MD1505 Future of RE:FIT programme

Type of decision: 
Mayoral decision
Code: 
MD1505
Date signed: 
18 June 2015
Decision by: 
Boris Johnson MP (past staff), Mayor of London

Executive summary

This paper sets out proposals for RE:FIT after the current Programme Delivery Unit (PDU) comes to an end in September 2015. It demonstrates that to ensure retrofit continues at scale and that it results in the largest possible carbon savings, the best way forward post-September 2015 is to have an enhanced version of the current model of support, with a PDU procured and managed by the GLA alongside a new and enhanced RE:FIT framework.

 

Decision

That the Mayor approves:

1.    The extension of the RE:FIT Programme Delivery Unit contract with Turner and Townsend from September 2015 to March 2016 at the latest, to avoid any gap between the end of the existing PDU contract (September 2015) and the start of the new PDU up to a maximum expenditure of £192,000. 

2.    An enhancement of the activities of the current PDU in order that it can continue to build the pipeline of projects, at an estimated expenditure of up to a maximum of £43,000 in 2015/16.

3.    The introduction of a charge to organisations towards the support they receive from the current, interim and future PDUs

4.    The submission of an application to the European Regional Development Fund (ERDF) on the basis of 50% of the funding for the new PDU (£1.75 million), and, subject to a future approval, the provision of the required 50% match funding from GLA budgets (£1.75 million). 

5.    The procurement of a new PDU to cover three and half years from February 2016, subject to future budget approval.

6.    The provision of support for the procurement and award of a new RE:FIT framework, to be procured by the GLA and Local Partnerships and to be administered by Crown Commercial Services, to be in place by early February 2016.
 

Part 1: Non-confidential facts and advice

Introduction and background

1.1    RE:FIT comprises a framework of suppliers to deliver retrofit works, plus an expert Programme Delivery Unit (PDU) that supports and enables public sector organisations in London to retrofit their buildings and make best use of the framework. The framework is based on an Energy Performance Contracting model whereby the suppliers guarantee the level of energy savings, thus offering a secure financial saving over the period of the agreement. The PDU is contracted until late September 2015 and the framework is due to expire in November 2016.
1.2    As well as the overall Mayoral target to reduce CO2 emissions by 60% by 2025, there are a number of specific targets for RE:FIT:
•    to retrofit up to 600 buildings by the end of 2015 (440 buildings achieved/in the process of)
•    to generate annual savings of 45,000 tonnes of CO2 by the end of 2015 (30,000 tonnes achieved)
•    to retrofit 1.6 million m² of public sector floor space by the end of 2015, 6.3 million m² by 2020 and 11 million m² by 2025 (1.3 million m2 achieved)
•    to retrofit 100 GLA Group buildings by the end of 2015 (86 achieved)
•    to retrofit up to 200 schools by September 2016 (57 schools achieved – with a pipeline of a further 251)
1.3    The current phase of RE:FIT is funded by ELENA  (85%) and the GLA (15%) –  a total of £2.781 million over four years. ELENA funding is conditional on the programme levering in a minimum of £60 million. This is on track, with the existing pipeline alone currently having a projected weighted contract value of £85,449,550.
1.4    The key challenges going forward are:
•    There are still many public buildings in London requiring retrofit. The programme has so far reduced London boroughs’ carbon emissions by 17%  but a large number of organisations have not yet used RE:FIT. 
•    Public sector organisations continue to need support to retrofit their buildings. The current PDU’s pipeline is continuing to grow, demonstrating ongoing demand for their service and the framework. There remains a lack of expertise and capacity within most public sector organisations, so without the GLA’s support many projects simply would not happen or would not be as extensive and successful.
•    A new phase of RE:FIT could benefit the commercial workplace sector. The GLA’s Environment Team has recently undertaken a strategic review of retrofit in the workplaces sector. It concluded that RE:FIT should continue, given the GLA targets to reduce emissions from public buildings and the clear success of and value for money offered by the programme. It also recommended that the option for the model to be extended to the commercial sector should be explored.  
•    The RE:FIT framework needs replacing. The current RE:FIT framework runs until November 2016. However, the energy services market has developed since the current framework was created, with new players entering the market and new approaches being developed. This means that the framework is no longer as competitive as it was or it could be. 
 

Objectives and expected outcomes

2.1    Following an appraisal of options for achieving CO2 reductions in London workplaces at scale into the future (summarised in Appendix 1), it is proposed the PDU model continues post-September 2015 (ie when the current PDU contract ends). 
2.2    Given that it is anticipated that a new PDU would be part-funded by the ERDF and that this funding is unlikely to be secured before January/February 2016, it is proposed that two rounds of procurement take place:
•    for an interim PDU, from September 2015 to 31 March 2016 at the latest. It is proposed that this is undertaken by way of an extension to the call–off contract dated 20 September 2011 with the incumbent supplier, Turner and Townsend, with a contract value of up to £192,000. 
•    for a long term PDU, probably from February/March 2016 and with a contract lasting for three and a half years (the maximum period for which ERDF funding is available).
An interim PDU
2.3    It is proposed that the GLA fully funds the interim PDU, using up to a maximum of £192,000 of the £500,000 GLA funding earmarked for RE:FIT in 2015/16 for this purpose. During this interim period, the PDU will be expected to charge public sector organisations a fee towards the support they receive. The PDU will also take on the activities relating to the RE:FIT Schools Project Manager currently provided in-house at the GLA.
2.4    The existing PDU contract with Turner and Townsend will be extended from September 2015 to 31 March 2016 at the latest, to avoid any gap between the end of the existing PDU contract (September 2015) and the start of the new PDU (likely to be February/March 2016). This is an interim solution that is required to continue to provide support to public sector organisations and to continue to build the pipeline for the next PDU team. Not progressing with this interim solution would slow down the delivery of the RE:FIT programme, could disrupt the progress that has been achieved so far and ultimately is likely to negatively impact on the achievement of the Mayor’s carbon reduction targets. 
2.5    Turner and Townsend have been running the PDU team since September 2011 and are best placed to continue to provide support to public sector organisations until the new PDU is procured.  The role of the PDU will expand very slightly to take on the activities relating to the RE:FIT Schools Project Manager currently provided in-house at the GLA.
2.6    Their role will be to manage the RE:FIT Framework and facilitate the uptake by London based public sector organisations. This involves promoting the Framework to public sector organisations through meetings and events, helping public sector bodies to identifying buildings and energy conservation measures, and writing the Project Brief and running a mini competition to select an Energy Service Company (ESCo) supplier who will retrofit their buildings and guarantee savings. In addition, the PDU will continue to provide technical support and guidance throughout the procurement process as well as basic advice regarding sourcing funding.
A new Programme Delivery Unit
2.7    The estimated annual cost of a long term PDU will be up to £1 million. It is envisaged that half of this will come from ERDF and half from the GLA. This figure assumes that at minimum the new team will be of the size and with the skills and expertise of the current one. This comprises eight full time staff with expertise in marketing, procurement, technical, finance, legal and commercial aspects of RE:FIT, as well as administration/communication support. 
2.8    It should be noted that the new PDU will be required to take on additional responsibilities, such as enhancing opportunities for solar PV and undertaking more intensive work with schools. While this should be achievable within the proposed funding, should other resources become available to the RE:FIT programme during the ERDF bidding period, the RE:FIT team will look at increasing the potential resources for the new PDU team.

European funding
2.9    RE:FIT fulfils the objectives for the 2014-20 ERDF set out by the European Commission, the government and the London Enterprise Panel (LEP). The European Commission has ‘supporting the shift to a low carbon economy across all sectors’ as one of its thematic objectives for the ERDF in 2014-20.
2.10    The ERDF programme was launched in March 2015, with a prospectus for applications expected in June. There is a two stage application process, involving an ‘Outline Application’ to be submitted by 20 May 2015 followed by a ‘Full Application’. ERDF will require 50% match funding.
GLA funding
2.11    The GLA’s gross budget for RE:FIT for 2015/16 and beyond is £1 million a year (half from the GLA and half from anticipated income). This demonstrates ongoing Mayoral commitment to the programme and to its continuation following the end of the current programme, in recognition of the Climate Change Mitigation Energy Strategy RE:FIT targets for 2020. 
2.12    The cost of the current PDU from April to September 2015 is being met by ELENA funding secured for the current phase of the programme. However, should a new phase of RE:FIT be agreed, the costs for this period will be exceed the available budget by £43,000. This is because instead of going into closedown mode, the PDU will need to continue to support and grow the pipeline, primarily through marketing, benchmarking and work with schools, in preparation for the new team. 
2.13    It is proposed that both the extension of the current PDU’s activities (between 1 April and 20 September 2015) and the interim PDU (between 21 September 2015 and 31 March 2016) are funded from the GLA’s RE:FIT funding for 2015/16. It is further proposed that the GLA provides £0.5 million each year for three and a half years from February 2016 for the long term PDU (that is, 50% match for the ERDF funding). 
Charging clients
2.14    The GLA will pilot a new part-funding model between June and September 2015 whereby public sector organisations will make an upfront payment of between £2,500 and £3,000 at the benchmarking stage of the process. This could potentially create a pot of over £70,000 per year. The income raised during the pilot could potentially fund the GLA’s RE:FIT schools project manager during this period (c£30,000). If the model is proven successful then a permanent funding model will be piloted by the interim PDU, between October 2015 and March 2016, with income reinvested in the GLA’s retrofit programme. 
2.15    The longer term PDU will also be expected to generate income for its services, with the ultimate aim of becoming self-funding. Proposing a suitable model for raising income will be part of the tender process for bidders. The PDU will also be tasked with rolling out their support to private sector workplaces and raising income (potentially at a higher cost recovery rate than for public sector organisations) through this route. 
A new framework 
2.16    To continue London’s leading position in energy performance contracting, it is proposed that a new improved RE:FIT framework is put in place, to help public sector users of RE:FIT and further develop this market sector. The procurement is likely to run from March 2015 to February 2016, at an estimated cost of around £150,000.
2.17    The procurement and award of a new RE:FIT framework will be administered by Crown Commercial Services working closely with Local Partnerships and the Greater London Authority. DECC has provisionally offered a contribution of around £100,000 towards the procurement costs of the new RE:FIT framework via Local Partnerships. 
2.18    On the basis of the above funding arrangements proceeding, it is proposed that the GLA funds any shortfall in procurement costs that would be required for developing any bespoke contracts for London, likely to be between £50,000 and £100,000. However, should the DECC funding not be confirmed, it is proposed that the GLA funds the full cost of the procurement. That would be sufficient funding for either option from the GLA’s 2015/16 RE:FIT budget. 
 

Equality comments

3.1    The GLA has taken and will take 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 these projects in equal measure should their properties be selected, and there will be equality of access to participate in the delivery and benefit from the programme, without discrimination. 

 

Other considerations

4.    Other considerations
Links to Mayoral strategies and priorities
4.1    The RE:FIT programme contributes to London becoming a world leader in improving the environment: identifying and investing in projects that reduce greenhouse gas emissions, reducing resource consumption and developing new green skills and services.
4.2    The programme will also contribute towards the achievement of the following aims and objectives of the Climate Change Mitigation and Energy Strategy:
•    the overall target of cutting carbon emissions by 60% by 2025
•    Policy 8 - Retrofitting London’s existing workplaces with energy efficiency measures and low and zero carbon microgeneration technologies - The Mayor, working with partners, will use public funds to develop commercial models that catalyse markets to retrofit workplaces with energy efficiency measures and low and zero carbon microgeneration technologies 
•    ‘Objective 3’ of the Mayor’s Economic Development Strategy to ‘make London one of the world’s leading low carbon capitals by 2025 and a global leader in carbon finance’
•    the specific RE:FIT targets set out in paragraph 1.2.
 

Financial comments

5.1    The proposal is for the RE:FIT programme to continue through 
a) an interim PDU to March 2016
b) an application for European Regional Development Fund funding to be matched by the GLA for a programme to operate to 2019/20
c) GLA involvement in a new framework procurement with Local Partnerships including a GLA financial contribution.
5.2    There is a further proposal to seek contributions from public sector organisations for RE:FIT assistance. Any such contribution would be ring-fenced for spend on that assistance only. 
5.3    The GLA’s 2015/16 budget includes a gross budget of £1 million for RE:FIT, of which £0.5m is GLA budget and the remainder is anticipated income. This is sufficient to cover the costs in the following table plus a contribution to the framework re-procurement in 2015/16 of not more than £181,600.
 

 

Current PDU

Interim PDU

Long term PDU

 

2015/16

2016/17

2017/18

2018/19

2019/20

4 months

 

1 April to 20 Sept 15

21 Sept 15 to up to 31March 16

1 Feb to 31 March 16 (2 months of ERDF match)

Contingency for procurement and PDU model

 

 

 

 

GLA funding

£43,000

£192,000*

£83,400

£181,600

£500,000

£500,000

£500,000

£166,600

Income - ELENA funding

£157,000

-

-

-

-

-

-

-

Recycled London Green Fund

 

 

£16,700

 

£100,000

£100,000

100,000

£33,300

Income - ERDF funding

-

-

£100,100

-

£600,000

£600,000

£600,000

£199,900

Total

£200,000

£192,000

£200,200

£181,600

£1,200,000

£1,200,000

£1,200,000

£399,800

 

Investment and Performance Board

7.1      This paper was approved by the Housing Investment Group on 3rd March 2015.

 

Planned delivery approach and next steps

Activity

Indicative timeline

Agree arrangements RE:FIT procurement with LP and CCS

May 2015

Commence procurement

May 2015

Submit the ERDF Outline Application

20 May 2015

Start the part self-funding pilot

June 2015

Submit the ERDF full application

Summer 2015

Interim PDU in place

Late September 2015

Sign the ERDF funding agreement

January 2016

Long term PDU in place

From February 2016

Option 1: New RE:FIT framework procured

February 2016

Option 2: New RE:FIT framework procured

November 2016