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Environmental & Community Services Select Committee 11 June 2014 Street Lighting PFI Performance Report by Director of Community Operations and Head of Highways and Transport

Executive Summary This report presents an update on the performance of the Street Lighting Private Finance Initiative (PFI) contract. Information and commentary are provided that shows the contract is providing the service contracted by the Council. The focus for scrutiny The Environmental & Community Services Select Committee (the Committee) has requested a report on the progress, performance and value arising from the Street Lighting PFI contract. The Committee has also requested comments upon the recently submitted audit report regarding the monitoring of the contract. Recommendation The Committee is asked to comment on the progress being made with the contract and consider plans for the long term maintenance period at a future meeting.

1. Background 1.1 In 2009 the County Council approved entering into a contract with Tay Valley

Lighting to provide the Highways Street Lighting service under a Private Finance Initiative (PFI) arrangement.

1.2 The two primary objectives were:

a) to replace old, damaged and inefficient equipment and b) make target savings of 25% by incorporating new technology into upgraded lighting designs and further extending the use of part-night lighting regimes across the county, significantly reducing cost in an environment of increasing electricity prices.

1.3 The project would also deliver the additional benefit of reducing light spill, particularly in the South Downs National Park, and thus help with the creation of darker skies.

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1.4 The contract is being delivered by Scottish & Southern Energy (SSE) for a period of 25 years from 1 April 2010.

1.5 The contract was procured in conjunction with Hampshire County Council and

Southampton City Council although the final contracts for each authority are not directly linked.

1.6 The contract for West Sussex County Council attracts funding from Central

Government of approximately £151m. 1.7 The contract includes a programme of removal of time served lighting units

(55,000 lighting columns and lanterns), reactive fault maintenance, preventive maintenance and cleaning and a customer service operation.

2. Proposals Not applicable. 3. Alternative Options Considered Not applicable. 4. Issues for Consideration by the Select Committee Not applicable. 5. Performance as at April 2014 5.1 Deployment of adequate processes and effective management by SSE during

the first year was slow. Having made several changes from the lessons learnt, the contract has now been generally performing well against Key Performance Indicators (KPIs) for three years.

5.2 The monthly charge (by which the Council pays for the full service) is

adjusted should there be any failings in service delivery against the output specification contained in the contract. As a result of the aforementioned initial slow deployment, savings were made by the Council. However, savings in this regard should not form part of the normal budgetary planning process for the authority.

5.3 The initial five year period of the contract calls for a programme of removal

of time expired assets. This is known as the Core Investment Programme (CIP). Currently, the CIP is 66% complete, with a further 18,000 units to replace by 31 March 2015. Although this progress is behind schedule compared with the initial milestone targets at the start of the contract, the current rate of progress is 146% of the original rate and is forecast to be delivered on schedule.

5.4 A key KPI for the contract performance is the average percentage of lights on

during operational hours. The output specification requires a rolling monthly average of 99%. Currently this is being met at 99.13%. It is worth recalling that previous term contracts issued by the Council for the maintenance alone specified, yet frequently failed to achieve, a performance of 98%.

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5.5 Customer service has been a subject of much discussion over the years of

CIP. All contract KPIs for this area of the service are met. The reason for the level of customer disquiet is primarily around the design of the location of the new lighting columns. This is an integral part of maximising the benefit of creating new designs with advanced lighting technology and in some cases the change is not easy for customers to accept.

5.6 It is clear from monitoring the detail of customer journeys with SSE that in

many cases customer concerns are resolved directly by SSE. Those not resolved represent a very small minority of cases where the technical and environmental constraints do not permit a solution that is acceptable to the customer.

5.7 The monthly charge for the service is based upon a series of performance

calculations against the output specification. Each month, the results submitted by SSE are scrutinised and supplemented by independent sampling processes carried out by the Council to ensure credibility and compliance. The CIP works are verified by an Independent Certifier.

6. Audit reports 6.1 In January 2014, an audit was initiated as part of the 2013/14 Audit Plan to

review the contract monitoring processes. The audit scope covered: a) planning and governance, b) ensuring the service provided was in line with the contract, c) payment and incentives, d) risk.

6.2 Planning and governance were considered to have Substantial Assurance

(as defined by the Council’s audit procedures). 6.3 There was Satisfactory Assurance (as defined by the Council’s audit

procedures) that the service provided was in line with the contract. It was recognised that the baseline agreement between the Council and SSE regarding customer service showed some weaknesses and work is in progress to define and clarify roles within the organisations.

6.4 It was considered that Satisfactory Assurance (as defined by the Council’s

audit procedures) could be demonstrated concerning processes for payments and incentives. It was recommended that the processes used by SSE to provided monthly reports of evidence to support its service provision should be jointly reviewed for their robustness. Discussions regarding this are underway pending the approval of the Council’s audit report.

6.5 Although the area of risk was considered to have Satisfactory Assurance

(as defined by the Council’s audit procedures), it was recommended that the Risk Register be jointly reviewed and risks posed to the Council as well as SSE included as a joint monitoring document. Discussions regarding this are underway pending the approval of the Council’s audit report.

6.6 Also in January 2014 an audit was initiated as part of the Audit Plan 2013/14

into the Business Resilience of Key Contracts. The Street Lighting PFI

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contract was examined as one of the cross functional examples of such a contract.

6.7 As part of a set of service led contracts, including the Highways Term

maintenance contract, the Street Lighting PFI was jointly categorised as having Significant Assurance to Satisfactory Assurance (as defined by the Council’s audit procedures).

7. Lessons learnt 7.1 The duration of this contract will mean that although the lessons learnt so far

will not be directly applicable in the service area for many years, there are useful recommendations that can be carried forward for consideration in the procurement of further corporate contracts, especially those containing a complex engineering or technical element.

7.2 When the contract was compiled for tender and the contract ultimately

awarded, the corporate expectation of a customer service output was different than that aspired to today. It is testimony that the contract KPIs for Customer Service are continually met month after month by SSE as service provider, customer service is currently of concern to many members and service managers. It should be stated that in the majority of cases this relates to the dislike for a response given rather than failure to respond.

7.3 Today’s aspirations would be more readily monitored, and reflected within

the contract remuneration, by the measurement of those customers directly satisfied at the end of their customer journey compared with those concluded with dissatisfaction. This would be suitably supported by a measurement of total customer journey time to complete resolution of the query expressed as a rolling average.

7.4 An integral element of the service provision and the satisfaction with its

delivery is the wider understanding of exactly what will be delivered and how it will be delivered. There are many aspects of the Street lighting PFI, both technical and contractual, which do not conform to a common and traditional understanding of how a supplier delivers an output. In this specific case, much of the contract is based around the supplier achieving the required output specification in a way that is based upon his own decision and management.

7.5 A continual programme of updating and briefing would have been beneficial

for Members and the public alike. 8. Consultation Not applicable. 9. Resource Implications and Value for Money 9.1 The Council’s Street Lighting PFI monitoring team comprises six permanent

and two contract staff. The contract monitoring is carried out adequately by this team however there is a pressure from both Members and public that they would wish the Council to be more involved in detailed design and

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customer service. However, both these areas are clearly contracted to the service provider under the contract.

9.2 It is not possible to compare value for money as the output specification for

this contract could not have been achieved any other way. It can be stated though that the budgeted forecast for the annual service costs and energy savings are currently being achieved.

10. Risk Management Implications See 6.5 above. 11. Equality Duty 11.1 Provided as an update, the information contained in this report has no

Equality Act implications and therefore no Equality Impact Report is required. 12. Crime and Disorder 12.1 Provided as an update, the information contained in this report has no Crime

and Disorder Act implications. 13. Human Rights 13.1 Provided as an update, the information contained in this report has no

Human Rights Act implications. Geoff Lowry Diane Ashby Head of Highways & Transport Director of Community Operations Contact(s): Peter Bradley / Peter Atkins 075959 641 98

Background Papers: None