by the

Department for Transport in the late 1990s. A principal purpose of the NATA

approach to appraisal was to broaden the scope of the appraisal so that decision-

makers were informed of the impacts of the scheme being appraised on the five

overarching objectives of transport policy – the economy, the environment,

safety, accessibility and integration.

The NATA-style Appraisal Summary Table, attached at Appendix 12, is a part of

this process. It summarises the wider-ranging appraisal, describing the principal

impacts in relation to each objective in qualitative or quantitative terms.

The principal quantified benefit estimates are summarised in the table below,

calculated over the 25-years of the concession period and expressed as Present

Values in 2009 prices.

Benefit Item £ million present

values, 2009 prices

Time savings as a result of better road surfaces

Time savings from changes in road works and road closures

Vehicle operating cost savings

Accident savings from improved skid resistance

Public liability payment savings

Accident savings as a result of improved street lighting

Fear of street crime reduction as a result of improved

street lighting

Time savings from the removal of width and weight

restrictions

Efficiency savings from private sector involvement

Efficiency savings from improved road maintenance

Measures

Total £ 480 million


Sections of the table have been removed as they are deemed

commercially sensitive.

The costs of the Preferred Scheme are detailed in Appendix 14 and are

described more fully in the Financial Case. They include un-inflated (2009/10)

costs as follows with no allowance for Optimism Bias:

Do Something Costs Excluding Optimism Bias

£ million

Capital costs over Core Investment Period

Lifecycle replacement costs

Operation & Maintenance costs over 25 years

Authority funded Capital costs over Core Investment Period

Authority funded Lifecycle replacement costs

Authority funded Operation & Maintenance costs over 25

years

Contract Management Costs over 25 years

Client Management Costs over 25 years

Total

Present Value £323 million



The Benefit:Cost ratios have also been estimated making an allowance for

Optimism Bias using the assessment and percentages set out in Section 5.7.1

below. For the Do Something, the Pre-Optimum Bias and PFI (Post-Optimum

Bias) percentages are applied. For the Do Minimum, where the scale of work is

less, just the Pre-Optimum Bias percentage is applied.

The Do Something costs with an allowance for Optimism Bias are as follows:

Do Something Costs Including Optimism Bias


£ million



Operation & Maintenance costs over 25 years

Authority funded Capital costs over Core Investment Period

Authority funded Lifecycle replacement costs

Authority funded Operation & Maintenance costs over 25

years

Contract Management Costs over 25 years

Client Management Costs over 25 years

Total




The un-inflated costs of the Do Minimum, of maintaining the highways network in

its current condition, excluding Optimism Bias, are as follows.

£ million



Operation & Maintenance costs over 25 years1

Total


1 Includes the costs identified as Contract Management Costs in the Preferred Option



With the allowance for Optimism Bias the Do Minimum costs are as follows:

£ million




Operation & Maintenance costs over 25 years1

Total


1 Includes the costs identified as Contract Management Costs in the Preferred Option



The Benefit: Cost Ratio, excluding Optimism Bias, is 5.1:1, calculated as follows.

The net cost of the PFI in present value terms is £94 million (Do Something costs

of £322 million less Do Minimum costs of £229 million) and the benefits are £480

million, giving a Benefit: Cost ratio of 5.1:1.

When allowances are made for Optimism Bias, with a higher percentage

allowance applied to the Do Something costs, the Benefit: Cost Ratio falls to

4.1:1, calculated as follows. The net cost of the PFI in present value terms is

£118 million (Do Something costs of £359 million less Do Minimum costs of £241

million) and the benefits are £488 million, giving a Benefit: Cost ratio of 4.1:1.

3.6 Assessment of Funding

The PFI credit will make funding available which is not available through

mainstream Council funding. As stated in paragraph 3.5 above CIP funding of

around £XX million would be needed to maintain the network in its current

condition while the capital expenditure of the preferred scenario over the CIP of

£XXX million would be needed to bring the network into an acceptable condition.

The PFI would make this funding differential available.

3.7 Preferred Investment / Service Delivery Option

The Preferred Option 6 emerged by far the highest scoring option when

appraised against a set of criteria and objectives which draw heavily on the

Island’s strategy as set out in Eco Island Vision 2008-2020 and in its Local

Transport Plan. The Preferred Option is a full network PFI which includes street

cleansing; and capital and lifecycle maintenance of on and off street parking.


The level of funding needed to halt the decline in the Island’s roads and to ensure

that the Island’s roads, footways and cycleways can play their part in contributing

to the Island vision will only be available through this Project.

3.8 Conclusions

An assessment of eight different options against Isle of Wight Council objectives

identified Option 6, a full network PFI with a full range of services, as the

preferred option.

In the appraisal of this option it is assumed that investment is incurred over a

seven year period to bring the Island’s transport networks up to an acceptable

condition and that they are maintained at that level over the remaining 18 years

of a PFI concession. A range of benefits arising from the enhanced quality of the

networks have been estimated and generate a benefit:cost ratio of 5.1:1, without

allowance for Optimism Bias, or 4.1:1 when such allowance is made.

Over the seven year Core Investment Period, funding of around £XX million

would be needed to maintain the network in its current condition, while capital

expenditure of the preferred scenario over this period of £XXX million would be

needed to bring the network into an acceptable condition.


4 Commercial Case

4.1 Introduction

The Commercial Case focuses on the key areas of the procurement strategy and

process, commercial considerations, soft market testing and the human

resources implications of the project. Risk has been considered within the context

of the Commercial Case although this is dealt with in more detail within the

Management Case.

4.2 Procurement Appraisal for PFI

Public sector procurement is governed by legislation set by the European Union

mandating three core principles:

• Equality of treatment between all potential bidders

• Non-discrimination

• Transparency

Effective procurement is crucial in securing high quality, best value public

services and the government has highlighted that the development of a clear

procurement strategy is a key step towards achieving Value for Money and

delivering the demanding efficiency targets.

The process requires use of the Official Journal of the European Union (OJEU)

for the open advertisement of all opportunities exceeding the published value

thresholds as will be the case in this Project.

It is mandatory for the Council to comply with these regulations and also Council

Standing orders; therefore a compliant procurement mechanism will be utilised

for the selection of a PFI service provider.

The European Commission published Directive 2004/18/EC in the spring of 2004,

introducing the Competitive Dialogue (CD) procedure. This mechanism has been

introduced as an alternative to the negotiated procedure for complex

procurements such as the letting of a PFI contract.


Four regulated mechanisms exist for undertaking OJEU procurements:

• The Open Procedure – whereby any organisation expressing an interest is

provided with the full contract documentation and invited to tender. This

method does not include any opportunity for short-listing or contract

negotiation.

• The Restricted Procedure – which allows a pre-qualification stage to be

performed to short list the suppliers that will be invited to tender. Again no

opportunity exists for contract negotiation using this mechanism.

• The Competitive Negotiated Procedure – which allows the Council to pre-

qualify suppliers that will be invited to negotiate over the required service

provision. There is no formal end to the negotiations prior to the contract

signature.

• The Competitive Dialogue Procedure – whereby the Council pre-qualifies

service providers to create a shortlist of those who are invited to participate in

the dialogue process, affording them opportunity to discuss and refine the

required solutions. Once the solution has been confirmed the dialogue is

brought to a halt through formal notification to all participants and final tenders

are invited. After the Call for Final Tender has been issued only limited

discussion and clarification is allowed – there is no provision for further

negotiation at this stage.

Guidance states that the Competitive Negotiated Procedure should now only be

used in exceptional circumstances, whilst the Competitive Dialogue procedure

should only be used for “particularly complex contracts” (ref: Regulation 18 -

Public Contracts Regulations 2006).

Under the Public Procurement Directive (2004/18/EC) and the Public Contracts

Regulations 2006, the proposed PFI contract can be classified as a “particularly

complex contract”. The Council is not able to objectively define the technical

means capable of satisfying its needs or objectives and therefore the Competitive

Dialogue procedure is the mandated process.


4.3 Procurement Process

The Council will follow the following procurement process and timescales:

The key stages of the Procedure can be defined as below;

a. Post OBC to Pre Dialogue (September 2009 to June 2010)

• Planning and initial preparation (pre OJEU notice) – commencing

following submission of OBC.

• OJEU contract notice (see draft attached at Appendix 15) for short-

listing of bidders through the use of a Prequalification questionnaire

• Selection of bidders and preparation for the dialogue stage – agree a

shortlist.

b. Dialogue Phase (June 2010 – June 2011)

• The dialogue – issue Invitation to Submit Outline Solutions.

• Evaluate outline solution

• Invitation to Submit Detailed Solution Evaluation

• Call for Final Tenders


• Close CD.

c. Post-dialogue Phase (July 2011 to November 2012)

• Submission of Final Tenders and bid evaluation

• Bid clarification

• Preferred Bidder to Financial Close

• Final Business Case to DfT and HMT

• Cabinet Approval

• Financial Close

d. Mobilisation (November 2012 – April 2013)

• The 5 month mobilisation period is an indicative time scale

A detailed Project Gantt chart is attached at Appendix 16.

4.4 Competitive Dialogue (CD)

The CD process is likely to be longer than the negotiated route and more

resource intensive. The Council is keen to minimise bid costs and will keep this in

focus when drawing up the Project Agreement, and will work with bidders to

achieve this. The Council itself has made considerable investment in assembling

a post-OBC team structure as described in the Management section of this OBC,

including full time Legal and Procurement support. In addition, the Programme

Director will be able to draw on the wider external Advisor team, also identified in

the Management section.

The Council will design a detailed CD process and announce a set of protocols

and ground rules to facilitate an orderly conduct of the dialogue. The process will

be co-ordinated and managed centrally.

The Council expects the early dialogue from ISOS to ISDS to be conducted on a

two to three weekly rotation, with a plenary opening session followed by dialogue

conducted by three teams – leading on technical, commercial and legal. Each

dialogue team will have back room support to help with the effective management

of the overall process.

Experienced bidders of the size and shape necessary to undertake this Contract

will understand the financial commitment necessary to bid and the likely


investment in time necessary to bring a successful conclusion to the procurement

process. The Council’s soft market testing (see 4.10) indicates that the market is

fully aware of the resource implications but will be fully appreciative of any client

body that focuses on minimising bid costs.

In order to achieve best value and efficiency targets the Council is approaching

the competition positively, taking full account of the opportunities for innovation

and genuine partnerships which are available from working with others in the

public, private and voluntary sectors. Importantly, this strategy seeks to balance

two priorities:

• delivering efficiencies and quality

• sustainable procurement, engaging with local and regional suppliers

to promote the local economy taking into account the social and

environmental impact of spending decisions

4.4.1 Evaluation Criteria

The Council will determine the detailed Evaluation Criteria once the full

specification is developed. It will publish the Evaluation Criteria for each of the

stages with the full scoring methodology before commencing CD. The Council

intends to publish an affordability NPV envelope for bidders to use as a guide to

prevent abortive work being undertaken. The following may be included when

forming the basis of the Evaluation Criteria:

• Technical

• Legal

• Financial

• Payment Mechanism

• Staffing

• Resourcing

Detailed Evaluation Criteria will be determined through a series of project

workshops and will be tested for robustness before formally adopting them for

evaluation.


4.5 Output Specification

The Council has drawn on the experience of other Authorities that have procured

Highways PFI projects in formulating the basis of a workable scheme specifically

adapted to particular local needs. The Council’s service requirements will be set

out in detail in the Output Specification based on 4p’s guidance – the first draft of

this document is being prepared at present.

The Council has set a number of standards for each highway asset category, and

these are set out in Appendix 17. These standards have been tested for

appropriateness for Isle of Wight conditions and affordability. In costing the

effects of delivering operation and maintenance activities under an output based

PFI specification, the Council has taken account of meeting the standards,

practices, and obligations, contained in the following documentation:

• Existing output specifications on other highway and lighting PFI projects

• Current best practice across other Local Authorities

• Well-maintained Highways – Code of Practice for Highway Maintenance

Management

• Management of Highway Structures – Code of Practice, UK Bridges Board

• Well Lit Highways – Code of Practice for Highway Lighting Management

• Code of Practice on Litter and Refuse, DEFRA

• DfT design manuals

• Highways Act 1980

• The New Roads and Street Works Act

• Traffic Management Act

• IWC internal Policies

Core services relating to highway assets will necessarily be closely aligned with

industry standards. Standards for litter and detritus grading will be set at the

COPLR intermediate B+ standard, and for graffiti and flyposting at grade A. The

Service Provider will be required to co-ordinate and programme its works with

any contractor with responsibilities for waste collection management on the

Project Network and shall be able to demonstrate from time to time, at the

request of the Council, that this requirement is being met. It is expected that this

interface will be well within the normal scope of the Service Providers current

duties on other Networks.


The lighting requirements for lighting on subsidiary roads and associated areas,

footways and cycle tracks will be determined based on crime figures, traffic flow

and environmental criteria as set out within BS5489-1: 2003 (Table B.4 – Lighting

Classes for Subsidiary Roads (pedestrians and cyclists))

Crime Rate

Ra value

Lighting Class

Area ID Area ID Area ID

Low traffic

flowa Normal traffic

flowb High traffic

flowc

E1/E2d E3/E4d E1/E2d E3/E4d E1/E2d E3/E4d

Low Ra<60 S5 S4 S4 S3 S3 S2

Ra≥60 S6 S5 S5 S4 S4 S3

Moderate

Ra<60 S4 S3 S3 S2 - S1

Ra≥60 S5 S4 S4 S3 - S2

High Ra<60 S2 S2 S2 S1 - S1

Ra≥60 S3 S3 S3 S2 - S2

Lighting Classes for Subsidiary Roads (pedestrians and cyclists).

The lighting class appropriate for each type of traffic route within the IW shall be

determined in accordance with the road type, traffic flow and environmental

criteria selection process set out within BS5489-1:2003, Table B.2 – Lighting

Classes for Motorways and Traffic routes and Table B.3 – Lighting Classes for

Conflict Zones.

Within the Output Specification the appropriate lighting class for each

town/district centre within the IW shall be determined based on usage, traffic flow

and environmental criteria as set out within BS5489-1: 2003.


Type of Traffic Lighting Class

Normal Traffic

Flow

High Traffic

Flow

E3 E4 E3 E4

Pedestrian only CE3 CE2 CE2 CE1

Mixed vehicle and pedestrian with separate

footways

CE2 CE1 CE1 CE1

Mixed vehicle and pedestrian on same

surface

CE2 CE1 CE1 CE1

Lighting levels for town centre areas as extracted from BS5489

Within the Output Specification the appropriate lighting class for each car park

within the Isle of Wight shall be determined based on usage and traffic flow

criteria as set out within BS5489-1: 2003.

Type of Area and Usage E Uo

Light traffic, e.g parking areas of shops, terraced and apartment

houses; cycle parks.

5 0.25

Medium traffic, e.g parking areas of department stores, office

buildings, plants, sports and multipurpose building complexes.

10 0.25

Heavy traffic, e.g parking areas of schools, churches, major sports

and multipurpose sports and building complexes.

20 0.25

Lighting levels for outdoor car parks as extracted from BS5489

The Council has accurate installation dates for its traffic signal controller assets

and the Output Specification will contain a standard whereby no traffic signal

controller shall be more than 10 years old after the core investment period and no

more than 8 years old at handback.

Arboriculture and grounds maintenance standards will employ relevant statutory

legislation, British Standards, NJUG guidelines, local authority best practice, and

trade association recommendations.

Each component of the detailed Output Specification will be drafted to provide:


• The high level requirements of the Council for each aspect of the Service

as ‘Required Outcomes’

• The performance requirements of the Service Provider, measured against

the Service Delivery Outputs and their corresponding Performance Targets

• Clear “Clause” links to the Payment Mechanism and Service Performance

Schedules

• The mechanism by which the Output Specification shall be measured in

accordance with the Monitoring Procedures set out in the Project

Agreement

The Technical and Financial modelling has applied market rates to the costs of

delivering these standards of service and taken account of scale, continuity and

private sector operating efficiencies.

4.5.1 Performance Requirements

The Council’s Highways PFI Contract will be an output based service contract

designed to raise the standard of service through efficiency gains in the delivery.

Service payments will be based on either meeting milestones or Output

Specification requirements and hence the contract documents will have detailed

outcomes and key performance indicators for each aspect of service delivery.

The Council will adopt the model standard form framework but will devise its own

detailed specification, post OBC. This will include Island specific issues,

sustainability, carbon footprint, night working and restrictions on refurbishing

certain parts of the network during certain critical dates for tourism. The Council

will follow the following Performance Standards (PS) form:

PS1 Network Performance

PS2 Surveys and Inspections

PS3 Core Investment Period

PS4 Network Standards

PS5 Environment

PS6 Emergency and Response

PS7 Winter Service

PS8 Policies

PS9 Network Management

PS10 Contract Management and Customer Interface


The Output Specification and Performance Requirements will link to the Payment

Mechanism detailed at 4.7 and all three documents are dependent on one

another in determining the PFI Service Provider’s performance and payment.

The Project Agreement will also be fully cross referenced to the Output

Specification and Payment Mechanism ensuring a cohesive suite of Contract

Documentation.

4.6 Project Agreement

The Council is currently developing a draft Project Agreement with its external

legal advisors, DLA Piper. The precedents being used to inform the drafting of

the Project Agreement include: the Streetlighting Model Contract (due to the

number of analogous issues relating to the maintenance PFI projects already

dealt with in this Model Contract); the Standardisation of PFI Contracts versions 4

("SoPC4"); the draft Highway Management Procurement Pack issued earlier this

year by 4Ps; and other relevant highways contracts.

Initial legal meetings have been held with DLA Piper and WSP (the Council's

technical advisors) to discuss and reach agreed positions on certain key issues

for inclusion in the Project Agreement. As DLA Piper has experience of this

sector from the Birmingham City Council Highways PFI project and the Sheffield

Highways Maintenance PFI Project; the Council is able to take advantage of this

knowledge on all key issues within the sector.

The Council is committed, wherever possible, to adhering to the drafting

contained within SoPC4. However, there are likely to be a number of sector-

specific derogations for which approval will be sought. These derogations arise,

in the main, because this is a maintenance project rather than a design and build

project. The Council will, wherever possible, take advantage of the lessons learnt

on any sector-specific derogations approved in the Birmingham and Sheffield

projects to inform any derogations it proposes to SoPC4 drafting. The Council

will keep a running list of derogations from SoPC4 which it will frequently review

as the drafting of the Project Agreement is developed to confirm the necessity of

any such derogations. Following on from the initial set of legal meetings, the

Council has provided an initial high level summary of the derogations from

SoPC4 which it currently expects to seek on the Project which is set out at

Appendix 18.


The drafting of the Project Agreement will be completed prior to the start of the

procurement process and will be made available to bidders at the

commencement of procurement.

4.7 Payment Mechanism

It is presently envisaged that the payment mechanism will be based on a Unitary

Charge for the delivery of the key elements of the Highway service; payments to

the Service Provider will vary according to agreed standards, and be measured in

accordance with pre-set rules.

The Council will develop the Payment Mechanism to:

• Incentivise to deliver to required standards, timetable and project objectives

• Encourage to extend asset lifecycle through the use of innovative design

and new technology

• Be bankable

• Be objective, clear, simple, cost effective and capable of measurement.

The approach will build on the experience of the previous projects in the highway

maintenance sector and key guidance from the 4Ps and HM Treasury.

Performance during the CIP will be measured through achievement of

milestones. The initial level of Unitary Charge will reflect the total contract value

less the value of core investment works. As each milestone is achieved, the

Unitary Charge will step up in increments set to make the Unitary Charge

reflective of the total contract value on completion of the CIP.

It is intended that Service Provider performance will be measured against the

service delivery requirements of the Output Specification for each of the

performance standards of the model standard form. These will be appropriately

modified to reflect the service and network conditions of the Island.

PS1 of the standard form relates to the CIP, the performance of which is

monitored and paid for through the milestone methodology outlined above. The

performance standards listed in paragraph 4.5.1 will also form the basis for

monitoring service delivery.


Some Payment Mechanisms used on previous projects in the sector included

bespoke deductions against each service delivery criterion of the performance

standard, albeit with some banding. The Council will retain this as a fallback

position, but considers that there will be some merit in exploring the benefit of a

simple hierarchy of deductions related to the impact of the performance failure

which would apply to all service delivery criteria.

Apart from simplifying the application and monitoring of the Payment Mechanism,

the common hierarchy approach may allow the introduction of a small set of Key

Performance Indicators into the Payment Mechanism. These would allow the

Council to include some overarching aggregate performance requirements in

addition to the disaggregate requirements of the individual service delivery

criteria.

Service Provider performance will be largely a self monitored with a requirement

for independent review and approval by third party on a random sample of

indicators. The approach to be adopted will be based on irregular and random

sampling but, to incentivise accurate self monitoring, payment deductions for

inaccurate or false reporting will be high. The interface with other contractual

remedies will also be carefully considered.

The Payment Mechanism will be closely integrated and calibrated in line with the

Output Specification and Performance Monitoring Regime, to the extent that all

three documents are dependent on one another, when determining the PFI

Contractor’s performance and payment.

4.8 Derogations from SOPC4

An initial derogations table is attached at Appendix 18. The Council will update

the table as and when necessary and intends to work with DfT and PUK

throughout the procurement process to ensure that approval for derogations can

be obtained in a timely manner.


4.9 Commercial Issues

4.9.1 Wharf facilities

There are three operating commercial wharfs on the Island, all on the Medina

estuary off the Solent.

The main wharfs are Medina Wharf in Cowes, and Kingston Wharf in East

Cowes, both of which currently accept regular imports of gravel, aggregates and

other bulk cargos. Medina Wharf has direct road access on to the main highway

network via a specially constructed link road. Kingston Wharf is due to have

access to the main road network via a new road link through a proposed

employment development area, due for completion at the end of 2009. On

average (between 2003 and 2008) 72,500 tonnes of stone and 102,000 tonnes of

shingle and ballast per annum were imported to the Island through Cowes

Harbour.

The smallest wharf, Blackhouse Quay, is in the built up heart of Newport.

Although road access is restricted adjacent to the site, and leads onto an

industrial estate road, before reaching the main road network, the wharf still

accepts occasional cargos of gravel for local distribution, but access by sea is

limited by a narrow tidal window and relatively shallow waters.

4.9.2 Isle of Wight Mineral Background

The Island has a number of currently active quarries: 5 sand and gravel, 3 chalk,

and 1 limestone (producing crushed rock). These are distributed across the

Island on a predominately east/west axis orientation, following the geological

occurrence of economically significant reserves. The locations of all of these

quarries can be considered rural (i.e. outside development envelope boundaries)

and they are spread throughout the Island, with the main centre for processing

being located just to the south east of the capital town, Newport. There are

currently 3 quarries that carry out some form of material recycling.

There are a number of environmental constraints to mineral operations, bearing

in mind that extraction is limited to resource occurrence including major chalk

aquifers, AONB, and sites designated for their (European, national, or local)

significance for nature conservation interests (i.e. wildlife and habitats). Other

physical constraints include access, existing development and allocations.


Further information relating to the Island Plan and Mineral Planning Authority will

be held in the Project Data Room.

4.9.3 Isle of Wight Council Property Considerations

Until the Highways PFI Provider is identified the Council will not be in a position

to determine which, if any, of the currently held highways related Isle of Wight

Council sites might be of interest to the Service Provider, and how they might be

transferred. However, in order to ensure that all prospective bidders are able to

consider the issue of Council held properties, a schedule of such properties will

be held in the Project Data Room.

4.10 Market Soundings/Market Interest

The Council has developed an in-depth understanding of the market place

through:

• Market research

• Market warming on both formal and informal mechanisms including face-to-

face meetings and the publication of a Prior Information Notice in the OJEU

(see Appendix 19)

• A series of industry days to demonstrate the strength of both the project

and the Council to potential service providers, encouraging interest and

participation.

Soft market testing commenced as part of the EoI process and this has continued

to date. Some of the supporting letters attached at see Appendix 20 demonstrate

the on-going interest on this Project. A summary of the market interest is

attached at Appendix 37.

The Council intends to select a partner who is capable of working with the

Council in the long term for the benefit of the Island and held two Industry Days –

the first of these were aimed at the locally based contractors and the second, the

larger gathering, was aimed at potential PFI bidders. The second event was held

on 3 September 2009 at the Royal Yacht Squadron, Cowes, Isle of Wight. A

detailed report on the event is attached at Appendix 35. The Industry Day was led

by the Leader of the Council who introduced potential service providers to the Isle

of Wight and the project. The Programme Director outlined the scope and


approach the Council are taking in seeking a PFI partner for the Council. The

Technical Manager and the Commercial Manager covered detailed aspects of the

Project. The day was well supported by the DfT, helping to reinforce the strategic

message. The Council also set aside an exhibition area to display asset data and

condition and offered the opportunity for prospective bidders to discuss the

details with the wider IWC team including the Advisors. The presentation also

included a short video to provide an overview of the Island, the highways

condition and give a flavour of some of the residents and visitors’ views about

Island roads, including a visual demonstration of some of the good and bad

areas. This was supplemented by a bus tour of some of the roads and assets

around the Island to further illustrate the rural nature of the Island, the current

state of our network and logistics.

4.11 Project Data

The Council has continued the soft market testing process beyond the Industry

Day to ensure any queries raised are addressed. The Council will only enter the

procurement process once it receives formal approval to proceed from DfT and

the HM Treasury Project Review Group. A draft copy of the OJEU Contract

Notice is attached at Appendix 15.

The Council will set up an extranet system to support the procurement phase of

the Project. The extranet system will act as the virtual data room and will provide

information to Bidders throughout the procurement process. The Council has

comprehensive records of our inventory and asset condition. These will be

available to bidders through the extranet. The Council also has digitised maps in

GIS format; these will be made available on the extranet. All documents that are

on the extranet will also be available in the Project Data Room. There are some

old construction drawings, paper maps and other historic records; these will be

listed on the extranet but only available for review in the Project Data Room.

4.12 Encouragement of Competition

In order to ensure a sufficient number of bidders to achieve a successful

Competitive Dialogue (CD) process, the Council included as broad a scope as it

feels is relevant to the Isle of Wight Project, although this can be refined as the

Competitive Dialogue progresses and dictates.


In order to minimise early bidder costs and thereby have a reasonable number of

initial bidders, the Council has aimed to set a realistic timetable for achieving the

various stages of the CD process (see 6.5) and intend to hold meetings in

London, or other mainland locations where appropriate, to minimise the need for

bidders to travel to the Isle of Wight. Bidders will however be encouraged to

come to the Island to verify the nature of the assets for themselves and discuss

other matters as they require.

4.13 Bankability

In preparing both the EoI and OBC the following key assumptions have been

made:

• The project will attract bidders. The Council is taking measures to ensure that

this is the case as evidenced above. In addition, the market research undertaken

to date, evidenced at 4.10 indicates a strong commercial interest in this Project.

• Availability of bank funding. The HM Treasury statement that, if necessary the

government will provide the finance for PFI projects to go ahead, has provided a

degree of confidence that money will be available for projects that are currently in

or near to commencing procurement. In addition, with a Financial Close for this

Project not due until late 2012, it is likely that there will be a very different

economic climate at that time and Council has been encouraged by recent

projects closing without the need of funding from HM Treasury. Further

discussion on this is covered in the Financial Case.

4.14 TUPE

Given the current scope of the Project, the Council anticipates the transfer of XX

staff which amounts to a release of a payroll obligation of £XX.

The transfer of staff will take place in accordance with the Transfer of

Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).

The Council has successfully conducted TUPE transfers in the past with no

ongoing obligations.


The Council is committed to open and transparent communications with staff and

unions ensuring a good working relationship and therefore has produced “A Basic

Guide to TUPE” which will be shared with all staff who are eligible to transfer. A

copy of this guide is attached as Appendix 21.

The Council is committed to ensuring that Equality and Diversity and Health and

Safety issues are paramount in its own and its partner’s practices. As part of the

Council’s pre-qualification process, we thoroughly check all bidders’ diversity and

health and safety policies and ensure that these are in place and embedded in

the organisations practice.

The new provider may be offered the opportunity to enter into a Service Level

Agreement with the Council’s Payroll, HR and Legal departments either on a

permanent or transitional basis to ensure continuity for transferring staff is

maintained.

The Council's pension fund administrator has considered the position should a

bidder choose to apply for admitted body status in the LGPS. A detailed account

of the Council's position and the process for such a situation can be found at

Appendix 22.

However, in the event that the successful bidder does not enter the LGPS, under

the terms of TUPE they will be required to offer a pension broadly comparable to

the Council’s Local Government Pension Scheme.

Broadly comparability relates to the protection of transferring employees’ future

pension rights. Assessment of whether a scheme is “broadly comparable” falls

within the remit of the Government’s Actuary Department whose principles are

set out in “Assessment of broad comparability of pension rights, Statement of

practice by the Government Actuary, May 1999” which is attached at Appendix

23.

As well as the staff considerations, the Council is maintaining a list of current

contractors to monitor any legal implications that the PFI will have on these and

to ensure that businesses are notified of any implications on them upon which

they will need to seek independent advice. In addition, where potential TUPE

implications arise, the Council will facilitate contact between contractors and the


successful bidder for the PFI to ensure a smooth transition is guaranteed. The

bidder will be required to demonstrate a commitment to developing

apprenticeship opportunities through joint working with Island-based schools and

colleges to develop skills.

The Council proposes to retain a core group of staff who will take responsibility

for the management and oversight of the contract and maintain the residual

functions. This will ensure that the Council can monitor delivery, services and

outputs. Further detail on the management of the contract is set out in the

Management Case.

4.15 Insurance

4.15.1 Current Insurance Arrangements

The Council’s current public liability insurance policy includes a deductible of

£125,000. As a result, the Council effectively self-insures meeting claims from its

insurance reserves in full where the total value of the claim is less than £125,000

or paying the first £125,000 of larger claims. The handling of claims is

undertaken jointly between the Council’s Insurance Unit and Council’s insurer.

The Council’s highways claims experience over recent years is detailed in 2.17.2.

The Council self-insures the highways assets.

4.15.2 Insurance Arrangements under PFI

As the highways authority, the Council will remain liable at law in respect of any

claim made in respect of the Island’s network. Subject to confirmation through

commercial negotiations with the successful tenderer, it is anticipated that the PFI

Service Provider will arrange and continue to provide adequate insurance cover

throughout the term of the contract to indemnify the Council against all public

liability claims arising from the highways network. These insurance

arrangements will be subject to approval by the Council annually. The Service

Provider (either directly or through the insurer) will be responsible for the receipt,

handling and determination of such claims. It is reasonable to assume that the

volume of claims made will reduce as a result of the improved standard of the

road and pavement surfaces (and that improvements in the inspection regime will

also increase the repudiation rate for such claims).


The Council has consulted its insurance advisor JLT Group. It is the Council’s

intention not to require the PFI Provider to insure the highway network against

catastrophic loss.

4.16 Conclusion

The Council has soft tested the market to ensure it has an attractive Project

which will be of interest to bidders when the Project goes to market. The Council

has established a robust procurement strategy, utilising the Competitive Dialogue

process, allowing appropriate lead times for each stage. The Council has

discussed the key documentation for the Project: the Output Specification,

Payment Mechanism and Project Agreement, and also considered the TUPE

implications for staff likely to be affected by the Project and set out the Council's

position with regard to pension schemes. Whilst a number of the items discussed

in this section need further work, the Council believes that the position with

regard to commercial issues is well thought out and robust.


5 Financial Case

5.1 Introduction

The purpose of the Financial Case is to establish the financial justification for the

Project. It details the basis for building the base costs; the assumptions and the

methodology for calculating PFI credits and Unitary Charge; the Council’s own

affordability position and the calculation of the Public Sector Comparator (PSC).

Finally, it sets out the case for proceeding with the PFI procurement by

demonstrating Value for Money.

5.2 PSC Base Costs

The key cost elements for the Project to deliver the services required can be

classified under Core Investment Period (CIP) costs, Lifecycle replacement costs,

Operational and Maintenance costs, and Contract Management costs. The scope

of services and the approach to determining costs reflects an integrated service

delivery across the Island that would form the basis of the Output Specification

when going out to tender.

WDM, our highway survey consultants, have undertaken Condition Surveys to

estimate the backlog of repairs required to bring the Isle of Wight network up to

current acceptable standards. The detail of their cost modelling exercise is

provided at Appendix 5.

The Council staff, who are specialists in their own area, have considered the

requirements to bring other project assets up to acceptable standards and these

costs, together with the WDM costs above, have been fed in to the Technical

model (see Appendix 14) for verification and then submission to the Financial

Advisors for financial modelling.

The base costs (real 2009 prices un-indexed) over a 25 year period are:

• Core Investment Period (7 years)

• Authority funded Capital costs over CIP

• Total £139.66m

• Lifecycle costs (18 years)

• Authority funded Lifecycle replacement costs

• Total £173.58


• Operation and Maintenance (25 years)

• Authority funded O&M costs over 25 years

• Contract Management Costs (25 years)

• Total £181.26

Sections of the bullet point table have been removed as they are

deemed commercially sensitive.


The Council has tested the CIP for a 5 and 7 year period and concluded that,

from the Island’s perspective, a 7 year CIP was optimum to facilitate a smooth

rehabilitation programme without causing significant disruption to the Island

residents and also to the visitors to the Island. The detailed rationale behind this

is supported by the results of Council’s Island-wide traffic model, the results of

which are detailed in Appendix 10.

A summary of the CIP costs, including the Authority funded scope, is provided

below:

Two tables in this section have been removed as they are deemed


5.2.2 Lifecycle, and Operations and Maintenance Costs

A summary of the Lifecycle (18 year) and Operation and Maintenance (25 years)

costs, including Authority funded scope, is provided below:

Three tables in this section have been removed as they are

deemed commercially sensitive.


5.3 Shadow Bid Model

The Shadow Bid model (see Appendix 24) estimates the work required, and the

cost of that work to meet the Council’s required standards, under a PFI delivery

model. The model seeks to replicate the cost that the Council and its technical

advisors believe would be proposed in a commercial bid from potential bidders for

this Project, given the requirements of the Project and the proposed risk allocation

developed to date. The model takes into account the current state of the economy

and its impact on funding markets.

The key output of the Shadow Bid model is the Unitary Charge calculation, which

is then used for estimating the Project’s affordability. The Unitary Charge (UC) is

based on a base case assumption of tighter market conditions being prevalent at

the time of financial close, as opposed to what has been extant in the past few

years, and also takes in to account the commercial terms that equity providers will

want to see.

UC for Affordability y

Calculations

First Full Year Year 8 Year 25

£19.8m £38.0m £54.7m

Whilst the base case assumptions represent the best estimates on information

currently available, sensitivities have been undertaken to determine the impact of

changes in the funding market; these are discussed in 5.5.4.

5.3.1 Shadow Bid Costs

The Shadow Bid costs, which are the key technical inputs into the Shadow Bid

Model, have been developed to take into consideration efficiency factors

associated with a long-term integrated services delivery contract delivered through

the private sector. These efficiencies, to take account of a PFI Service Provider’s

ability to achieve economies of scale, procurement savings, long-term contract

security, integrated service delivery through effective coordination and reduction in

duplication, and the ability to bring about innovation, are detailed below and were

applied to the PSC base costs during CIP (5.2.1), and during Lifecycle and

Operation and Maintenance (5.2.2):

• CIP 7% • Lifecycle 7%


• O&M 5%

Further, the commercial risk pricing that a PFI Service Provider would typically use

for pricing has been determined through a series of risk workshops. These risks

were defined and agreed between the Technical Advisors, the Financial Advisors

and IWC and are discussed in more detail under the Value for Money Section

(5.7). The following commercial uplifts have been applied to the efficiency adjusted

PSC to give the final Shadow Bid model costs:

• CIP 10.7% • Lifecycle 6.1% • O&M 4.1%

5.4 Affordability

The annuity based affordability model calculates IWC credit requirement based on

the Gap Funding method, after considering all sources of funds available for the

Project.

The main sources for funding available for the Project are:

5.4.1 Budgetary Contribution

The current highways budget contribution and additional resources approved by

the Council is £339.5m over the life of the Project in nominal terms (£9.02m p.a.

(including client side costs, indexed annually at RPIX).

Sections of the text have been removed as they are deemed


Annual spend £m

Highways X

Design X

Structures X

Street lighting X

Energy X

Traffic X

Network Management X

Cycleways X

Support X


Street Cleansing X

Public Realm X

CCTV X

Central Services X

Additional funding for in-scope X

Additional contribution agreed EOI X

Total X

Client side monitoring 0.700

Total Budgetary Contribution 9.02

The Council has further considered the potential for costs exceeding beyond the

base case and assessed an upper limit of a 80th percentile risk envelope and the

possibility of a 12 month extension to the programme.

5.4.2 Cash flows from PFI Credits

PFI credits have been assumed as payable on an annuity basis from the point of

service commencement in accordance with CLG guidance (Local Government PFI

support guide (2009-2010)). The annuity grant receipts are £677.5m (in nominal

terms) over the life of the Project.

5.4.3 Interest on cash balances

Interest on cash balances calculated @ 3.5% arising from the Project cash flows is

£45.6m in nominal terms over the life of the project.

5.5 PFI Credits and Calculation Methodology

PFI credit calculations have been undertaken through both the ‘Revenue

Abatement’ and ‘Gap Funding’ approaches. The Council’s credit requirement is

based on the ‘Gap Funding’ method; however the ‘Revenue Abatement’ method

was used in line with CLG guidance and to demonstrate that IWC is seeking PFI

credits only to support the capital elements of the Project.

5.5.1 Revenue Abatement Method

The Revenue Abatement method used is in line with CLG guidance and calculates

the overall project costs, making abatement in respect of the revenue component.

For this Project, the split between Capital and Revenue spend based on detailed

costing is assumed as 70:30. The classification of costs into capital and revenue

has been based on discussions with the Council’s Project Team and Technical

Advisors. The PFI credit requirement using the Revenue Abatement method is


£364.6m before the inclusion of Authority funded scope, or £371.1m after the

inclusion of Authority funded scope.

5.5.2 Gap Funding Method

Based on the cost of works calculated by the Shadow Bid Model and IWC budget

contribution to the project, the required funding to meet the project costs is

calculated using the Annuity Based Affordability Model (see Appendix 25). The

PFI credit requirement using the Gap Funding method is £364.6m after the

inclusion of Authority funded scope.

5.5.3 PFI Credit Requirement

The different PFI credit calculation methodologies above indicate a PFI Credit

requirement of £364.6m under both the Gap Funding methodology, after taking

account of the Authority funded costs, and the Revenue Abatement methodology,

before taking account of the Authority funded costs. Both methodologies assume a

discount rate of 5.4%, for projects endorsed in 2009-10 and 2010-11, and a

scaling factor of 1.0 to be used in the calculation of PFI Credits as specified in

CLG’s Local Government PFI Project Support Guide (2009-10) p1.

The following table shows the base case Unitary Charge and PFI Credit

requirement:

£’m NPV Revenue Abatement

Gap Funding UC in first full year

OBC Base Case 364.6 (before taking account of Authority funded costs)

364.6 (after taking account of Authority funded costs)

£19.8

At the EoI stage, the PFI Credit requirement was £325m (Gap Funding method) or

£391m (“Capital Costs” method). At that time PFI Credit requirement under

Revenue Abatement was not calculated.

£’m NPV Capital Costs Revenue Abatement

Gap Funding UC in first full

year

EOI Case 391 - 325 18.4


The Council’s credit requirement is based on the ‘Gap Funding’ method as

discussed above. The impact of changes in the financial markets since EoI stage

and changes to the scope (see below) have increased the PFI credit requirement.

However, the Council has increased its financial contribution from £5.5m per

annum to £9.02m per annum (including client side costs) to take account of the

increased scope and, overall, the increase in Council contributions has helped to

reduce the effects of the negative impact of the financial markets.

Funding market conditions have changed significantly since 2006/07 when the

original EoI was submitted and the PFI credit requirements set out in this

document reflect current financial market conditions.

The Council has revisited the PFI Project Scope since the EoI stage and this has

helped to gain greater synergies between the various highway related services

and achieve greater efficiencies. A reconciliation of PFI credit requirement from

EoI to OBC is set out in Justification for Scope Change from EoI stage (Appendix

7).

The Council has also carried out sensitivities to changing financial markets and

they are discussed at 5.5.4 below.

5.5.4 Sensitivities

In calculating the credit requirement, a number of sensitivities on financial terms

and scope have been undertaken. The Council has carried out sensitivities to

assess the impact of a worsening credit market by a further 50 base points, and

a series of improving credit market conditions:

The table below shows the financial assumptions corresponding to the above

sensitivities:

Sensitivities December 2009 Base Case

December 2009 Market Improvement

December 2009 Market Improvement (Higher margins)

50 bps increase in swap rate

Term 23 years 23 years 23 years 23 years


Swap rate 4.50% + 0.50% buffer = 5.00%

4.50% + 0.50% buffer = 5.00%

4.50% + 0.50% buffer = 5.00%

4.50% + 0.50% buffer + 0.50% increase = 5.50%

Credit spread 0.30% 0.20% 0.20% 0.30%

Margin – CIP 2.50% 1.50% 2.50% 2.50%

Margin – Operations Year 8 – 10

3.00% 1.50% 2.50% 3.00%

Margin – Operations Year 11 onwards

3.50% 1.50% 2.50% 3.50%

Arrangement Fee 2.50% 1.00% 2.00% 2.50%

Commitment Fee 50% of CIP margin

50% of CIP margin

50% of CIP margin

50% of CIP margin

Equity Bridge Arrangement Fee, Commitment Fee and Margin

Same as Senior Debt

Same as Senior Debt

Same as Senior Debt

Same as Senior Debt

Equity Bridge Letter of Credit

2.00% 1.00% 1.50% 2.00%

Minimum ADSCR 1.30 1.25 1.25 1.30

Minimum LLCR 1.35 1.30 1.30 1.35

The Authority also carried out sensitivities to determine downsides for the project.



All other sensitivities tested are less extreme than the Envelope



A table was removed as it was deemed commercially sensitive.

5.6 Preferred bidder debt funding competitions

Since late 2007 there has been a substantial deterioration in the market for

lending to PFI projects as a result of decreased liquidity in the financial markets.

There is considerable illiquidity among commercial lenders which has resulted in

a reduced availability and increased cost of funds, and put a strain on the length

of PFI tenors.


Based on the Council’s current estimated costs, it is expected that this Project will

be looking to raise just over £104m of senior debt. In the current market, it is

unlikely that there would be sufficient market interest for this amount to be raised

effectively through a funding competition; however there are signs of market

improvements in the last quarter:

• In recent months there have been signs of a limited improvement in the

market, demonstrated through the high profile M25 deal closing;

• There have been some 15 other projects that have closed in the last quarter;

and

• The project is not expected to reach financial close until late 2012, by which

time the market may have substantially recovered.

The Council and its Financial Advisors will continually monitor the lending market

in order to determine the optimum financing strategy at each stage of the Project,

and consider possible opportunities for competition in the future.

5.7 Value for Money

5.7.1 Pre and Post Optimism Bias

Optimism Bias (OB) has been calculated in accordance with CLG guidance note,

“Adjusting for Optimism Bias in FRS PFI projects” (March 2007). The main

strategies for reducing OB, including stakeholder consultation, accurate costing

and project and risk management, have been implemented and a series of risk

workshops have been undertaken to determine the OB levels to be included in the

VfM analysis.

The figures that have been applied for optimism bias are set out in the table below;

Expenditure Category OB Pre Final Business

Case

OB Post Final

Business Case

Initial capex 5% 36.6%

Lifecycle 7% 7.3%

Opex 5% 18.9%

Public sector transaction costs 5% 10.0%

The “OB Post Final Business Case” percentages added to the PSC costs and set

out in the table above were agreed at the risk workshops and also include a 5%

‘residual risk’ allowance. The PSC ‘residual risk’ was considered to be 5% in total


and was allocated to the CIP, Lifecycle and Operation & Maintenance cost

categories pro-rata to their contribution to the overall risk total.

However, the quantification arising from the risk workshops does not cover all

possible risks; it focuses on the quantification of the top 14 risks. There is therefore

a possibility that

• A significant risk has been missed; and/or

• The quantification of the risks is wrong.

The risk of missing out something significant is very small indeed. The Council

has used a number of precedents in determining the risk register and had

significant input from all our advisors, bringing in a wealth of experience from

similar PFI projects. Risks not within the top 14 are covered by qualitative analysis

which indicates that they have minimal value and it is not necessary to quantify

them separately.

The risk that the quantification of risks may be wrong is clearly real; quantification

is essentially a series of informed judgements. However, in the Council’s view, the

risk is just as likely to be higher as it is to be lower than quantified, with any

variances netted out, and therefore its expected value is zero.

On the basis of these factors, the Council has taken a judgement to add a

"residual" optimism bias figure of 5% to the numbers arising from the detailed risk

workshops.

5.7.2 Quantitative & Qualitative Assessment

The Council has followed the HM Treasury guidance in demonstrating Value for

Money (VfM) from the PFI option as compared to the PSC option (also referred to

as the Conventional Procurement ‘CP’ option in the Treasury guidance). The

Council adopted the following process in order to quantitatively assess Value for

Money.

A series of risk workshops were held to identify and quantify the key contract risks.

A long list of potential risks was developed and consideration given to whether the

risk would be retained, transferred, or shared under the PFI, and whether there

were any actions the Council could take to mitigate the risks (see Appendix 26).


The likely impact of each risk was scored, both before and after any action the

Council may take to mitigate the risk.

A Monte Carlo analysis (see Appendix 27) of the outputs from the risk workshops

for the CIP, Lifecycle and O&M phases was carried out to determine the Post Final

Business Case Optimism Bias. The following table provides a summary of the

Risk/OB assessment.

Pre OB PSC (Post-OB) PFI (Post-OB) CIP 5% 36.5% 10.7% Lifecycle 7% 7.3%% 6.1% O&M 5% 18.9%% 4.1%

The results of this exercise were used as inputs to the Treasury VfM model and

the PFI option was found to be 13.68% against the PSC option. The details of this

exercise and the detailed assumptions sheet are attached at Appendix 26.

5.8 Initial view on Accounting Treatment

Communities and Local Government issued the following “Accounting opinion

requirements for PFI credits” on 18 November 2008:

“A current pre-requisite for PFI credit support (as set out in CLG’s Local

Government PFI Project Support Guide for 2009-10) states that local authorities

will account for PFI projects according to current guidance - which is anticipated in

the 2009 SORP to be in accordance with IFRS (www.cipfa.org.uk/pt/download/

LAA_SORP_2009_ITC_exposure_draft.pdf), and to include a controls-based

assessment of balance sheet treatment. While local authorities are encouraged to

take an early view of the accounting treatment under this guidance, there is no

need to include this view in the Outline Business Case.

However, local authorities are also required to include an initial view on the likely

budgeting balance sheet treatment in the National Accounts, which will be based

on standards laid out in part IV of the ESA95 Manual of Government Deficit and

Debt (ESA 95). This is a risk-based analysis and states that where construction

and either availability or demand risk are transferred to the private sector, the

asset will be off balance sheet in the National Accounts.


ESA 95 states that "the contract may refer either to a new asset or to significant

refurbishment, modernisation or upgrading of existing assets, including assets

already owned and managed by government but provided that the expenditure for

renovation, etc., will represent a predominant part of the new value of the asset

after renovation." In accordance with this, the Council’s best view of the likely

treatment in the National Accounts when the Highways PFI project commences in

April 2013 is that it is likely assets within this project will remain off balance sheet’.

Under ESA95 no view is required from the Council’s external advisers; it is

expected that DfT, will provide PRG with their opinion on whether the view is

reasonable or not.

5.9 Financial Case Summary

A table was removed as it was deemed commercially sensitive.


6 Management Case

6.1 Introduction

The Management Case sets out the governance arrangements regarding the

Project including differentiating between decision making and operational

activities. It outlines current structures and structures post OBC, and describes

the experience and contribution of the advisors appointed to assist the Council

with this Project. It sets out the delivery plan and discusses the approaches

during both the operational and contract monitoring phases. It also details the

Council’s approach to stakeholder risk and data management. Finally this

section considers the Council’s readiness to proceed to procurement.

6.2 Project Management & Project Governance Structure (Pre &

Post OBC)

The Council’s Highways PFI organisation structure is shown in the diagram

below:


• Full Council

Full Council is responsible for adopting various plans and strategies and also

identifying and allocating financial resources. Reports, e.g. progress reports or

requests for approvals, about this project are made to Full Council as

appropriate.

• Cabinet

Cabinet consists of the Leader and a number of other councillors, with portfolios,

nominated by the Leader. The Cabinet carries out all of the local authority's

functions which are not the responsibility of any other part of the local authority,

whether by law or under the Constitution. This includes approving documents

such as this OBC.

• Member Review Board (formally Member Panel)

The Member Review Board (MRB) for this Project consists of the Portfolio Holder

for Environment and Transport, the Portfolio Holder for Major Projects, the

Chairman of the Scrutiny Panel for the Economy, Environment & Transport, the

Senior Responsible Owner, and the Highways PFI Programme Director. The

Head of Highways and Transport is an observer member. The MRB meets on a

bi monthly basis to update members on progress and maintain dialogue between

Members and the Project Team. The MRB was initially part of the Project Board

(PB), however, following the initial meeting of the PB, it was decided that the

Member Review function needs to be independent of the PB. The Member

Review Board Terms of Reference are attached at Appendix 36.

• Project Board

The Project Board has delegated authority to make relevant decisions affecting

the procurement of the Highways PFI Project and, as such, is the main decision

making body for the Project. It has approved the scope of the Project and

approved the Outline Business Case before submission to the Cabinet.

Although day-to-day responsibility for managing the Project has been delegated

to the PFI Programme Director, the Project Board acts as the final arbiter for

issues referred upwards by the Programme Director, either because they fall

outside the remit of the Programme Director, or because he is unable to resolve a

given issue internally.


The Project Board, chaired by the Senior Responsible Owner and including the

Programme Director, the Head of Highways and Transportation, the Section 151

Officer, the Legal Team Leader, and DfT representative, meets at least once a

month, or more frequently by agreement when more immediate decisions are

required.

The specific responsibilities of the Project Board are:

Throughout the project:

• To ensure sufficient resources are allocated including human, physical and

financial resources

• To review the Project’s progress against its Project plan.

• To monitor the Project’s budget.

• To ensure a robust quality management process is in place

• To ensure Affordability, VfM and Risk are identified, monitored and managed:

• To report to the Council on the Project’s progress, referring appropriate issues

to Cabinet or Full Council, for approval as required.

• To appoint external advisors as required.

• To champion excellent design, ensuring that it features as a priority in the

selection criteria developed as part of the procurement process.

• To act as ambassadors for this project, and the procurement and delivery of

the facilities thus provided.

From the start of the project until it enters procurement:

• To agree the objectives and scope of this Project

• To sign off the Outline Business Case before submission to Cabinet

From the start of procurement until contract commencement:

• To agree the procurement plan.

• To oversee the progress of the procurement process including the timing of

the OJEU notice; short-listing of bidders; the timing of the ISOS and ISDS;

selection of the Preferred Bidder.

• To agree the contents of key procurement and contractual documents including

the OJEU notice; Output Specification; Project Agreement; Payment

Mechanism.

• To ensure that a pre-contract risk review is completed.


• To sign off the Final Business Case.

• To recommend the award of contract.

Senior Responsible Officer (SRO)

The Director of Environment and Neighbourhoods is the Senior Responsible

Officer and, therefore, the lead officer ultimately responsible for the Project.

6.2.1 Project Team Structure – to OBC

The diagram below illustrates how the current project team, organised with key

responsibilities shown for each work stream.

The full-time core project team consists of:

• Programme Director, Jay Jayasundara – Chartered Civil Engineer and

Chartered Management Accountant; FCMA, MICE, MIAustE, BSc Civil

Engineering, MSc Construction Management; Prince2 Practitioner; 31 years

experience in delivering major complex projects at local, national and

international levels and considerable highways and PFI project delivery

experience. Programme Director for Highways Agency’s first DBFO scheme,

Construction advisor to Financial Secretary at HM Treasury in 1990’s

promoting PFI centrally and contributing to the revision of ‘Green Book’ and


standard PFI Contracts. As OGC Director he has advised a number of PFI

Projects including Prison and Office accommodation PFI’s. As Executive

Secretary to the Prime Minister, he acted as the SRO and Programme

Director for a major accommodation PFI. Jay has delivered a number of

overseas Capital Projects, using complex financing structures. Took up IWC

PFI Programme Director post in January 2009.

• Technical Manager, Malcolm Smith – Chartered Civil Engineer, Member of

the Institute of Civil Engineering, Member of the Institution of Highways and

Transportation, Prince 2 Practitioner. 37 years Highway experience including

17 years heading up the Highway Maintenance Section of the Isle of Wight

Council. Malcolm has been the lead technical officer since the inception of

the Council’s PFI in 2004, gaining considerable PFI knowledge over this 5

year period. Highway asset management has also been his responsibility

and he has developed the Council’s knowledge base to the point where it is

a national leader in the field. In March 2009 he was appointed to a full time

role of Highway PFI Technical Manager to project manage the technical

input to the project supplied by the Technical Advisors and work stream

leaders.

• Commercial Manager, Tracy Ringer – Fellow, Association of Chartered

Certified Accountants; BSc Applied Accounting; BA Humanities with English

Language; NVQ5 Operational Management. Responsible for finance, legal,

procurement and risk issues relevant to the project, and liaison with relevant

external advisors with particular regard to financial modelling and the

Payment Mechanism and Project Agreement. Also responsible for the

preparation and monitoring of the internal budget through to financial close.

Previous experience in managing voluntary sector projects funded through

the European Social Fund, and 7 years Local Authority accounting

experience across a wide range of service areas including Highways, Waste,

Economic Development, Planning Services, Fire and Rescue, Emergency

Planning, Consumer Protection, Tourism. Tracy has been involved in this

project for a number of years and led the preparation of the EOI financial

case.

• Programme Office Manager, Anthony Hiscock – BA Business Management

and Economics, Prince 2 Practitioner, MSP Practitioner. Responsible for

providing programme delivery schedules and monitoring progress against

these. Also version and document control, maintaining key project tools,


providing checkpoint/highlight reports. Previous experience in local authority

procurement including OJEU processes, PQQ evaluations, financial

analysis, contract management, and gap analysis to initiate cost

savings/benefit realisation.

• PA, Sarah – Louise Foley - NVQ 3 Business Administration; currently

undertaking Foundation Degree in Local Government. Responsible for

arranging and co-ordinating meetings for both internal and external purposes

including preparing comprehensive agendas and papers and taking minutes

– this will extend to potential bidder meetings in due course. Also, proactive

diary management and admin support for the Project Team. Previous

experience in local authority human resource issues including drafting

employee contracts.

• Project Administrator, Maureen Graham – Responsible for administration

support to the full-time project team, meeting organisation and

administration, diary management. Previous experience in administrative

support for IWC, and other, major projects, customer complaints department

including significant experience of highways related issues.

This team is dedicated to the Project and there are no demands upon it with regard

to other projects. They are supported, as appropriate, by specialists drawn from

other relevant disciplines within the IWC including Property, Planning, Stakeholder

Management, Risk, Legal, Procurement, HR. Whilst these resources are part-time

with regard to the Project, their relevant departments are aware of the strategic

importance of this Project and have committed to supporting it as appropriate.

Programme Directors from strategic projects meet each other regularly to discuss

progress on their Projects, for example since the Council is running a major

reorganisation of the Island’s school system at the same time as the Highways PFI

Project, regular meetings are scheduled between the Programme Director and

senior staff associated with the schools project. This interaction ensures that

programmes are compared so that there is no conflict around specialist skills,

material supplies or the necessity for traffic diversions. Additionally, the Strategic

Projects team is responsible for co-ordinating and monitoring progress on major

Projects and has synchronized the resourcing needs on a priority basis to further

assist programme planning.

With regard to the technical workstream there are a number of specialists, drawn

from the Environment and Neighbourhoods Directorate, each assisting with


information around the relevant assets/services including Highways Maintenance,

Highways Renewal Programme, Traffic Management, Structures, Street Lighting,

Cycleways, Parking Services, Contracts and Waste, Environment and CCTV.

Although these staff are part-time with regard to the Highways PFI Project, they

are committed to the Project and understand their role within it. There is currently,

or foreseen, no other relevant major Project that would conflict on their resource

availability.

6.2.2 Project Team Structure – Post OBC

The Council is planning to increase the full time resources of the PFI team, post

OBC to support the procurement phase. There will be full-time legal, procurement,

stakeholder management and data management specialists, and two additional

technical resources joining the team during this phase. The legal resource will join

the team in September and the procurement resource and data manager

recruitments have commenced. The Technical Support for the CD will be recruited

internally from the Council. The PFI Project Team will have 12 full time staff though

to the end of the procurement phase. The proposed team structure for the next

phase is shown below:


6.2.3. Contract Management Team – Post Contract Award

The Council is determined to put in place a strong contract management

structure to establish effective contract management from day one. It has agreed

a provisional structure for the on-going management of the PFI Contract, post

award. It is intended that the post-OBC staff, who are involved in the CD process,

would have built up the vital expertise needed to manage the contract and will

transfer to the on-going Contract Management Team. The Council will ensure

that there is continuity between the procurement and contract management

phases selecting resources with appropriate skills. The proposed Contract

Management Team structure is show below:

Contract Manager

PFI Director

Manager:Roads, Footways &

Structures

Manager:Environment, Cycleways

Manager:Car parking, Street Lighting

Manager:Street cleansing, Street Furniture, Public Realm

Manager:Finance

Contractual paymentsCertification

Performance monitoringLegal

Assistant:Roads, Footways &

Structures

Assistant:Environment, Cycleways

Assistant:Car parking, Street Lighting

Assistant:Street cleansing, Street Furniture, Public Realm

Assistant:Finance, Contract & Legal

PFI Contract Management Team – Year 1 & 2

PA

Director Environment & Neighbourhoods

It is recommended that the proposed Contract Management Team structure is

reviewed after the first two years of operations.

6.3 Expert External Advisors

IWC has appointed a number of expert external advisors to assist it with ensuring

a robust project methodology right through to contract commencement and

beyond. These external advisors are described below and letters of support from

them are attached at Appendix 28.

• DLA Piper, appointed September 2008, are providing legal advice to the

project, right through to contract commencement and into the early days of the


contract. The key lawyers appointed to this commission include Allison Page,

Natasha Luther-Jones, Steven Johns, Lee Dixon. These all have significant

experience of PFI projects and are currently supporting Birmingham City Council

and Sheffield City Council on their highways maintenance PFI projects. DLA

Piper will be primarily involved in the production of the project agreement and

relevant schedules and annexures. They have also provided assistance in

respect of the risk register and production of the OBC and going forward they will

be providing assistance with competitive dialogue training, producing evaluation

criteria across work streams, assisting with the production of the necessary

procurement documentation such as the OJEU, the PQQ, the Descriptive

document, the ISOS/ISDS/ISRS/CFT documentation and the preferred bidder

letter. They will continue to attend the monthly project team meetings. They will

also assist, once the Project reaches financial close, in producing a guide to the

project agreement for the Council's retained staff who will be managing the

project

• PricewaterhouseCoopers LLP (PWC), appointed October 2008, are

providing financial advice to the Project from Outline Business Case through to

contract commencement. The key personnel supporting this Project include Paul

Davies, John Carr, Sukhy Duggal, Manisha Misri, Ian Shore, Jonathon Muga, all

of whom have significant experience of PFI projects including Transport PFI

projects. For example, this team includes individuals that have supported the

Portsmouth Highways Maintenance PFI project, the M25 widening project as well

as numerous Street Lighting PFI projects across the country. PwC are also

providing support on other highways maintenance PFI projects including client

side support on the Sheffield project and bid side support on the Birmingham

project.

PwC’s main tasks so far have included assisting with the financial modelling to

establish the cost of the PSC and the PFI project, the level of credits required and

the resultant affordability position of the Council. They have also provided key

assistance in understanding the procurement and contract risks associated with

the Project and, where appropriate, quantifying these for the purposes of the risk

analysis to be included in the OBC. Additionally, they offer support on

commercial, financial and procurement issues requested of them including

providing advice in terms of the latest positions given the current funding climate.


Going forward, PwC will provide key financial/commercial support at all stages of

the Competitive Dialogue process, from OJEU to financial close, and support the

Council’s Project Team in procuring the Project as well as developing the

capabilities of this team to manage the contract that arises from the Project.

• The Technical Advisor (TA) appointment was divided into two phases – pre

OBC that required detailed knowledge of assets, asset condition, economic

analysis, cost modelling and PFI costs, and post OBC. The longer term technical

advisor appointment went through the OJEU procurement route and evaluation

criteria reflected the expertise needed in the next phase, availability of the key

resources and strength of the project management capability. Halcrows were

appointed as the TA to OBC submission, with WSP appointed post OBC.

• Halcrow, have assisted with options appraisal, economic modelling, and

verification of asset conditions and costs of rectification and maintenance. WSP

Ltd are continuing, supplying technical advice.

• WSP appointed in July 2009, are providing technical advice to the Project

from the outset of the procurement process through to the early delivery stages of

the Contract. The key staff appointed to this commission include Steve

O’Donnell (project manager), Gordon Lewis (highways and structures), Robin

Cathcart (PFI contract and paymech), Ian Townhill (street lighting) and they will

be further supported by colleagues within the relevant disciplines. All of these

staff have significant experience of PFI projects and are currently working with

other clients, including Local Authorities, across a range of sectors. Their main

task is assisting in the development of the Output Specification and Payment

Mechanism. They will also assist in providing technical input to the Project

Agreement and support on technical issues across the project as required.

In addition to these advisors we have also had specialist support for particular

aspects of our project development:

• WDM Limited have nearly 40 years experience in undertaking highway

condition surveys and providing asset management consultancy and software to

highway authorities throughout the UK. They have undertaken annual SCRIM,

Scanner, Deflectograph, Carriageway CVI and Footway DVI surveys for the Isle


of Wight Council for the last 20 years. In addition they maintain and operate the

Council’s Pavement Management System (PMS). Using condition data from the

2008/09 surveys they have predicted the carriageway and footway costs for the

PFI using the latest modelling techniques developed over the last 9 years in

conjunction with the DfT, Transport for Scotland and highway authorities. Two of

their very experienced Directors and several Pavement Engineers have been

involved in the project.

• Colin Buchanan are developing a high level SATURN traffic model of the

Island for the purpose of establishing future traffic flows over the next 25 years.

Working closely with the Council's appointed Technical and Economic Advisors

for the Highways PFI project, the model will be used to accurately determine

current and future traffic volumes and assist bidders for the Highways PFI in their

submission. The model will also be used to assess the impact of developments

and changes to the network including for planning control.

• JLT as the Council’s appointed insurance broker have provided specialist

advice as required in support of the preparation of the OBC.

All of the advisors have significant experience in their field and meet regularly

with IWC either on the Island or at their offices and ensure that there is relevant

discussion between them on cross-over topics.

6.4 Meetings

6.4.1 Internal

The core Project Team, and specialist internal staff, meet on a weekly basis to

discuss progress and issues.

On a monthly basis the Project Team hold a full two day workshop that

addresses various issues relevant to the Project on day one (also perceived as a

training/learning opportunity) with day two being a working day addressing the

issues from day one. The expert advisors join the Project Team for these two

days, which also include their monthly progress update meetings with the

Programme Director and appropriate PFI team member.


6.4.2 External

The DfT set up a monthly network meeting with the three pathfinder Highways

authorities, and the Programme Director and Technical Manager attend these.

Additionally they attend the well established Street Lighting Network meeting as

street lighting is within the scope of this project. The SRO and Programme

Director also attend the monthly strategic meeting. The Project Team have

utilised the DfT appointed Transactor in developing the Project and this OBC, and

have also had discussions with other relevant authorities, as appropriate.

6.5 Project Delivery Plan and Timetable

The project delivery plan has been formulated in Microsoft Project and has been

produced incorporating modified Prince2 methodologies. The Project Plan is

attached at Appendix 16.

Below is a summary of the key milestones.

Activity Scheduled Completion

Submission of OBC 28th Aug 09

DfT/PRG Approval Feb 10

Issue OJEU Feb/Mar 10

Issue ISOS June 10

Issue ISDS Dec 10

Issue CFT Sept 11

Select PB Feb 12

Financial Close Nov 12

Commence Rehabilitation Apr 13

The Project Team have undertaken a critical path analysis and progress against

delivery plans is being measured weekly to ensure that the programme schedule

remains viable. Workshops, bringing together the IWC’s Project team and the

external advisors, will be held every six months to review the programme. These

reviews will enable the team to plan in detail the specific resource requirements

and activities that will need to be completed within the next six months. Further,

the workshop gives the Project Team the chance to identify any potential issues

they may have with the timescales and the ability to put in place a plan to resolve

them.


All Council staff associated with the project have received training on Microsoft

Project which has been used to develop the project plan. The Programme

Director, Technical Manager and the Programme Office Manager are all Prince2

practitioner qualified and the Programme Office Manager is also a Managing

Successful Programmes practitioner. Both of these methodologies will be used to

manage the programme and form a robust and efficient programme office.

6.6 Operational phase and contract monitoring

Once the contract has been awarded to the successful Service Provider, the

Council will implement a robust mechanism by which the agreement will be

managed. It is proposed that the principles outlined by the Office of Government

Commerce will be adopted, utilising the key areas as a means to ensure delivery

of the best solution within the affordability envelope.

The Council will ensure that the right people are in place to carry out the contract

management activities, including both the direct contract management team and

the wider stakeholders across the organisation and region. As detailed

elsewhere, the intention is to have the ongoing contract management team in

place as early into the dialogue process as possible so that potential bidders can

establish the quality of the resources available to work with them on the long-term

contract. By having the intended Isle of Wight contract management team in

place early on in the dialogue process, the team will be fully familiar with the

project agreement and key requirements of it and the Council hopes that good

relationships will be built up with all bidders, particularly with the ultimate

successful bidder.

The Project Team is already aware of particular issues pertinent to the Isle of

Wight where the PFI provider can be encouraged to address local needs. The

Council is already working with local learning establishments and residents to

highlight where local skills can be developed to assist with the Project. By utilising

local resources within this service, the Service Provider will have a readily

available solution to ensuring service performance. The Council will vary its

contract management quite significantly following the CIP. The overarching

approach will be one that is both robust and flexible to respond to the contract

requirements.


6.7 Project Interface and Dependencies

The Project has identified a number of interfaces and dependencies that may

affect it, and will attempt to manage these to ensure no detriment to the Project in

the long-term. These interfaces and dependencies include fence to fence issues,

utilities, local events, land owners, Network Rail, Havenstreet Steam Railway,

Environment Agency, Floating Bridge and other transport operators. Where

appropriate, the Project Agreement will contain provision to ensure no adverse

impact to the Project will occur from these.

6.8 Stakeholder Consultations and Communications Strategy

With an anticipated Project duration of 25 years, the Highways PFI Project Team

recognises the need to put in place a strategic framework for the management of

stakeholders and communications generally.

The Stakeholder Management & Communications Strategy for the Council’s

Highways PFI Project to deliver the stakeholder management of all stakeholders

and associated communications relating to the Project is attached at Appendix

29. The Stakeholder Management Tool (SMT) is built around structures,

processes, tools, and human resources typically required to manage the

stakeholder and communication elements of a major project through to

successful completion, it aims to support the successful delivery of the Highways

PFI Project through the structured and systematic identification, analysis, and

management of Stakeholders, and the implementation of effective

communications.

The SMT has been used to map out stakeholders, stakeholder managers and

deliver key messages at critical stages. The tool is also used to identify changes

to the plan, enabling the Council to be pro-active in managing messages. The

SMT adopts the following methodology:

• Identifying and mapping stakeholders in order to understand their influence

on the project and support the decision making process.

• Providing accurate, timely, and relevant information (communications) to

assist stakeholder managers to use the most appropriate communication

channels (within budgetary constraints).


• Managing stakeholders to keep, or get, them on board for the duration of

the project.

• Keeping the Project Team appraised of the general and specific nature of

stakeholder opinion/support/risk (informing ongoing project management

decisions or mitigation planning).

• Providing a communication and engagement audit trail to evidence best

practice and to support a learning/improvement culture within the IWC.

The Highways PFI Project will impact a large number of people and organisations

(stakeholders) in a multitude of ways. Therefore, the Project Team has put in

place an appropriate framework with the right structure, tools, processes, and

people in order to effectively manage and communicate with stakeholders from

the outset.

• Structure – Team make up, and how the team is organised.

• Processes – What is done, when, and how.

• Tools – Providing the analytical and data storage backbone of the project

• People (resources) – The human element that reaches and connects with

stakeholders

6.8.1 Local residents

The condition of the Isle of Wight roads is one of the major concerns for local

residents. The Residents Surveys have highlighted this as a concern repeatedly.

Hence residents recognise that they will be the main beneficiaries of

improvements, although they will suffer some disruption, particularly during the

Core Investment Period. The Council aims to keep them informed of the project

progress, and provision will be made within the Project Agreement for the Service

Provider to continue with this precedent.

6.8.2 Network users

As well as residents, the Island’s highway network is used by others such as

transport providers, delivery drivers and tourists. Additionally interest groups

such as the Ramblers Association and land owners have an interest in the

footways and cycleway network. Ensuring wider local stakeholder support has

been seen to be a priority since the inception of the project and regular

information meetings are held with Town and Parish Councillors along with other


local interest groups. Transport operators are kept informed through the Council’s

Quality Transport Partnership, while local media are used to keep local residents

in the picture as to progress. Once the PFI is in the operational phase then the

successful service provider will be required to keep stakeholders updated as to

the programme of works and the SMT updated throughout the life of the Project.

6.8.3 All Council staff

Staff likely to be affected by the PFI have been kept informed. They have been

invited to staff meetings and briefing sessions whereby the PFI procurement

process has been fully outlined and explained. In addition to that, senior

members of the PFI Project Team are attending individual team meetings to

facilitate a platform for discussion at every level. Information is being shared with

staff at the earliest opportunity.

The Council has also established regular bi-monthly consultative meetings with

the local trade union to ensure that continuous consultation occurs to ensure that

an agreed approach can be adopted. Union representatives are also encouraged

to raise additional issues as and when they arise. A letter of support from

UNISON is attached at Appendix 30.

The Council has created a Stakeholder Management Tool (SMT) which includes

details of all employees currently in-scope, the employee details section is in the

confidential section of the tool. This system will record all individual and group

communications and will ensure that all staff who have been identified as falling

within the scope are kept informed at all stages.

Once we have reached the “Call for final tender” stage, all employees in scope

for transfer will be provided with the opportunity to meet with Human Resources

advisors and trade union representatives. In addition, meetings with pension staff

will be arranged in the event that the successful bidder does not enter the LGPS.

In addition to the above, once the preferred bidder has been selected, the

Council will facilitate communication and meetings between trade union and staff

representatives and the transferee to enable consultation under TUPE to take

place.


6.8.4 Statutory Undertakers

Co-ordinating the highway network refurbishment with the statutory undertakers

will be essential to the success of the Project. Initial talks have been held and

there will need to be an on-going dialogue to ensure that their works dovetail with

that of the PFI Service Provider.

6.8.5 Local suppliers

The Council has a co-terminus date for as many of the external contracts as

possible in advance of the PFI. However, it is anticipated that there may be

contracts still extant which may give rise to a further TUPE implication. Through

the Local Industry Day and other communication mechanisms, all current

contractors and the bidders will be advised to seek independent legal advice in

relation to TUPE, and bidders will be provided with contact information to

facilitate direct communication with current contractors on the TUPE implications

ensuring a smooth transition for any non-council TUPE transfers.

The Island location offers the local contractors an opportunity to participate as

part of the supply chain. The selected bidder will be encouraged to demonstrate a

commitment to utilising local companies and workforce throughout the term of the

contract.

6.9 Sponsorship and Support

Ever since the idea of using a PFI project to rejuvenate the Isle of Wight’s

highway network was suggested in 2004, there has been cross-party political

support. Political control has changed during that period and the present

controlling Conservative group have set aside a £7.6 million budget to see the

PFI through to contact commencement. This budget is considered to be

sufficient for the necessary costs including internal staffing, external advisors,

accommodation costs, project networking, training, resources (ICT) and

communications and stakeholder management until April 2013.

The procurement budget of £7.6m (see Appendix 31) contains £0.5m

contingency to deal with delays or other impacts resulting from external risks that

are outside the control of the Project Team. Project progress is, and will continue

to be, monitored regularly to identify whether any overspends or delays are likely

to occur. Should this be the case then remedial action, as necessary, will be


undertaken. The contingency of £0.5m is intended to cover for instance, a 6

month delay in commencement of the project occur, if this became a reality it will

be foreseen well in advance and actions to address will be implemented.

The Council has ensured that local organisations including the Island Strategic

Partnership, the Isle of Wight Economic Partnership, the Quality Transport

Partnership, the Chamber of Commerce, AONB, the Environment Agency, and

other environmental organisations, have been informed about the Project’s

intentions and all are supportive of the Project.

The Council has carried out soft market testing as described in the Commercial

Case section to ensure interest in the Project is maintained and held a local

Industry Day to inform existing contractors. A wider national Industry Day for

prospective PFI Bidders was held on 3 September 2009.

6.10 Risk Management

A risk management strategy has been developed for the Project designed to

manage those risks which could impact the Project between the OBC stage and

financial close. This will help inform the risk consideration within the Council’s

ongoing contract management arrangements for the PFI contract from financial

close. The strategy is attached at Appendix 32.

To support the implementation of the risk management strategy, a number of risk

workshops have been held facilitated by the Risk Workstream Lead and attended

by the Project Team (including the external advisers) in order to:-

• Agree a common approach to risk within the project (in accordance with the

risk management strategy)

• Identify and assess the main risks including an initial allocation and proposal of

a risk action plan for each material risk exposure.

The key outcome of these workshops was the establishment of the risk register

for the PFI Project (see Appendix 33). The register records those risks which

could impact the project (in the development, procurement and close-out phases)

including both risks which impact the Council’s current highways operations and


risks which could impact the anticipated (post-implementation) business model.

For each risk, the register records the nature and potential impact of the risk

exposure identified, its significance in terms of both likelihood and impact and, for

each material exposure, a target exposure level and risk action plan detailing

countermeasures in progress or planned to achieve that target level. Within the

register, an ‘owner’ has been identified for each risk and associated risk action

plan. The Risk owners take full responsibility for the management of the risk and

have nominated risk managers reporting to them. The responsibility for managing

the risk rest with Risk owners and they report back to the PFI Team and Project

Board. The register focuses attention on the ‘current’ risk level and the ‘target’

level; when the risk action plan has been successfully implemented, the current

level will then be reduced to the target level. The target level represents the

accepted level of risk; whilst measures could be designed and implemented to

reduce the risk level further to or towards the ‘residual’ (or unavoidable) risk level,

it is anticipated this would be uneconomic. The register is divided into the key

phases of the Project – procurement and award, capital rehabilitation, financial

and commercial.

The successful completion of the Highways PFI Project represents a major

investment and is key to achievement of the Council’s corporate objectives. As a

consequence of this, the potential failure of the project is a risk captured within

the Council’s strategic risk register. This, in common with the Council’s other

strategic risks, is reported to and monitored by the Council’s Directors Team and

Cabinet. This risk is defined in the Council’s strategic risk register as:-

Failure of the PFI process following the OBC leading to a direct impact on road

infrastructure, economic regeneration and development and on the ability of the

Council to maintain a safe highway infrastructure for all users.

This risk summarises, at the highest level, the risk profile of the Project reflecting

the more detailed risks within the PFI Project risk register. The most significant

risks within the Project risk register are reported monthly to the Project Board. As

part of their standing agenda, the Project Board considers these and any shift in

the Project risk profile.


6.10.1 Risk Escalation

Where a significant shift has been identified in the level of exposure (through, for

example, the identification of a new risk, the material reassessment of an existing

risk or the delayed completion or other failure of a risk action plan to produce the

anticipated mitigation) this will, subject to materiality, be escalated through:-

• Workstream leader reports it through one-to-one meeting with Programme

Director or raises it at a Project Team meeting,

• Risk Workstream Leader and/or Programme Director highlights this in the

Project Board risk report, or

• Updating the risk within the Council’s Strategic Risk Register.

Within this process, the criteria for escalation will be either a significant change in

the risk assessment (for example, from ‘medium’ to ‘high’) or a material delay or

other failure of the risk action plan.

6.10.2 Current Risk Status

The current status of risks at this level is detailed in the table below:-

Risk Area Risk Description Impact Proximity Risk Owner

Imp

act

Pro

ba

bil

ity

Asse

ssm

en

t

Imp

act

Pro

ba

bil

ity

Asse

ssm

en

t

Failure to meet agreed timeline through procurement process to

financial close as a result of delays in establishing a dedicated

project team supported by external advisors. The consequent

delay in commencement of operations will increase internal and

advisor costs.

Immediate 4 3 High

(12)

Jay

Jayasundara

3 1 Low

(3)

Failure to provide dedicated, resourced and experienced

personnel to support the project from the internal corporate and

technical teams. This will lead to delays and, in extremis,

withdrawal of DfT support due to lack of appropriate resource.

Immediate 4 3 High

(12)

Jay

Jayasundara

2 1 Low

(2)

Risk that approvals required from DfT are not obtained resulting

in project delays, potential project failure and reputational impact.

Immediate/Medium Term 4 3 High

(12)

Jay

Jayasundara

2 3 Medium

(6)

Shortage of materials and/or labour result in higher rehabilitation

and maintenance costs

Long Term 4 3 High

(12)

Jay

Jayasundara

2 2 Low

(4)

Increases in Landfill Tax resulting in additional disposal costs. Medium Term 4 3 High

(12)

Jay

Jayasundara

2 4 Medium

(8)

Costs are higher than expected based on current highway

condition surveys and bridge inspections leading to increased

lifecycle costs.

Immediate to Long Term 4 3 High

(12)

Jay

Jayasundara

2 3 Medium

(6)

RPI increases greater than projected. Medium to Long Term 4 3 High

(12)

Jay

Jayasundara

2 2 Low

(4)

Unknown or undisclosed existing environmental contamination

resulting from inadequate records leads to additional cost and

delay.

Medium to Long Term 4 3 High

(12)

Malcolm Smith 2 3 Medium

(6)

Availability of funding on reasonable terms during procurement

impacting affordability and possible delay

Medium Term 4 4 High

(16)

Jay

Jayasundara

3 3 Medium

(9)

Opportunity for refinancing - risk of refinancing being forced

through shorter funding periods in future resulting in sub-optimal

outcomes and reduced opportunity for positive impact on

affordability.

Medium to Long Term 4 3 High

(12)

Jay

Jayasundara

3 1 Low

(3)

Risk that required land is not available for depot (plant and

material storage) and maintenance yards resulting in delayed

commencement.

Immediate to Medium

Term

4 3 High

(12)

Malcolm Smith 2 2 Low

(4)

Service interfaces with other service providers (waste disposal

etc.) not properly identified and accommodated leading to delay

and service disruption.

Long Term 4 3 High

(12)

Malcolm Smith 2 3 Low

(4)

Cost and Affordability

Funding

Other

Project Management

and Resources

Current /Expected

Risk ScoreLikely Risk Score


At a more detailed level, using a risk management methodology based on the

Council’s risk management practices, each risk has then been assessed on the

basis of both likelihood and potential impact (including, among others, both

financial and reputational impacts). These have then been combined into a

single overall assessment of each risk at the current level and at a target level

(taking account of the actions planned to mitigate that risk). The assessment

process uses a scale of 1 to 4 (1 being low and 4 being high) for likelihood and

impact and these are combined to give an overall assessment for each risk on a

1 to 16 scale:-

Lik

elih

oo

d/P

rob

ab

ilit

y

V Likely

4

4

Low

8

Medium

12

High

16

High

Likely

3

3

Low

6

Medium

9

Medium

12

High

Unlikely

2

2

Very Low

4

Low

6

Medium

8

Medium

Remote

1

1

Very Low

2

Very Low

3

Low

4

Low

Scale

Low 1

Medium 2

High 3

Major 4

For each risk, a risk action plan has been drawn up in conjunction with the

workstream leader (i.e. the owner of that risk) and this represents the process to

be followed to reduce the risk exposure to the target level. Progress is tracked

against the risk action plans particularly in respect of the high level risks.

An allocation decision has then been recorded against each risk with one of the

following three markers;

� Retained by the Council

� Shared

� To be transferred to the successful bidder.


The risks have been allocated to the party deemed best able to manage each risk

at the lowest cost. Clearly those risk allocation decisions will be reappraised and

informed through the procurement phases of the Project.

These risk identification, assessment and allocation decisions have been

validated through:-

o The operation of a series of risk workshops and other risk

considerations undertaken by the internal Project Team, and

o A validation review by the Council’s external professional advisors

to the project who have significant commercial expertise and

previous experience in the PFI field.

A further risk workshop was conducted to identify the cost elements for each risk

earmarked for potential transfer in order to arrive at an agreed price for that risk.

The initial risk allocation and pricing decisions determined at this stage are

subject to confirmation or change through the competitive dialogue stage of the

procurement process. The risk pricing process and outcome is detailed in

Appendix 26.

This process identified key risk exposures potentially impacting:-

• Bidders,

• The PFI Service Provider

• The Council.

A key risk which has been considered relates to the position of the bidders.

Naturally, potential service providers will have concern over a number of factors

including bid costs, protection of intellectual property and/or commercially

confidential information, procurement timetables and the costs associated with

the early involvement of funders and the due diligence associated with the PFI

Project agreement. Plans are in place to mitigate these through:-

• Building confidence with the bidders by meeting programmed dates for the

key stages

• Making all data readily available to the bidders via the Project Data Room

• Working openly with the bidders to minimise all costs such as unproductive

or unnecessary meetings


• Development of protocols to ensure IP is protected for all the bidders

• Setting a tight but realistic timetable and keeping to it;

• Supplying information gathered via condition and other surveys at an early

stage;

• Providing other information to bidders(in an appropriate format), at the

earliest possible stage;

• Undertaking the procurement in an efficient and effective manner,

including:

o Ensuring sufficient capacity and capability in the

procurement team (both internal and external);

o Preparing all necessary collateral on the areas of dialogue in

advance of the dialogue sessions so that bidders have

sufficient time for analysis and to develop their responses;

• Ensuring that the approval process is completed at the appropriate stage

and within appropriate timescales;

• Considering ways to reduce the costs associated with due diligence.

6.11 Data Management

The Council recognises the need for two main areas of data management;

• There is data sharing of key project documents between IWC and relevant

external advisors, with appropriate version control, so that all are aware of the

content of the latest versions of the Project Agreement, Output Specification,

Performance Requirements and Payment Mechanism.

• There is the issue of sharing information with potential bidders. The Project

has begun formulating a Project Data Room and now employs a full time Data

Manager. This Project Data Room will incorporate physical and virtual data.

Both the physical and virtual data will be available to bidders on the Project,

although only one bidder at a time will be allowed to view the physical material

in the Project Data Room and an appointment will have to be made prior to

viewing any documents. Virtual data will be available through a secure online

portal with each bidder having their own unique log-in. The virtual data room

will have to apply document security in order for the files not to be forwarded

on to third parties and to limit printing of the documents. Bidders will be

notified when new versions of documents have been released or new


documents have been produced. A record will be kept to monitor who has

seen which document, when they viewed the document and for how long.

6.12 Gateway Reviews / Independent Scrutiny

6.12.1 Gateway Reviews

Gateway Reviews were launched in the local government sector by 4Ps in April

2003. The principles behind the review process are for a team of independent

individuals, with experience in Project delivery to speak to key players involved in

project delivery and with other stakeholders to consider whether there are any

actions/activities that could enhance the Project’s probability of success. The

benefit of using independent individuals is to use people who are able to think

about issues without having been party to earlier decisions and consequently see

things from a different point of view.

The Council had the first Gateway review, number 0, carried out in June 2005.

The Gateway 0 highlighted staff resources as being the main area of concern for

successful project delivery. This has now been fully addressed and is

demonstrated in other sections of this OBC; the Council has a core team in place,

supported by other specialist staff and external advisors with appropriate

experience. Following discussions with the 4P’s, to recommence the Gateway

process it was agreed that Gateway 0 did not require a refresh but that the

Council would continue with Gateway 1.

This took place on the 21st, 22nd and 23rd July 2009 and the report is attached at

Appendix 34 to the OBC. The Project has been given an amber/green delivery

confidence assessment (successful delivery appears probable however constant

attention will be needed to ensure risks do not materialise into major issues

threatening delivery) and the Project Team already are aware of the risks

identified and have plans to mitigate them where possible.

6.12.2 Independent Scrutiny

Full Council and Cabinet contribute to the scrutiny process in their consideration

of key decisions relating to the project, and the Member Review Board outlined in

6.2 above has the Chair of the Scrutiny Panel for the Economy, Environment &

Transport as a participant. Before committee papers can be submitted for


consideration by members, the Councils’ internal processes include Directors

Team review and also ‘Call-Over’ which is a review by the lead officers for legal,

finance, human resources, property, risk, communications, performance, and

strategic projects. This gives relevant officers the opportunity to interrogate items

within reports to ensure appropriateness before publication and approval.

The Internal Audit plan for 09/10 includes the Project as a named review item.

The Project will also get considered within the audit for ‘programme and project

management’ being that it is one of the Council’s major projects.

As well as the Chair of the Scrutiny Panel for the Economy, Environment &

Transport being a participant in the Member Review Board above, the Chair of

the Council’s Overview and Scrutiny Committee was interviewed by the Gateway

Review team and will continue to be informed, as relevant, about the Project.

6.13 Statutory processes

The Project Team is currently considering whether statutory powers will be

delegated to the service provider under the Deregulation and Contracting Out Act

1994 to enable it to carry out the services, or whether the service provider will be

required to provide the services as an agent of the Council under section 1(1) of

the Local Government (Contracts) Act 1997.

Discussions have focussed on the precise scope of services required from the

Service Provider, the services currently able to be delegated under the

Contracting Out (Highways Functions) Order 2009 (including powers able to be

delegated under the New Roads and Street Works Act 1991 and the Traffic

Management Act 2004) together with any restrictions on the powers if they are

delegated, the likelihood of any delegated power ceasing to be able to be

delegated, and whether any powers that are currently not delegated are likely to

become delegated prior to the of the project agreement.

The final decision regarding the statutory process to be adopted will be made

following consultations between the Project Team and the Project Board.


6.14 Readiness to Proceed to Procurement

The Council has commenced preparation of the Output Specification, Payment

Mechanism, Project Agreement and Procurement Documents. The Council will

be ready to publish its OJEU in February 2010 subject to DfT approval to

proceed. The Council is fully resourced and is therefore in the best possible state

of readiness to move forward to the procurement stage. The Council has

considered detailed stages of the Project and developed a practical and

deliverable programme. The Council has now positioned itself in the best

possible state to proceed to the Procurement phase of this Project.