AM Bid’s Andrew Morrison examines procurement and bidding trends including the outsourced service versus in-house delivery debate, in order to help housing clients, buyers and bidders pause and reflect about what will work best for them
As we begin a new financial year (2019/20) that will take us into a new decade, it’s a good time to look both back and ahead at social housing maintenance in the UK.
Outsourced versus in-house delivery
This can feel a bit like the fashion world where styles come in, go out and then come back again some time later, perhaps with slight modifications. Go back 10 to 15 years and outsourced delivery seemed to be the way to go. However, the financial crash in 2008-10 saw some large contractor names go to the wall, such as Connaught, Kinetics and Rok. These failures meant that social housing clients had to source alternative contractors in very short timescales. This experience, along with the VAT savings being able to be channelled into the service, saw some movement towards bringing maintenance back in-house. The sector has examples of in-house service delivery working very well, and of it failing to provide the expected improvements. It also has examples of outsourced delivery working very well, especially in partnership working rather adversarial contracting models. Some organisations choose frameworks which allow them to select a range of contractors and not be too closely aligned with any single contractor. An options appraisal approach usually works best when selecting which model is right for an organisation.
The 2016 referendum and its aftermath have seen some significant market fluctuations. The value of sterling declined in the international currency markets meaning that the price of imported materials has increased – this alone has caused some construction sector contractors to fail, perhaps due to over-exposure to contracts with no price increase or change control provisions. We have also seen a reduction in the availability of EU national labour. Taking the uncertain times into account, the banks are becoming less keen to lend to the sector and this has been exacerbated by some significant business failures including Carillion and Interserve.
In trying to square the price versus quality value for money conundrum, many buyers have been on a journey of moving from a high emphasis on quality to a high emphasis on price. Neither approach has fully delivered to their expectations. Grenfell stands as a salutary lesson of what can happen when value engineering and lack of quality control goes wrong. Too high an emphasis on price can also deter the quality bidders in the sector from participating. Since people and their homes are involved (rather than transactional commodities), invitations to tender that are more weighted towards quality will generally produce better value for money and client satisfaction. The race to the bottom on price has no winners, only losers all round.
Clients – how to attract more and better bids
There are a number of steps that clients can take to help increase their prospects of attracting quality bidders. These include market engagement, e.g. through meet the buyer days and prior information notices, and providing meaningful information e.g. historic statistics and information on repairs that shares breakdowns of numbers, types and timing of repairs. The more information you can provide, the less the bidders are having to price in risks, which may not happen. Try to get the bidders in almost as good a position with information as if they were the incumbent. If you want a fair, transparent and inclusive process, why should the client and the incumbent bidder be sitting with all the cards? This brings us to risk sharing – contracts that look to push all of the risks onto the contractor while still expecting a very low price are really in nobody’s long-term best interests. Allowing sufficient time in the bid process itself will also result in attracting more bids – too often we see bids being advertised with a four week response timescale which includes Christmas or Easter holidays – actions which will usually ensure that many bidders decline to participate.
Contractors – how to differentiate your bids (not just by being the cheapest)
This involves providing a tailored solution to the buyer’s needs. Social housing organisations are not all the same and should not be treated as such. For a start, they work in some different geographies across the UK which brings its own differentiation. Their resident and stock profiles can also be quite diverse. The extent of resident/tenant involvement can also vary as can the amount of social value and added value that they are looking for. How can you demonstrate innovation, especially by using technology to make your services better, faster, cheaper and safer? Evidence that you have really thought through their needs, e.g. stock needs, tenant needs and community needs, and that you have a bespoke (rather than off the shelf) solution that will work best in partnership with them. Use the clarification question process during the bid window to level the playing field i.e. helping ensure that all bidders have access to as much information as possible to inform the delivery model and, importantly, the pricing.
At the macro level, expect to see more consolidation both within social housing and within the contracting worlds. Social housing organisations are continuing to engage in merger activity as the housing regulatory focus on financial viability and governance helps to mitigate against housing organisation failure or poor service delivery. Similarly, the contracting sector is also seeing some consolidation. Notwithstanding this, there is likely to be a continued move away from over-reliance on large contractors who operate on a sub-contracting model. Government and buyer pressure on ensuring fair payment terms for the supply chain will likely encourage SME contractors to get more involved in bidding directly for contracts rather than being content with low margin work as part of an extended supply chain. And what about the outsourced versus in-house debate? This is likely to continue for the foreseeable future. It is not a one size fits all approach – both models can operate successfully as can a blended model which combines some in-house delivery with some specialist external assistance.
Andrew Morrison is managing director of AM Bid