Decision details

To approve contract extension to existing highways contract.

1.         That the contract extension commitments and associated contract modifications, agreed with Kier together with the extension of the highway maintenance contract to its full term (31 March 2021) be approved.

2.         That Highways and Transport develop proposals to accommodate the increased revenue cost within the budget from 2017/18, in line with paragraph 24 of the submitted report.

Reasons for Decisions:

Extending the Kier contract to its full term is the optimum commercial option at the current time. A value for money and market analysis exercise demonstrates that the current contract price is competitive and remains below Retail Price Index (RPIX) and tender price inflation. Although there is a revenue cost increase, extending the contract is the best value for the council. It is performing well, extending it will bring social and other benefits and the alternative carries significant financial and performance risks.

The option of retendering the contract has been considered as part of the decision making process but there is strong evidence to suggest that this is likely to result in a significant cost increase to Surrey in the current market.  Increasing demand in a consolidated highway and construction sector fuelled by major infrastructure projects like HS2 and Crossrail (TFL), alongside a £50bn investment through Highways England in the strategic road network, has created a supplier led market which is enabling large contractors to command higher profit levels.   The value for money analysis has also taken into account the additional cost to Surrey of re-procuring and mobilising a new highways contract, which would be around £1.2m - £1.8m.  

Surrey has worked with Kier to develop an extension agreement for the remainder of the contract which delivers greater strategic alignment, value for money and improved services for residents. This includes an increase in the safety defect lump sums, to reflect the actual cost of this service, and the introduction of an annual cap on defects.  The increased costs and transfer of risk will be balanced by an equivalent reduction in the costs of Capital schemes so that the economic balance of the contract is not altered. In addition, Kier will be providing additional social value through a number of initiatives, which are detailed in this report.  

All these commitments will be enshrined in the Kier contract extension agreement. Although there is no significant change to the scope of the contract, there are a number of formal modifications required to the contract to deliver the commitments agreed. 

[The decisions on this item can be called in by the Economic Prosperity, Environment and Highways Scrutiny Board]