Heat Supply Agreement relating to South East London Combined Heat and Power District Heating Network

Location

SELCHP facility

Description

Southwark Council (Council) and Veolia ES Southwark Limited (Veolia) entered into a PFI Project Agreement (Project Agreement) on 11 February 2008 for integrated waste management services for an initial term of [25] years . The procurement of the Project Agreement was conducted under the Public Services Contracts Regulations 1993 with a total value of 665,000,000.00 GBP. In 2013, the Council entered into a separate heat supply agreement (HSA1) with Veolia for heat supply services by means of a district heating network (Heat Network) to take waste heat from South East London Combined Heat and Power (SELCHP) to certain Council premises. The services in HSA1 were not included in the Project Agreement. HSA1 was entered into pursuant to the exemption set out in Regulation 14(1)(d)(i) of the (now repealed) Public Contracts Regulations 2006. This exemption allowed the Council to directly procure Veolia for the provision of heat supply services not included in the Project Agreement, which had subsequently become necessary due to unforeseen reasons. The HSA1 was entered into on 14 June 2013 and a related contract award notice was published on 3rd August 2013 (OJEU Reference Number: 2013/S 150-261592 ). The original term of the HSA1 as awarded was coterminous with the Project Agreement (i.e. expiring on 10 February 2033 . HSA1 is due to expire on 10 February 2033. The Council is now proposing to make the following modifications to the HSA1 via a Deed of Variation: 1) an extension to the geographical coverage and extent of the Heat Network so that it [includes/covers [insert details]some areas within the wards of Old Kent Road, Nunhead & Queen's Road, Peckham, Rye Lane and St Giles (Geographical Coverage Modification); and 2) an extension to the duration of the contract so that instead of expiring on 10 February 2033 it will expire on 31 March 2050 (Duration Modification).

Total Quantity or Scope

District Heating extension of SELCHP facility as set out in this notice.

Award Detail

CPV Codes

• 09323000 - District heating
• 45231100 - General construction work for pipelines
• 45232142 - Heat-transfer station construction work
• 45259000 - Repair and maintenance of plant
• 50410000 - Repair and maintenance services of measuring, testing and checking apparatus
• 71200000 - Architectural and related services
• 71314000 - Energy and related services
• 71315100 - Building-fabric consultancy services
• 71315200 - Building consultancy services
• 71315210 - Building services consultancy services
• 71315300 - Building surveying services
• 71315400 - Building-inspection services
• 71420000 - Landscape architectural services
• 71510000 - Site-investigation services
• 71540000 - Construction management services
• 73220000 - Development consultancy services

Indicators

Legal Justification

The Council's position is that the proposed modifications to the HSA1 are permitted modifications under Regulation 88(1)(b) of the UCR 2016 on the basis that there is a need for additional works, services or supplies by Veolia, irrespective of value, which have become necessary despite not being included in the initial procurement where a change of contractor (i) cannot be made for economic or technical reasons; and (ii) would cause significant inconvenience or substantial duplication of costs for the Council. The Council considers that the works/services related to the Geographical Coverage Modification are necessary in order to achieve a significant reduction in the local combustion of natural gas via the use of low carbon waste heat from SELCHP in order to meet its environmental obligations and commitments with regard to air quality and becoming carbon neutral by 2030. The Duration Modification is also necessary because a 25-year operational period is required in order for a contractor to amortise its capital costs of building the extension to the Heat Network. The Council also understands that private connections to the extended Heat Network will only sign up to heat supply agreements that are for a period of 20 years or longer. HSA1 is due to expire on 10 February 2033 and does not allow for an appropriate amortization period. The Council has concluded that a change of contractor cannot be made for economic or technical reasons because Veolia owns and operates SELCHP and therefore controls the supply of low carbon waste heat. It is the Council's view that no other supplier can supply enough low carbon heat to the Council at an equal or similar price to serve the required network extension, especially at the temperatures required. Furthermore, it would not be economically viable to use another supplier as they would have to buy the low carbon heat from Veolia to then sell to the Council. The Council considers that Veolia would not sell the low carbon heat to a third party at the same competitive rate as currently supplied to the Council as there is no commercial incentive to do so. The Council also considers that a change of contractor would cause major inconvenience and substantial duplication of costs if it was required to procure a third-party operator to operate and maintain the extension to the Heat Network for the extended duration. Additionally, if a contractor other than Veolia is appointed to operate and maintain the extension to the Heat Network this would mean that different contractors would be operating different parts of the same network, which would be technically and economically unviable in having duplicate control systems, water quality testing and other risk/contract interface implications. For the reasons set out in this notice the Council considers that it is necessary for the additional works/services to be awarded to Veolia for economic or technical reasons and that it would cause significant inconvenience or substantial duplication of costs for the Council to award the required works/services to another contractor.

Other Information

Further information regarding the Geographical Coverage Modification can be found in a map (Figure 1 on page 5) within the Council's published governance document to be found on the Council's website here: https://moderngov.southwark.gov.uk/documents/s130163/Report GW3 SELCHP Heat NetworkPhase2Extension.pdf The Council considers that it is entitled to rely upon Regulation 88(1)(b) of the Utilities Contracts Regulations 2016 (UCR) to modify the HSA1 to incorporate the Geographical Coverage Modification and Duration Modification without requiring a new procurement procedure for the reasons set out in Annex D2. The Council will not enter into the Deed of Variation until the expiry of at least 30 days from the publication of this notice. The values set out in Section 11.1.7 and V.2.4 (£267.9m) comprise the sum of the original value of HSA1 (£47.1m), the value of previously agreed modifications (£6.5m), and the estimated value of the intended Geographical Coverage Modification and the Duration Modification (£214.3m). Voluntary ex-ante transparency notice published in OJEU / TED 27628-2026