16.06.2015

Housing Procurement – New Ways of Working

Housing Procurement – New Ways of Working

As tender prices increase, a Housing Forum cross sector panel has recently debated the key procurement issues affecting the sector. Principally looking at Registered Provisers new build procurement, the panel looked at what needs to be done differently to deliver more homes for the future. 

The debate focused on:

•    Responding to the increasingly competitive tendering environment
•    Making tendering a more deliverable prospect for contractors
•    The procurement and process of design
•    Collaborative procurement to deliver real value for money

Our Partner, Ian Walker, contributed to this debate and summaries below some of the key outcomes & opinions.

Responding to the increasingly competitive tendering environment

An increasingly competitive tendering environment means Registered Providers faced various issues. From the outset of construction new homes cost certainty is needed. There is currently, therefore, a focus on Design and Build Contracts to provide Registered Providers the cost certainty desired and to reduce risk. This reluctance to take risk results in high output costs in a volatile market which results in difficulties in achieving the required Value for Money and so impacts on programme and further increased costs.

Registered Providers are operating more commercially, and have approached the difficult tendering climate through a series of evolutionary changes, including:

•    Longer tender negotiations periods.
•    Obtaining clearer, competitive pricing to help make decisions on longer-term value for money considerations.
•    Confirming a maximum price under non Design & Building contracts
•    Recognising the right skills are needed to work on equal terms with joint venture partners.
Clients need to be more creative about who they work with and should also consider traditional House Builder as well as Main Contractors as these two very different organisations have very different market cycles. Clients could look to partner with both to maximise value for money and give programme certainty and continuity of work and smooth out the market cycle to the benefit of all.

Making tendering a more deliverable prospect for contractors

In the current aggressive tendering market, the panel concluded there are no winners when it comes to Framework Agreements. Margins are very tight as it is not possible currently to procure subcontractors at lower than bid price. The underlying structural issues of skills shortage and capacity cannot be solved quickly and there are wider global influences at play.

Improving existing Contract types could potentially make tendering a more deliverable prospect for contractors. The panel considered various ways to improve these contracts. For example, procuring below ground site works direct and then tender separately for the superstructure as ground risks have already been dealt with.

The added management and duplication of costs incurred by clients, consultants and contractors of mini tendering once being selected on to a framework only duplicates management time and costs and ultimately adds costs which have to be recovered somehow?

The procurement and process of design

It is important to keep control of the design process to achieve quality and drive out waste. Commercial house builders relate design to cost certainty. A disjointed design process has a critical impact on cost certainty.

Diverse frameworks, including too many organisations provide less certainty than smaller frameworks. A more Partnering centric framework means parties can reserve their supply chain and maximise efficiency.

Consideration should also be given to procuring an enabling contract for the upfront design development, cost planning and programming. This would allow clients to be smarter over what can be realistically delivered and for what value.

Collaborative procurement to deliver real value for money

Contributors to the debate agreed that the standardisation of components is one area that can give greater predictability and certainty in costings, even with bespoke or specialist house types. There was also agreement that Registered Providers building for sale to cross subsidise rental properties will need to drive these economies to maximise the benefit to their business plans.

Clients were also asked to look to widen their bulk contracts as part of standardisation and to be more aggressive in agreeing terms and discounts for both their care and repair work and the cyclical works that could be passed on for the benefit of new developments.

Clients were also encouraged to undertake due diligence earlier in the process, providing a more robust and clearer specification to price against.

In summary there needs to be a shrinking of the supply chain, a deepening of relationships with a clearer understanding of business drivers and selective market testing.

calfordseaden are long supporters of the Housing Form and regularly contribute to their Working Groups. Further output from this recent debate can be found online at www.housingforum.org.uk