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Carillion and Interserve in race for £1.2bn of work

Exclusive: Carillion and Interserve are battling for contracts worth £1.2 billion as councils follow Oxfordshire’s ‘one-stop-shop’ partnership approach to build and FM services.

It is understood the pair are up against Amey in the £500 million Tri-borough contract in West London. Mitie and Enterprise had previously been in the running.

A preferred bidder is expected to be announced in the new year to manage shared services, including construction procurement, across the boroughs of Hammersmith and Fulham, Kensington and Chelsea, and Westminster.

Carillion is also understood to be in a three-firm race for a £700m contract for Staffordshire to manage education support services.  A council spokesperson confirmed that three firms have been shortlisted and a preferred bidder is expected to be announced at the start of December.

Staffordshire want an investment partner to create “a new joint business offering a one-stop-shop support to a variety of schools services including school meals, grounds maintenance, building maintenance, music tuition, teacher training and ICT”. It will operate across 400 schools.

The business would also provide for the design and construction of minor or major capital construction projects and energy efficiency across the estate. Nearly 5,000 county council staff will move to the new business, with the county council retaining a stake.

Meanwhile, Northumberland County Council is looking at setting up a ‘strategic partnership’, which could come to market in 2013 if agreed by the council. An all-party working group has met twice to look at ways to make annual savings of £74m over the next four years.

The bundled building and FM approach follows a pioneering £700m contract awarded by Oxfordshire County Council to Carillion in April.

It comes at a time when councils are facing severe budget pressures on the back of central government cuts, while the official private finance initiative faces a rigorous ‘value for money’ assessment by the Treasury.

Hundreds of Oxfordshire council staff moved across to Carillion under a 10-year contract for construction, property and facilities management services, initially worth up to £500m.

Local councils, health and other public sector organisations in Oxfordshire can also procure a potential £200m of services “without the need for further procurement processes or costs”.

It was heralded as the first time that the council has grouped all of its property services into one contract - and the first local authority contract of its kind in the UK.

Carillion chief executive Richard Howson has repeatedly stressed the potential for his firm as more councils look to make savings through a partnership approach.

Mitie won a £500m bundled contract for pure facilities and property management for Essex Country Council in September.

John Telling, corporate affairs director at Mitie, said bundling pure FM approach had seen big savings for some private sector clients such as Lloyds, who he said reduced their supply chain from around 200 firms to just Mitie after signing a £775m contract in May.

Mr Telling, who previously highlighted large retailers as potential customers, suggested more local authorities could follow.

“I would expect, especially once we get through the next budget round that there will be some more councils that will definitely look at it.

“I don’t think it will be right for everybody, but I think there will definitely be some that can get…efficiencies by going down that route.”

Interserve bagged a five-year contract with Boots earlier this year.

A spokesperson for the borough of Kensington and Chelsea, which is leading on the Tri-borough scheme, refused to provide further information on the contract, saying only that a decision on a preferred bidder is expected in the new year.

The aim is to create ‘one single property function’ for the councils, with plans to share capital projects and ‘better procurement of contracts for construction related services’. The combination of those services is expected to save £40m a year – but it also means upheaval for staff.

After drawing on disparities between the three councils, Kensington and Chelsea’s cabinet scrutiny committee said they expected ‘more meaningful discussions with the unions’ in December.

The Tri-borough councils are sharing £300m of services and ‘cutting management costs in half with 175 senior posts going’.

A ’One Year On’ progress report published in June said 62 senior and middle management posts have already gone in the three areas that have been initially combined: children’s services, adult social and libraries.

Communities and local government secretary Eric Pickles has encouraged more councils to merge their services to save money.

FM offers value but slow on innovation

A report commissioned by Interserve said most clients feel they are getting value from outsourced FM contracts, but almost half are failing to hit targets when it comes to innovation.

Clients said financial savings, service level improvements, access to better technical expertise and risk sharing all take precedence when choosing a supplier.

It revealed that more than 70 per cent of organisations feel they have hit those targets.

But they said innovation is falling short, at 56 per cent, as it is being stifled by internal pressures such as financial barriers, resistance to change and a lack of board level support.

The sruvey of 538 clients said this is compounded by issues such as a lack of supplier investment as the main barriers to delivering innovation.

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