ADD2013 RE:NEW Support Team Contract Variation

Type of decision: 
Assistant Director's decision
Code: 
ADD2013
Date signed: 
25 January 2017
Decision by: 
Jamie Ratcliff, Assistant Director, Housing

Executive summary

In 2014, Capita were contracted to provide domestic energy efficiency support. Targets in relation to financial leverage and carbon savings were set out in their contract with financial incentives to achieve them.  

As at 31 March 2016, the programme had exceeded the leverage target 16 months ahead of time but due to unforeseen and challenging market conditions the carbon targets are not now likely to be achieved. This decision approves a variation of the incentivisation terms of the contract with Capita in order to provide sufficient incentive to maximise performance. These changes will be applied retrospectively at a cost of £31,646 relating to costs incurred to 31 March 2016 and, if relevant targets are achieved, could involve up to an additional £11,823 of cost to the end of the programme.
 

Decision

That the Assistant Director approves a contract variation to contract GLA 84054 - RE:NEW Support Team, approved through MD1289, to amend the incentivisation model with Capita to cover performance from 1 July 2015.  The contract variation involves a payment of £31,646 (met from the allocated RE:NEW budget for the 2016/17 financial year) and up to £11,823 in costs that could be incurred in 2017/18 financial year, with a total cost to the GLA of up to £43,469.

 

Part 1: Non-confidential facts and advice

Introduction and background

1.1    This phase of the RE:NEW programme, approved through MD 1289, is jointly funded by the European Investment Bank (EIB) ELENA facility and the GLA, providing funding of £2,513,700 (90 per cent) and £279,300 (10 per cent) respectively.  It supports organisations such as London boroughs, housing associations, and universities to develop retrofit projects. It is doing this through:
•    the RE:NEW Support Team, an expert team providing the end to end support needed to get projects up, running and successfully implemented
•    the RE:NEW framework of suppliers, which saves time and resources for organisations that are procuring retrofit services and works
1.2    The EIB grant agreement requires the GLA to leverage its investment by a factor of 1:20 (c£50m).  In 2013 the GLA established more stretching targets for this phase of the RE:NEW to support the retrofit of 175,000 homes, save 93,000 tCO2 through attracting investment of £352m by 2017 (a leverage factor of 1:140).
1.3    When the GLA tendered for the RE:NEW Support Team services, the tender specification set out the overall programme KPIs and two incentivised KPIs.  These were capital investment and contracted CO2 savings at the more stretching levels set out above. 
1.4    The RE:NEW Support Team delivery partner selected by the GLA through a competitive tender exercise, put 20 per cent of fees at risk (ten per cent for each of the incentivised KPIs).  Under the contract the incentivisation model may be reviewed at two contract points, at months 12 and 24.  The proposed change is in line with the provisions within the contract.
1.5    As at 31 March 2016, this phase of the RE:NEW programme had supported c£66.5m worth of contracts to retrofit c13,500 homes, and save c14,300 tCO2.  This represents an overachievement against the EIB leverage target 16 months ahead of time.  However, there is a serious risk that more ambitious targets set in 2013 will not be met.  This risk is due to unforeseen and challenging market conditions, including significant reductions in ECO funding and solar PV feed in tariffs, and the cessation of the Green Deal and associate funding schemes, as well as the one per cent rent reduction for social housing providers, the extension of the Right to Buy and the sale of high value council homes.
1.6    Despite the market conditions there is a very high uptake of RE:NEW Support Team Services (c70 organisations are signed up for support) and a continuing high level of service from the delivery partner and excellent programme management from the GLA.  
1.7    It is forecast that under the existing terms of the incentivisation model, Capita’s fee would be c£191,000 less than the maximum amount over the whole term of the contract.  
1.8    In recognition of the changes to the market, which are completely outside of the control of the delivery partner, the GLA, the delivery partner and the EIB have discussed changes to the incentivisation model. All parties have provisionally agreed that reducing the percentage of delivery partner fees at risk from 20 per cent to 17.5 per cent across all project resources, backdated to the first incentivisation model review point in July 2015, would be a fair approach that would continue to provide sufficient incentive to achieve stretching targets.
1.9    The cost of the proposed change is c£31,646 in relation to costs that the contractor has already incurred and is estimated to increase fees to Capita by c£11,823 over the remainder of the contract – a change of c£43,469 in total. This would require a nil value contract variation involving a variation to the terms of the incentivisation model only.
 

Objectives and expected outcomes

2.1    The objective of this decision is to facilitate a change to the RE:NEW Support Team incentivisation model in recognition of the challenging market conditions which are completely outside of the control of the delivery partner.

 

Equality comments

3.1    The GLA has taken appropriate steps to ensure that there are no potential negative impacts expected on those with protected characteristics.  Those with protected characteristics will gain from the positive benefits of the RE:NEW programme in equal measure, and there will be equality of access to participate in the delivery and benefit from the Portal, without discrimination. 

 

Other considerations

a)    Key risks and issues

 

Risk #

Risk description and impact

Risk owner

Inherent risk assessment

Control measures / Actions

Deadline /Completed

Action owner

Residual risk assessment

Prob.

Impact

Overall

Prob.

Impact

Overall

                       

1

The GLA ELENA funding contract has a minimum leverage factor is 1:20.  This represents 20 times (£50,274,000) the amount of the total contribution by the European Investment Bank (£2,513,700).  If the programme were to deliver below this point then the EIB could potentially claw back the entire ELENA fund from the GLA.  This change to the incentivisation model would lead to £37,600 less underspend available for claw back in the event of this risk materialising. 

Kore Mason

1

1

1

As at 31 March 2016 this phase of the RE:NEW programme had supported contracts worth c £65m.  This represents an overachievement against the EIB leverage factor 16 months ahead of time.  This achievement will be formalised through EIB processes in August/September 2016.

30.09.16

Kore Mason

1

1

1

 

 

 

 

2

EPMF* panel contractors may seek to challenge the modification of the incentivisation model.

* The EPMF is the framework which the delivery partner was selected from following a competitive procurement process.

Kore Mason

1

1

1

The EPMF mini competition ITT sets out the potential to review the incentivisation model at months 12 and 24.  This change is in line with the provisions therein.

31.07.17

Kore Mason

1

1

1

 

 

3

Reduction of the percentage of fees at risk may be viewed by stakeholders as rewarding the delivery partner for failure.

Kore Mason

2

1

2

There is a very high uptake of RE:NEW Support Team Services (c70 organisations are signed up for support) and a high level of service from the delivery partner has been observed by the GLA Programme Manager since programme inception.  Under delivery against KPIs is attributed to challenging market conditions impacting the programme.

31.07.16

Kore Mason

2

1

2

 

b)    Links to Mayoral strategies and priorities

4.1    The RE:NEW programme will help London become a world leader in improving the environment: identifying and investing in projects that reduce CO2 emissions, reducing resource consumption and developing new green skills and services.

4.2    The programme has contributed towards/will continue to contribute towards achieving the following aims and objectives of the Climate Change Mitigation and Energy Strategy:
•    the overall target to cut carbon emissions by 60 per cent by 2025;
•    Policy 6 - Retrofitting existing homes with energy efficiency measures, water efficiency measures, and low and zero carbon micro-generation technologies (retrofitting of energy efficiency, energy supply, and water efficiency measures to 1.2 million existing homes in London by 2015, and all homes in London by 2030);
•    Policy 7 - Tackling fuel poverty in London.

4.3    It will also contribute to objective 3 of the Economic Development Strategy to “make London one of the world’s leading low carbon capitals by 2025 and a global leader in carbon finance”.

4.4    In addition, it will continue to maximise delivery towards the current RE:NEW phase three targets to support the retrofit of 175,000 homes and save 93,000 tCO2 annually by 2017.

c)    Impact assessment and consultations

4.5    Consultation on this decision has been undertaken by the RE:NEW Programme Manager with the EIB, GLA Governance, Legal and Procurement teams as well as the delivery partner.
 

Financial comments

5.1    This decision requests approval for contract variation with Capita for the RE:NEW Support Team that will result in a total cost to the GLA of up to £43,469. 

5.2    The funding request will be split between two financial years as follows:

5.3    £31,646 relating to costs incurred to 31 March 2016. These costs will be met from the allocated RE:NEW budget for the 2016/17 financial year.

5.4    £11,823 relating to costs that will be incurred in 2017/18 financial year. The confirmation of this funding is subject to the finalisation and sign-off of the 2017/18 budget by the Mayor.

5.5    Any changes to this proposal, including the requirement for additional funds, will be subject to further approval via the Authority’s decision making process.
 

Planned delivery approach and next steps

Activity

Timeline

Prepare contract variation

06.02.17

Sign off contract variation

20.02.17