Better Buys

1
Better Buys improving housing association
procurement practice

• Janet Williams
• Senior Research Manager
• Simon Reed
• Procurement Consultant - Cirrus Purchasing Ltd

2
Key finding from study.
Could do better
3
Study aims

• assess housing associations use of modern
  procurement methods
• help smaller housing associations to improve
  their approach to effective procurement and
• assess the residents contribution to housing
  association procurement.
• Study scope
• Housing associations gt 250 units
• Repairs and maintenance, and housing management

4
Housing associations expenditure is significant

• turnover is over 9 billion
• of which operating costs are 7.5 billion
• of which 2.8 billion is spent on Repairs and
  Maintenance
• more than two thirds of spending could be subject
  to competition

Source Housing Corporation Global Accounts 2006
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and is under pressure to be more efficient.

• Efficiency agenda
• Role of the regulators
• - HC annual efficiency statements
• - AC emphasis on vfm in inspection
• Higher expectations of residents better quality
  of services

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Procurement has a key role

• Efficiency gains represented 3.5 of aggregate
  turnover 4 of total expenditure of sector in
  2005/06
• A third of efficiency savings in a typical HA are
  attributable to procurement
• HA Chief Executives expect procurement will play
  a bigger role in future

7
Its not what you do its the way that you do it

• Our targets include annual reductions of 10 in
  construction cost and construction time. We also
  propose that defects in projects should be
  reduced by 20 per year. To achieve these targets
  the industry will need to make radical changes to
  the processes through which it delivers its
  projects."
• "Sustained improvement should then be delivered
  through use of techniques for eliminating waste
  and increasing value for the customer.
• Rethinking Construction

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Its not what you do its the way that you do it

• Case Study Liverpool Housing Trust
• Partnered Heating Contract "2nd Generation"
• Continuous improvement outside TPC2001, driven by
  outputs
• Business analysis of contractors by external
  consultants to identify efficiencies and cost
  savings
• Savings shared to offset inflationary increases
• Model now an integral part of LHT partnering
  investment costs shared between partners as are
  savings

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Its not who you use its the way that you use
them


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Its not who you use its the way that you use
them

• The benefits came from standardising product and
  working with the supply chain to understand and
  eliminate the problems e.g.
• Myson check radiator sizing sheets
• Sentinel undertake chemical testing of
  installations
• Worcester provide 'hospital kits' for installers
• Wolseley stock and prepare plot packs for
  installation
• Process driven by the client, who has a clear
  vision of desired outcomes

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Its not what you fit its the way that you fit
it

• LHT had issues with high installation costs
  (3,000 per system) and poor life cycles from
  installations (failures within 3 years in some
  cases)
• Introduced water quality analysis to tackle
  quality issues
• Used manufacturer expertise to inform
  specification issues (e.g. Danfoss room stat with
  red neon (boiler on) has reduced call outs)
• Manufacturer training for installers to improve
  quality

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Its not what you fit its the way that you fit
it
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Its not what you fit its the way that you fit
it

• Financial savings
• 1,013,400 reduced installation costs (500 per
  boiler)
• 90,000 (07/08) in reduced boiler failures
• 112,000 per year reduced maintenance (200
  repairs pa)
• We do not see cost and quality as an inverse
  relationship. A decrease in cost does not need to
  mean a decrease in quality if you understand your
  processes and what you are trying to achieve.
• Simon Brown, Director LHT

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There are still savings to be made - 100 per
home if all achieved top quartile performance
Stock size Annual efficiency gains through procurement achieved by top performer Number of HAs in this stock range Potential annual savings if all adopt this approach
250-2499 237,000 254 60m
2500-4999 337,000 150 51m
5000-7499 597,000 65 39m
7500-9999 371,000 24 9m
10000-19999 1,734,000 32 55m
20000 1,819,000 8 15m
    Total 229m
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But some associations are not even picking the
low hanging fruit
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E-procurement under used

• e-tendering can deliver average savings of 21 per
  cent for a non-Official Journal of the European
  Union (OJEU) tender and 25 per cent for an OJEU
  tender only used by 18 of HAs
• e-auctions can deliver savings in process time
  and costs only used by 5 of HAs
• e-purchasing can deliver average savings of 26
  per transaction only used by 48 of HAs
• procurement cards can deliver average savings of
  33 per transaction only used by 34 of HAs

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It is the organisational environment that matters

• choice of method or contract is not the most
  significant factor in successful procurement
• no clear correlation between performance in
  repairs performance indicators and delivery
  method
• no clear correlation between efficiency savings
  and method of delivery.
• You need
• strong contract performance management
• skilled staff
• open minds / performance culture

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And its not just a matter of group structures and
shared services

• Real opportunities - but limited uptake
• Process focus losing sight of benefits
• We are part of a group but it is early days and
  we are keeping our own identities
• We think we have a really strong partnering
  approach to procurement but this hasnt been
  taken up across the group as yet.
• It was a requirement of joining the group that
  we bought in to payroll and HR

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HAs balance efficiency gains with other
considerations

• Diversity and equalities
• Regeneration and local economic development
• Sustainable development
• Resident/tenant choice/involvement

And procurement can be a powerful tool in
promoting these wider objectives if HAs want it
to
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Associations that use procurement effectively
have
Small associations are less likely to have
these features

1. A procurement strategy
2. Procurement training for all staff
3. Explicit use of procurement to achieve policy
   objectives
4. Measurement of procurement performance
5. Resident involvement in commissioning and
   procurement
6. Systems for addressing issues of equalities and
   diversity in procurement

1. Competitive neutrality / a mixed economy of
   provision
2. Critical appraisal of the costs and benefits of
   procurement options
3. Procurement methods and approaches that are
   proportionate and appropriate to their
   requirements.
4. A strong driver business plan, inspection
   report, corporate direction

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Key messages to contractors

• SMEs engage with housing associations
• 'We were a small family business employing
  subcontractors. We did not really understand
  about partnering and all this European Union
  procurement legislation. The housing association
  has really helped us. We have a projected
  turnover of 5 million this year and employ 80
  staff, whereas before the partnership we had a
  turnover of 450,000. The association was 80 per
  cent of our business but now it is just under 30
  per cent
• Larger contractors make sure the culture of
  your staff is right engage with residents
  establish local bases support apprentices

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Four key messages

• Danger of partnering/consortia being seen as a
  panacea more caution and a more sophisticated
  approach needed in promotion financial support
• The method of procurement is less important than
  the organisational environment
• Barriers to effective procurement exist in all
  types of housing association but are more acute
  for smaller HAs
• Effective procurement can achieve real benefits
  for housing associations and their residents but
  the sector, and residents, are still not seeing
  the full benefit of good procurement practice
  more needs to be done.

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What next?

• The Audit Commission will develop tools to help
  housing associations make more effective use of
  procurement
• DVD of case studies
• Briefing for Board members
• Briefing for Tenants/Residents
• Model procurement strategy

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Thanks for listening.Any questions?

• janet-williams_at_audit-commission.gov.uk
• sreed_at_cirruspurchasing.co.uk