180828 2nd Statement of Patrick Carney EA/2018/0104

registered users only – OCR version below – original (pdf): patrick carney witness statement 28 August 2018


Second Respondent
Patrick Carney Second

28/08/2018

IN THE FIRST TIER TRIBUNAL

INFORMATION RIGHTS UNDER SECTION 57 FREEDOM OF INFORMATION ACT 2000

Appeal No. EA/2018/0104

BETWEEN

PHILIP SWIFT OBO CLAIMS MANAGEMENT

Appellant

-and-

THE INFORMATION COMMISSIONER

First Respondent

-and-

HIGHWAYS ENGLAND

Second Respondent


SECOND WITNESS STATEMENT OF PATRICK CARNEY


I, PATRICK CARNEY, of Highways England, The Cube, 199 Wharfside Street, Birmingham Bl IRN will say as follows:

INTRODUCTION

  1. As set out in my first witness statement, dated 3 August 2018, I am Head of Commercial Delivery for the Second Respondent, Highways England (“HE”).
  2. I make this further witness statement in support of HE’s opposition to the Appellant’s appeal against the Decision Notice of the Information Commissioner numbered FS50684021. I am duly authorised to make this witness statement on behalf of the Second Respondent. The facts set out in this witness statement are true to the best of my knowledge and belief. Except where otherwise stated, they are within my direct knowledge. Where matters are not within my direct knowledge, I have identified the source of my belief, and I believe that those facts are true.
  3. Unless stated otherwise, defined terms have the same meaning as in my first witness statement.
  4. Below I address a point made by the Appellant in an email dated 7 August 2018 and addressed to the Tribunal and the parties in these proceedings, in which the Appellant set out an *’initial response” to the documents exhibited to my first witness statement (the “Appellant’s Email”).
  5. In these proceedings, HE contends that disclosure of the material in the closed bundle would, or would be likely to prejudice the commercial interests of the Bidders and / or HE. In the Appellant’s Email, however, it appears to be suggested that HE’s contention is contradicted in some way by the existence in the Appellant’s hands of certain information setting out certain rates charged by certain Contractors in certain circumstances and in relation to certain repairs to the Network.
  6. I explain below a number of reasons why the suggestion made in the Appellant’s Email is incorrect. In short, the Appellant is not comparing like with like.
  1. The Appellant has produced, as attachments to the Appellant’s Email, document’s setting out (he says) [Damage to Crown Property (“DCP”) Call Out Rates (the “DCP Rates”) charged by two of the Bidders (AOne+ and Kier).
  2. In what follows, references to the DCP Rates are references only to the materials attached to the Appellant’s Email. I make no comment in relation to the date, provenance, currency, accuracy or veracity of those attachments, all of which are matters outside of my own knowledge.
  3. I can say, however, that, for a number of reasons, the DCP Rates differ markedly from, and are not comparable with the vast bulk of those contract rates and prices in issue in these proceedings, i.e. the rates and prices offered by the Bidders in relation to the competitive tender in 2012 of the ASC for Area 10 (the “ASC Rates”),

COMPARISON BETWEEN THE ASC RATES AND THE DCP RATES

(i) Payer

  1. On the most basic level, and as explained in greater detail below, .the ASC Rates are used to set a target price against which the defined costs of pre-planned, programmed scheme work are compared, and a share proportion is worked out as the basis on which HE then pays its Contractors.
  2. Based on the threshold limit of El 0.000, the DCP Rates are — as the Appellant notes — what is charged by the relevant Contractor to the relevant third parties and their insurers for the repair of DCP.

(ii) Scope, value and substantive elements

  1. As explained in my first witness statement, the ASCs are very large, very sophisticated contracts, Their scope is broad, their term is long (between five and eight years), and their value is high. The substantive elements of the services undertaken pursuant to the ASCs are highly complex. Those services are provided in an extensively preplanned, programmed and ordered manner, providing regularity, predictability, economies of scale and enhanced productivity.
  2. The DCP Rates, on the other hand, are charged in relation to emergency reactive responses, by contractors and their sub-contractors, for unplanned, unpredictable incidents — i.e. road traffic accidents — that can occur at any time, in any location within the Network, and with varying impact on it. The work and the cost involved in such emergency reactive responses is determined very largely by the nature, scale and urgency of any given incident, rather than any particular long-term plan, In general, the service requirement is relatively small by comparison with the scale of the services provided under the ASCs, and generally involves diversion of resources away from scheduled works, with the result that it can reduce the productivity of the relevant Contractor’s resources.
  3. By analogy with the services provided by a plumbing business, ASC Rates set out charges related to the instalment of a complex system of plumbing as part of a major construction project in a planned way with economies of scale whereas DCP Rates set out the standard charges for fixing a burst pipe: inevitably, the rates charged are very different as are the calculation methods and the variables involved.
  4. B way of illustration of the difference, a typical contract resurfacing scheme, for which payment would be made on a target costs basis, could involve the removal and laying of 1,000 tonnes of road surface in a shift. In the case of a reactive repair to DCP below threshold, the relevant amount may be 25 tonnes. Similarly, under a barrier scheme, a Contractor may see to the replacement of perhaps some 250 metres of barrier, whereas in response to an incident involving DCP below threshold perhaps no more than 20 metres might be replaced.
  5. It is possible that on occasion it may be necessary to make repairs to DCP above threshold where HE recovers costs from those causing the damage on a scale comparable with works to which the ASC Rates would ordinarily be used to establish a target price. However, even in these circumstances, where HE will always be the payer of the relevant Contractor, HE pays whatever are the reasonable costs of repair, not on a target price basis nor using design and management factors i.e. using the ASC Rates. Insurance companies had previously indicated their reluctance to accept the target price approach and hence DCP above threshold (emergency response and large-scale planned repair) is paid for on a cost reimbursable basis.

(ill) Payment mechanisms

  1. In reflection of their scope, value and complexity, the ASCs provide for:
    1. lump sum payment in consideration of cyclic maintenance activity (such as gritting the road in winter and cutting the grass in summer amongst many other routine cyclical tasks);
    2. payment in respect of large scale planned work, undertaken as planned schemes, is on the basis of defined cost plus fee compared to a target price (established using “adjusted” ASC Rates), with any under- or over-spend then divided between HE and the Contractor according to a set share formula. This may be called the final cost of a scheme;
    3. payment in respect of scheme design and management on the basis of a variety of percentages based on the final cost of the scheme including contractor’s share; and

d, payment on a cost-reimbursable basis for work that cannot easily be described, and hence priced, prior to the work being undertaken, that would result in an unaffordable risk allowance (as for example survey and study work, special inspections of bridges, abnormal load movements and road safety audits). In addition, and as noted above, repair of DCP above threshold is paid for as cost reimbursable activity,

  1. During the term of each ASC, the relevant Contractor uses the rates and prices initially tendered to establish the target prices for schemes. All contract-related rates and prices are subject to annual adjustment for inflation and efficiency discounts. They are also subject to adjustment according to the time of year, road type and time of day.

19, In reflection of these adjustments, the ASC Rates and final costs are subject to regular audit in accordance with the terms of the relevant ASC.

  1. Insofar as DCP repairs above threshold are concerned, HE pays, on a cost reimbursable basis, the reasonable costs of those repairs, on an incident-by-incident basis,

     (iv) Pre-planning an scheduling                                                                     

  1. Under an ASC, a Contractor aims to pre-plan and schedule relevant ‘works, in relation to both tump sum cyclical work, and schemes, in such a way as to utilise resources most efficiently. ASC Rates, defined costs, final costs and design and management factors reflect such pre-planning and scheduling.
  2. By contrast, for purposes of repair to DCP, resources are not held on standby, because maintaining a standby resource on a reactive basis to cover the entire Network would be prohibitively costly. This is due to the nature of emergency incident response and random nature of incidents.
  3. As a result, DCP Rates reflect not just the fact that, for such purposes, resources have to be diverted from contract work, leading to under-utilisation, and hence reduced productivity; but also that, as a result of such diversion, pre-planned / scheduled works may have to be cancelled, potentially resulting in abortive costs of labour, plant and / or materials.

(v) HE’s relative knowledge of the ASC Rates and rates paid for repairs to DCP

  1. Obviously HE is intimately familiar with the ASC Rates and costs. HE do not generally hold rates related to DCP below threshold repairs on an incident-by-incident basis. HE do periodically collect costs related to DCP on a route-by-route basis. From time to time where specific DCP Rates are requested by a third party through HE this is obtained from the relevant Contractor and provided to the third party.
  2. Insofar as I can tell, the DCP Rates would appear to derive from the same sources, i.e. the plant, labour, materials, overheads and profit as charged by the relevant Contractors. However, these are the rates they have set down for the purpose of recovering their reasonable costs of below threshold repair to DCP. They are not comparable with ASC rates, adjusted over time and nature of work and, used to establish target prices for schemes where payment is based on a complex formula to assess a final cost.
  3. Accordingly, whilst the DCP Rates bear at least some relation to information in the spreadsheets setting out the ASC Rates (i.e. the contents of the closed bundle), if for any reason an attempt were made to identify the DCP Rates within those spreadsheets, it would not even be as relatively simple as isolating a small handful of the several thousands of lines of data within each.

27, The rates and prices in the spreadsheets are subject to such a wide range of variables, and are adjusted on such a frequent basis, and in such a variety of circumstances, that, in effect, any attempt to extract the DCP Rates from the ASC Rates would require a significant feat of reverse engineering.

  1. In any event, if it attempted to perform such a feat, HE could not even then guarantee that it had calculated correctly any recovery from a third party of the reasonable costs of repairs to DCP sought to be made by any relevant Contractor — to whom alone, in a below-threshold claim, any third party must look in order to understand their liability.

(vi) Additional points

  1. As explained in my first witness statement, each set of ASC Rates in issue in these proceedings incorporate a very complex set of calculations, performed to a methodology that is proprietary to each of the Bidders, and based on each Bidder’s appetite for risk and their efforts to capture and maintain competitive advantage over one another,
  2. Accordingly, and as each of the Bidders has said, their respective ASC Rates are highly commercially sensitive.
  3. By contrast it would appear that AOne+ have elected to maintain openness and transparency in relation to rates they charge to third parties for repairs to DCP. I can only speculate as to why.
  4. My guess would be that it is possible that AOne+ have chosen to do this in order to demonstrate (mainly for the benefit of insurers) the reasonableness of the costs in order to expedite recoveries. Other Contractors demonstrate their DCP Rates on a case-by-case or invoice-by-invoice basis.
  5. Whatever AOne+’s reason for making that disclosure, however, there is in my view nothing inconsistent between making it, and asserting the commercial sensitivity of the information AOne+ submitted as part of its bid for the Area 10 ASC.

CONCLUSION

  1. For reasons including all those set out above, the DCP Rates and the proprietary mechanisms concerning their calculation are fundamentally different from the ASC Rates.
  2. The fact that the Appellant has obtained copies of certain DCP Rates does not detract from the commercial sensitivity of the ASC Rates because the two are distinct.

CORRESPONDENCE WITH BIDDERS

  1. In his submissions dated 24 August 2018, the Appellant raises a question about my correspondence with the Bidders.
  2. In case the position was not adequately clear from my first witness statement, and for the avoidance of doubt:
    1. wrote to all five Bidders, and
    2. Skanska did not participate in the Tender.

I believe that the facts stated in this statement are true.

Signed

PATRICK CARNEY

Date