NHMF Conference The National Change Agent for Capital Works and Social Housing

1. NHMF Conference The National Change Agent for Capital Works and Social Housing Emerging consortium procurement models January 2007 David Mosey Partner, Trowers & Hamlins NCA Housing dmosey@trowers.com

2. Consortium approaches to procurement need to address: • Objectives • Procurement processes • Contract structures • Techniques and options

3. Consortium objectives comprise improved efficiencies including: • Reduced costs • Reduced time • Improved quality • Related employment/training opportunities

4. Links to procurement processes need to take account of: • Constraints of EU Procurement Regulations • Particular constraints on frameworks • Requirements of Section 20/Section 151 procedures affecting leaseholders

5. Links to contracts need to achieve: • Straightforward practical contract structures • Benefits of long-term arrangements • Revisions necessary to bring in additional Consortium Members • Contractual links between Consortium Members • Contractual links between Contractors • Direct contractual influence over Subcontractors and Suppliers

6. Client Client Client Package suppliers Main Contractor Main Contractor Package suppliers Kitchen Supplier Kitchen Installer Labour Materials Labour Materials Supplier Supplier Supplier Supplier Window Manufr Window Installer Supplier Supplier Supplier Supplier etc etc Supplier Supplier Supplier Supplier Consortia are adopting a range of procurement approaches, for example: More intervention into the Supply Chain Greater Cost Transparency Better Value for Money Higher Risk No single solution! Supply Chain Main Contractor/Package Main Contractor

7. Client Client Client Package suppliers Main Contractor Main Contractor Package suppliers Kitchen Supplier Kitchen Installer Labour Materials Labour Materials Supplier Supplier Supplier Supplier Window Manufr Window Installer Supplier Supplier Supplier Supplier etc etc Supplier Supplier Supplier Supplier Funded consortium models to date: South East Consortium Eastern Procurement Buy4London London Area Procurement Network GM Procure Advantage South West Procurement For All S. Yorkshire Decent Homes Efficiency Forum Supply Chain Main Contractor/Package Main Contractor

8. Client Client Client Client Package suppliers Main Contractor Main Contractor Main Contractor Package suppliers Labour Materials Labour Materials Labour Materials Kitchen Supplier Kitchen Installer Supplier Supplier Supplier Supplier Supplier Supplier Window Manufr Window Installer Supplier Supplier Supplier Supplier Supplier Supplier etc etc Supplier Supplier Supplier Supplier Supplier Supplier Main Contractor Procurement

9. Analysis of Main Contractor Procurement Model • Benefit of Main Contractor warranty • Savings/efficiencies can be obtained through increased volume/continuity of work • Limited access for consortium members to obtain savings/efficiencies from Specialist Trades/Suppliers unless combined with supply chain integration • Assumes pre-agreed timing of programmes of Consortium Members • Section 20 problems for additional Consortium Members who wish to use same Main Contractors

10. Traditional Main Contractor Procurement Model: eg LAPN • Established Limited Company (LAPN Ltd) • 10 Members (Local Authorities and ALMOs) • 100,000 Homes • £640 million Capital Works budget to 2010/11 • Framework of Main Contractors supply all labour and materials • Contracts between Main Contractors and LAPN Ltd • Open book accounting • Consortium own commercial and performance knowledge and thereby achieve: • Performance management • Continuous Improvement • Moving forward will market test some supply only and supply and fit contracts which Main Contractor agrees to take on if better value can be achieved

11. Traditional Main Contractor Procurement Model: eg LAPN Consortium Member 1 Consortium Member 4 Consortium Member 2 Consortium Member 3 Consortia buy from the framework on behalf of members. Performance managed collaboratively with expert input Main Contractor framework 4 Main Contractor framework 1 Main Contractor framework 3 Main Contractor framework 2 Tier 1 Option for Consortia to nominate suppliers onto the framework. Component Supplier 1 Component Supplier 2 Component Supplier 3 Component Supplier 4 Tier 2

12. Client Client Client Client Package suppliers Package suppliers Main Contractor Main Contractor Main Contractor Package suppliers Labour Materials Labour Materials Kitchen Supplier Kitchen Installer Labour Materials Supplier Supplier Supplier Supplier Supplier Supplier Window Manufr Window Installer Supplier Supplier Supplier Supplier Supplier Supplier etc etc Supplier Supplier Supplier Supplier Supplier Supplier Main Contractor and Package Procurement

13. Analysis of Main Contractor and Package Procurement Model • Benefit of Main Contractor warranty • Savings/efficiencies can be obtained from joint selection of Main Contractors • Additional savings/efficiencies through involvement of consortia with Main Contractors in the procurement of Specialist Trades/Suppliers • Can supplement with EU procurement process for selection or re-selection of Trades/Suppliers • Can connect to other initiatives • Greater flexibility as to timing of Consortium Members' programmes • Greater flexibility in respect of Section 20/Section 151

14. Main Contractor and Package Procurement Model: eg South Yorks. Trailblazer • Consortium does not contract collectively • 8 Members (Local Authorities and ALMOs) • 120,000 Homes • £1.4 billion Capital Works budget to 2010/11 • Framework of Main Contractors supply all labour and materials • Contracts between Main Contractors and Individual Members • Collaborative e-auction tendering of key components for use by Main Contractors • Value Engineering existing contracts based upon future volumes • Shared resources for surveys/planning supervision and combined leasehold management • Procurement leverage to create 500 apprentices across South Yorkshire

15. Main Contractor and Package Procurement Model: eg South Yorks. Trailblazer Consortium Member 1 Consortium Member 4 Consortium Member 2 Consortium Member 3 Members have their own contract framework for Main contractor. Contractors performance managed and benchmarked collectively via Panagraph. Main Contractor framework 4 Main Contractor framework 1 Main Contractor framework 3 Main Contractor framework 2 Tier 1 E-Auctions identify component suppliers for framework. Component Supplier 3 Component Supplier 3 Component Supplier 2 Component Supplier 1 Tier 2

16. Client Client Client Client Package suppliers Main Contractor Main Contractor Package suppliers Package suppliers Labour Materials Labour Materials Kitchen Supplier Kitchen Supplier Kitchen Installer Kitchen Installer Supplier Supplier Supplier Supplier Window Manufr Window Manufr Window Installer Window Installer Supplier Supplier Supplier Supplier etc etc etc etc Supplier Supplier Supplier Supplier Direct Supply Chain Procurement

17. Analysis of Direct Supply Chain Procurement Model • Savings/efficiencies can be obtained through omitting Main Contractor Profit and Overheads • Savings/efficiencies can be obtained through direct access to/management of Specialist Trades/Suppliers • Section 20/Section 151 problems for additional Consortium Members who wish to use same Specialist Trades/Suppliers • Greater risk for Consortium Members (and cost) of managing integration on site between Specialist Trades/Suppliers without benefit of Main Contractor warranty

18. Direct Supply Chain Procurement Model: eg GM Procure • Established Limited Company (GM Procure Ltd) • Over 10 Members (RSLs) • 195,000 Homes • £600 million Capital Works budget to 2010/11 • Framework of labour and materials suppliers • Contracts between Suppliers and GM Procure Ltd • Standard specifications and catalogue of items • Supplies drawn down via IT interface against agreed service levels to ensure: • Contract compliance • Performance management • Continuous Improvement

19. Direct Supply Chain Procurement Model: eg GM Procure Consortium Member 1 Consortium Member 4 Consortium Member 2 Consortium Member 3 Valueworks Interface allows Members to buy directly from framework of suppliers at agreed rates and specifications Framework Installer 4 Framework Installer 1 Framework Installer 3 Framework Installer 2 Framework Supplier 1 Framework Supplier 2 Framework Supplier 3 Framework Supplier 3

20. Summary • all structures benefit from joint consortium procurement • open-book access to prices to identify savings • contractor frameworks have benefits of securing Main Contractor warranty • problems with Section 20/Section 151 and EU procurement • supply chain integration allows greater flexibility in selection procedure • procuring suppliers through contractor avoids Section 20/Section 151 and EU problems • savings on main contractor profits/overheads

21. For more information, contact: John Connaughton, Davis Langdon john.connaughton@davislangdon.com David Mosey, Trowers & Hamlins david.mosey@trowers.com Or visit the NCA website: www.ncahousing.org.uk