Communities and Local Government

• Housing
• Bidding guidance for support towards costs of housing procurement consortia

Housing

Bidding guidance for support towards costs of housing procurement consortia

1. Local authorities and housing associations invested £3.4bn during 2003-04 on capital works programmes. This will rise further as funding is expanded on ALMO, stock transfer and PFI programmes in order to allow social housing landlords to meet the Decent Homes Standard target by 2010.

2. Considerable evidence indicates that these resources could be utilised more efficiently through the strategic management of capital works and the more general application of procurement best practice focused on partnering. For example, the Housing Forum reports that partnering has achieved between 2-12 per cent savings in project costs, while Fusion 21 on Merseyside reports net savings of up to 30 per cent in supply contract total project costs. The Gershon Review identified the scope for £340m of efficiency gains from the procurement of capital works by social housing landlords by 2008.

3. The achievement of these efficiencies would allow the Decent Homes Standard to be achieved sooner, with associated improvements in quality, tenant satisfaction and local construction capacity and training. This is particularly important in the current context of rising costs, amid reports of construction skills shortages that in some areas are running at a rate of more than 15 per cent per year.

4. Without developments in procurement practice, including greater use of consortia to deliver economies of scale and a strategic approach to demand and to the supply side, there is a significant risk that increased expenditure in capital works will be absorbed by, and in some cases contribute to, higher costs rather than increased and improved output.

5. Regional Centres of Excellence (RCEs), developed from the Regional Centres of Procurement Excellence, have the lead role in supporting local authorities to secure efficiencies in the procurement of goods and services, construction and facilities management, corporate services and transactional services. The RCEs will drive the promotion of collective procurement across all functions and service areas, and will also look for opportunities to link up different areas where goods and services can be bought to a common specification.

6. Within social housing capital works procurement, we are complementing the work of the RCEs with the appointment of a National Change Agent (NCA) with a cross-sectoral remit. Davis Langdon, in partnership with Trowers & Hamlins, has been appointed to act as the NCA. The NCA will provide specialist support and know-how in establishing social housing consortia - such as governance structures, different models of procurement, standard contracts and documentation, and supply-chain knowledge - working alongside the RCEs and their social housing activities. The NCA has a remit to support change across the whole social housing sector, including local authorities, ALMOs and RSLs. It will also administer the Efficiency Challenge Fund, established to provide grant and loan assistance towards the start-up costs of consortia.

7. The National Change Agent will work closely with the nine RCEs; each will be represented on boards overseeing the activities of the other. In addition, the Housing Corporation is considering options for linking Residential Social Landlord activities to those of the Regional Centres for Excellence.

8. We expect that many social landlords will wish to take up the opportunities and support set out here to establish capital works procurement consortia which can deliver greater efficiency. This remains an option, not an obligation, but social landlords who do not choose to use this route should ensure that they work by other means to deliver Best Value and to promote the efficiency agenda.

The potential for consortia to improve efficiency

9. In response to the recommendations of the July 2004 Gershon Review 1, the ODPM is committed to achieving total annual efficiency gains for social housing of £835m by 2007-08. This covers four areas of work:

• new supply;
• capital works;
• housing management and maintenance services;

RSL procurement of commodity goods.

10. The capital works element covers the procurement of capital repairs to the Local Authority and Registered Social Landlord stock in England and is expected to account for £340m of this total.

11. It is envisaged that local housing consortia of local authorities, ALMOs and RSLs could realise between £200m and £300m of the target efficiency gains through the development of long-term supply chain partnering contracts, generating efficiency benefits in reduced project costs, better outcomes, improved training, local job creation and customer satisfaction. The consortia could also develop cross-sector synergies with new supply and housing maintenance.

12. While the primary focus of this activity is to secure efficiencies in capital works, we do not want any artificial barriers to delivering other services in a better way. In particular, it is anticipated that many of the consortia will develop arrangements for the collective purchasing of materials not only for capital works (and possibly labour) but also for planned maintenance and responsive repairs.

13. This should allow social housing landlords to combine their demand for building materials and provide stability and predictability of demand for the material supply chain contractors, leading to cost reductions and improvements in reliability, quality control and availability. It should also offer the opportunity for transaction costs to be reduced and for other economies of scale.

14. In view of this potential, the Office of the Deputy Prime Minister (ODPM) has established a £33m Efficiency Challenge Fund (the Fund) to provide financial assistance towards the start up costs of local housing procurement consortia. This will be offered in two parts: grant support towards preparatory work, including the costs of preparing a business plan; and loan assistance to meet some of the costs in taking forward the business plan and beginning operations.

15. This financial assistance will be paid under the authority of section 429A(1) of the Housing Act 1985. This empowers the Secretary of State to give financial assistance to persons managing public sector or former public sector housing and to persons seeking to facilitate or encourage improvements in, or providing services in connection with, the management of such housing. Loan assistance will be on terms that equate to the terms of loans made from the National Loans Fund. Applications for financial assistance will be invited throughout the year.

16. Consortia seeking financial assistance will need to nominate a social landlord member to act as the Accountable Body for its receipt and management. In some cases it may be possible for this assistance to be paid direct to a consortium. It will need however to demonstrate legal and financial capacity to enter into a loan agreement with the Office. In any case, the Office will reserve the right to seek and obtain guarantees from the parent organisations of the consortium's members with respect to the repayment of the loan assistance.

17. The key purpose of the Fund is to provide start up financial support to potential consortia where, without it, their establishment is likely to be retarded or not happen at all. Previous experience shows a lead-in time of up to two years between a decision to establish a consortium and the point at which it is able to let supply chain partnership contracts. During this period, staffing and other overhead costs need to be met, as do the transaction costs connected with the letting of contracts.

18. It is envisaged, however, that the size of these initial costs incurred by prospective consortia, and the time lag between establishing a consortium and activity which generates efficiency gains, will progressively reduce as a result of the dissemination of the lessons learnt by early starter consortia, replication of start-up processes, and the development and use of standardised documentation. The role of the NCA will be pivotal in this regard.

19. This guidance sets out the conditions under which grants and loans from the Fund will be paid to consortia, and the criteria for determining which consortia will receive assistance. Interested parties should contact the National Change Agent at the following address for more information before making an application:

John Connaughton
National Change Agent for Capital Works in Social Housing
Davis Langdon LLP
MidCity Place
71 High Holborn
London WC1V 6QS

Email: john.connaughton@davislangdon.com

This guidance was revised in August 2006 and is now available direct from the National Change Agent (NCA) website.