School of the Built Environment New Approaches to Developing Affordable Housing James Morgan...

School of the Built Environment

•New Approaches to Developing Affordable

Housing

• James Morgan• Heriot-Watt University, School of the Built

Environment

HSA Spring Conference April 2010


Structure of Presentation

1. Focus on innovation in affordable housing development by RSLs to achieve efficiency

2. Set this in context of modernising procurement in construction industry

3. Show the particular challenges for housing associations

4. Illustrate these challenges and opportunities with the example of the Devanha Phase 2 procurement initiative

5. Raise key questions for the future


Introduction

• Housing associations have historically provided only a relatively small proportion of social housing in Britain.

• But HAs main providers of new social rented and affordable housing since the 1980s, therefore significance of practice.

• housing association and registered social landlord as ‘artificial’ and ‘diverse’ terms, (Malpass, 2001)

• Expect variation in Development Process


Performance of UK construction industry • Seen to perform poorly in comparison to other industries and

internationally

• Latham Report (1994), problems, partnering.

• Egan Report (1998) solutions, leadership, benchmarking etc.

• “the main...opportunities for improvements in housebuilding performance exist in the social sector for the simple reason that most social housing is commissioned by a few major clients.” (Egan, 1998, p35)

• Very positive ideas embraced, e.g. “Egan Compliance”

• But “a few major clients” is only representative of part of RSL movement.


Tensions in Direction of Travel

• Influential, many organisations promoted, Construction Best Practice Programme, Egan compliant since 2004.

• Egan compliance pushes towards larger, expert clients.

• Tensions in England and Scotland between economies of scale and localism. Contrasting approaches. Efficiency vs. community control.

• Distinctive Scottish experience: delivery by smaller HAs with limited opportunities for partnering etc.

• But...Need for greater no. affordable houses for the same investment: Building a Better Deal e.g. pilots, LA preferred partners, Investment Reform Project - opportunities and concerns.

• Devanha - innovation


Partnering

• “….organisations working together to improve performance through agreed mutual objectives, devising ways for resolving any disputes and committing themselves to continuous improvement, measuring progress and sharing gains.” (Egan, 1998)

• reduced disputes, better working, more effective use of personnel, promotion of innovation and organisational learning.

• Should benefit all parties, targets for improvement.


Egan Targets and KPIs

Indicator Improvement per year Capital costs Reduce by 10% Construction time Reduce by 10% Predictability – on time and budget Increase by 20% Defects Reduce by 20% Accidents Reduce by 20% Productivity Increase by 10% Turnover and profits Increase by 10% Source: based on table in Egan (1998), p19


Demonstrating Improvement

Housing Forum Demonstration projects used • Performance measurement and benchmarking,• Longterm partnering,• Integrating supply chains,• Sharing risks and rewards,• Establishing a culture and providing incentives for the

elimination of waste ,• Improving working conditions for employees.

Generally modernising procurement:• Selection based on quality, not just lowest tender• Single project partnering not meaningful, therefore:• Use of framework agreements e.g. Devanha


Partnering: Contractual Framework

• Aim to reduce reliance on contracts• ensuring value for money, quality and

efficiency• partnering charter • in reality, need contracts to identify risk

and responsibility• ACA Project Partnering Contracts PPC 2000,

SPC 2000 and TCP2005• New Engineering Contract (NEC3), less

adversarial, Core Group, risk register.


The Devanha Initiative Research

• Heriot-Watt University and DTZ commissioned by Scottish Government to carry out m&e study of procurement initiative

• 5 RSLs in Grampian to deliver 1563 new homes for rent and LCHO from 2007/08 to 2010/11.

• Demonstrating quality improvements and efficiency savings.

• 4 year evaluation period – recommendations for Devanha and for the Scottish Government which may inform Investment Reform Project.


Research Method and Progress

• Two Interim Reports • Documentary analysis, • Analysis of programme management data,• Use of ‘data capture’ forms to minimise the

administrative burden,• Workshops,• Interviews,• Questionnaire surveys,• Not just cost but quality and social gain.


Interim Findings: Governance

• Devanha limited company with board drawn from member RSLs.

• Independence of member RSLs and Devanha’s relationship to them is a defining aspect of the Devanha structure.

• Devanha can galvanise the group, but also cause conflicts of interest.

• Initially, there were deficiencies in the support and information.

• NEC3 contract was useful in facilitating this improvement.

• But struggled to try to deliver its programme.• Lacked leadership of a Chief Executive – RSLs reluctant

to give up power.


Interim Findings: Programme Delivery

Figure 1: Slippage in Site Starts in Year 1

Scheme Starts

0

1

2

3

4

5

6

Month

Nu

mb

er

of

Sch

em

es

Projected Scheme Start

Revised Scheme Start

£7.9m expenditure almost 60% less than £17.7m in Programme Agreement.

Difficulties over system of approving schemes. Inflation monitoring part of problem.

Year 2 system worked but lack of flexibility in national budget led to ‘front funding’.Lessons for National system.


Interim Findings: Cost & Grant 1

• Two main routes to efficiency1.Bulk Procurement• No evidence of economies of scale had

emerged.• Is programme big enough to influence market?• Variation from common specification.• To what extent is this needless duplication as

identified by Egan and to what extent a reflection of local choice?

• Lessons from private sector standard layouts with variation in “jacketing”.



2. Collaborative Working using NEC 3 Approach• Currently only be based on projected costs

at scheme approval stage.• Collaborative approach may lead to

efficiencies on site, reinforcing need for caution in drawing conclusions at this stage.

• Real progress in cultural change: trust, cooperation and openness within Core Group (involving all partners) and evidence of contractor engagement with open book costing



• Lack of progress in process implementation:

• Operation of NEC open book process remains problematic.

• Need to urgently address Final Target Cost setting, Cost Monitoring and Forecasting, Programming and Risk Management.

• Collaborative culture had been achieved but amount of innovation and novelty in procurement practice almost overwhelming.


Issues for Discussion and Development

• What benefits have been demonstrated to arise from the move to larger housing associations and development consortia?

• Specifically, has bulk procurement been shown to result in quantifiable cost savings?

• What has been lost in the process of growth?• How can the best aspects of local control be maintained

while seeking efficient development?• Is there a place for small independent housing associations

and co-operatives continuing to develop their own stock?• What are the appropriate models for the future – lead

developers, non-developing consortia members, development vehicles which develop but don’t own stock?

School of the Built Environment New Approaches to Developing Affordable Housing James Morgan...

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