HIGHLANDS AND ISLANDS PATHFINDER BROADBAND PROCUREMENT: APPOINTMENT OF PREFERRED SUPPLIER

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1 ARGYLL AND BUTE COUNCIL STRATEGIC POLICY COMMITTEE CHIEF EXECUTIVE 20 JULY 2006 HIGHLANDS AND ISLANDS PATHFINDER BROADBAND PROCUREMENT: APPOINTMENT OF PREFERRED SUPPLIER 1 SUMMARY This report updates the Strategic Policy Committee as to the appointment of the preferred bidder on the Pathfinder broadband procurement project which aims to provide high capacity broadband links to schools, libraries and other council buildings throughout the Highlands and Islands. This follows the report of 18 May 2006 which sought approval for signature of the Minute of Agreement. 2 RECOMMENDATIONS Members are asked to note the progress being made on this large-scale procurement project. 3. DETAILS Project Background 3.1 The project involves the procurement of managed broadband services from a telecommunications company to meet the needs of the six local authorities. The procurement route is by Invitation to Negotiate and Highland Council acts as the lead authority. 3.2 The total estimated budget for the 5-7 year contract is 70m, with 63m coming from the Scottish Executive, the remainder coming from the Partner authorities existing spend on network connections (Argyll and Bute Council s contribution is its 2004/5 spend level of c. 434,000 per annum on ICT connection costs). Part of the project will be to upgrade the Connected Communities network in the Western Isles to the level being procured across the rest of the Highlands and Islands under the Pathfinder project. 1million has been allocated for this which will be spent on a network upgrade during 2006/ The main benefits of the project which will see very high levels of bandwidth delivered to 800 plus sites across the Highlands and Islands are: It will permit the full local delivery of the Scottish Schools Digital Network (SSDN) which is currently being rolled out by Learning and Teaching Scotland (the provision of SSDN interconnect has been included within the scope of the project).

2 It will allow councils to modernise service delivery and improve on efficiency through the full use of broadband. It will permit the delivery of e-government targets. Project Oversight 3.4 Oversight of the project has been by a Project Board consisting of Chief Executives of the six authorities (or their deputies) with regular reporting to the Highlands and Islands Convenors. A Minute of Agreement is in the process of being signed by all partner authorities (Argyll and Bute Strategic Policy Committee gave authorisation on 18 May 2006). The Memorandum of Agreement commits the Council to contributing up to 433,982 per annum (the equivalent of the Council s spend on Networks in 2004/5) towards the project costs over the 7 year life of the project. The Chief Executive has prepared regular update reports to Strategic Policy Committee. The procurement has also followed the Office of Government Commerce s Gateway Review process. Project Progress/ Preferred Supplier 3.5 The project was handed to local authority control by the Scottish Executive in September 2004 and initiated shortly thereafter by the six Highlands and Islands authorities. Using the 850,000 procurement budget provided by the Executive, the Highland Council, as lead authority, has employed a dedicated project team and has appointed advisors to cover the financial (KPMG), legal (Pinsent Masons) and technical (Mason Communications) aspects of the project. The need for State Aids approval for this significant investment in private sector infrastructure was identified early on. Unfortunately the process of securing final State Aid Approval from Europe took from February till September 2005 because of delays in the EU; a factor which significantly delayed going to market with the procurement. 3.6 The Official Journal of the European Union (OJEU) notification was issued in October 2005 together with 33 Pre Qualification Questionnaires to the companies which responded to the notification. 7 companies passed the pre-qualification process and received copies of the ITN in December Subsequently two companies (BT and Thus) submitted full bids at the end of February The initial bids have seen significant revision and following a period of detailed clarification and negotiation with the bidders there have been two further rounds of bids on 19 May and 23 June 2006 which now go a considerable way to meeting the partners aspiration of providing significant bandwidths to the 800 plus sites across the Highlands and Islands. The bids have been evaluated against the following ten factors; Importance Criteria 1 Cost / Service Provision within Budget / Financial Structuring of the Proposal 2 Service Scalability 3 Service Coverage 4 Technical Capability of Solution / Service Quality / Service Levels 5 Risk / Overall Deliverability.

3 6 Completeness, accuracy, and validity of assumptions / estimates made 7 Rollout timescales 8 Partnership Working 9 Acceptable Terms and Conditions 10 Vision to Support the Partners' Existing and Future Business Requirements 3.7 While the Scottish Executive accepts that going through the Invitation to Negotiation Process demonstrates that we are achieving the best available price in the market, the partners have undertaken further work on demonstrating Value for Money. This has involved commissioning a study to identify the costs of simply procuring the requirements using regulated services from BT (where such services are available) this comes in at a cost of 163m or the cost of a Partner led Design Build Own and Operate option (as per the Western Isles Connected Communities project) which would cost 99m. In addition, KPMG have undertaken detailed costing and pricing analysis of the individual bids. The two current bids of around 70m both demonstrate that Value for Money has been achieved through the Invitation to Negotiate process. 3.8 The negotiated procedure permits a flexible period of clarification and negotiation with bidders and this has been fully utilised by the procurement team over the past four months to significantly develop the bids from BT and Thus from their initial submissions. Thus are now offering the Partners a technically practical mix of fibre, wireless and copper based connections including partners year one and year three bandwidth requirements within a capped 70m budget. This is a proposal which fully meets the aspirations of the Partners, exceeds the minimum requirements set in the Invitation To Negotiate, and will result in the creation of a very high bandwidth infrastructure which extends across the Highlands and Islands. 3.9 The procurement team, comprising representatives from all six local authorities involved together with specialist advisers, has undertaken a detailed technical, financial and legal evaluation of the bids from BT and Thus based on the evaluation criteria set out in the Invitation to Tender. The proposal from Thus scored better against the evaluation criteria and on financial evaluation. There was no difference between the bids on the legal evaluation The procurement team s recommendation to the Project Board was that the bid from Thus which utilises a pragmatic mix of technologies to deliver the Partner s year 3 bandwidth requirements within the capped budget of 70m, represents the optimum solution at this time. The Board accepted this recommendation at their meeting on 27 th June 2006 and approved the appointment of Thus as preferred supplier. The Chief Executive of Highland Council (as lead authority) was authorised by that Council to issue the appointment letter on 29 June Next steps 3.11 Following issue of the preferred supplier appointment letter, the next steps in the procurement process will involve agreement of the detailed terms and conditions of the proposed 7 year contract, a full survey of all 800 plus sites across the Highlands and Islands and the development of a detailed rollout plan prior to contract

4 signature in November Although the rollout will take up to two years, it is anticipated that up to 60% of all sites will be connected in the first year (2007) with the remainder thereafter It is anticipated that the Services Agreement will be signed in September 2006 although this will be preceded by an addendum to the Minute of Agreement across the six partners which will formally approve the final move to contract signature. The Highland Council as lead authority will formally sign the contract with the supplier. Following final agreement of the Service Agreement, the rollout will commence. Given the scale of the infrastructure investment required it is anticipated that it will take up to two years to fully develop the network and connect all sites The overall procurement and rollout timetable is therefore: Task Anticipated Completion Date State Aid Notification 21 February 2005 Receive State Aid Approval 23 September 2005 Issue OJEU Notice 4 th October 2005 Issue PQQ 6 th October 2005 Finalise ITN plus Evaluation 28 th November 2005 Send out ITN to selected 15 th December 2005 Bidders Bids Received 27 th February 2006 Negotiations and submission April- May 2006 of Revised Bids Preferred Bidder Selected June 2006 Contract Signed September 2006 Network Rollout Completed September IMPLICATIONS 4.1 Policy None 4.2 Financial Commitment of existing network budget of c 434,000 to Broadband pathfinder project 4.3 Personnel None 4.4 Legal Addendum to Minute of Agreement to be approved by future meeting of SPC before move to contract signature 4.5 Equal Opportunities None James McLellan Chief Executive 29 June 2006

5 Background Papers: Highlands and Islands pathfinder procurement: Minute of Agreement: Strategic Policy Committee 18 May 2006 Highlands and Islands pathfinder procurement: report on progress to date: Strategic Policy Committee 3 November 2005 Highlands and Islands pathfinder procurement: report on progress to date: Strategic Policy Committee 7 July 2005 Highlands and Islands Broadband Aggregated Procurement project: Strategic Policy Committee 9 September 2004

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