Highlands and Islands Broadband Pathfinder Project - Background

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1 ITEM: 22(a) PAGE: 1 REPORT TO: The Moray Council on 5 July, 2006 SUBJECT: BY: Highlands and Islands Broadband Pathfinder Project - Background Chief Executive 1. Reason for Report 1.1 The Pathfinder Broadband Procurement Project is a 70m project ( 63m from the Scottish Executive) which aims to provide high capacity broadband links to schools, libraries and other council buildings throughout the Highlands and Islands. This report provides background on the Pathfinder Broadband Procurement, advises members of progress on the Negotiation process and invites members to approve the appointment of a preferred supplier to undertake the project. A recommendation on the preferred supplier will be submitted to the Pathfinder Project Board meeting on 27 June, 2006 and the Chief Executive will report to the Council on the Project Board s recommendation. The timetable is to conclude the contract with the preferred supplier in September 2006 and commence the rollout directly thereafter. 1.2 This report is submitted to Council in terms of Section (II)(19) of the Council's Administrative Scheme relating to the determination of any new policy matters which doe not fall within the terms of reference of any Committee. 2. Background 2.1 Introduction 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. 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 authority s existing spend on network connections. 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 2006/7.

2 PAGE: 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). 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. 3. Project Progress 3.1 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 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. 3.2 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; Criteria Importance Cost / Service Provision within Budget / Financial 1 Structuring of the Proposal Service Scalability 2 Service Coverage 3 Technical Capability of Solution / Service 4 Quality / Service Levels Risk / Overall Deliverability. 5

3 PAGE: 3 Criteria Importance Completeness, accuracy, and validity of 6 assumptions / estimates made Rollout timescales 7 Partnership Working 8 Acceptable Terms and Conditions 9 Vision to Support the Partners' Existing and 10 Future Business Requirements 3.3 A recommendation on the preferred supplier will be submitted to the Pathfinder Project Board meeting on 27 June 2006 and the Chief Executive will report to the Council on the Project Board s recommendations. 3.4 While the Scottish Executive accept 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. 3.5 Project Oversight 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 (Highland Council gave authorisation on 4 th May). The Memorandum of Agreement commits The Highland Council to contributing up to 1,014,972 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 also prepared regular update reports to The Highland Council s Resources Committee. The procurement has also followed the Office of Government Commerce s Gateway Review process. 3.6 Next Steps Following approval of the preferred supplier, the procurement team will issue draft terms and conditions, commence detailed negotiations and undertake a due diligence exercise (essentially involving the supplier surveying all 800 plus sites across the Highlands and Islands to finalise their technical solution and rollout plan). 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

4 PAGE: 4 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 Bidders 15 th December 2005 Bids Received 27 th February 2006 Negotiations and submission of Revised Bids April- May 2006 Preferred Bidder Selected June 2006 Contract Signed September 2006 Network Rollout Completed September RECOMMENDATION 4.1 Members are asked to: 1. Note the progress on the Pathfinder Procurement and the Next Steps to project completion.

5 PAGE: 5 2. Approve the recommended Preferred Supplier as per the Chief Executive s update. Author of Report: Background Papers: Ref: Peter Fidgett

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