Procurement Efficiency Seminar

1
Procurement Efficiency Seminar for Social
Landlords The National Change Agent for
Capital Works in Social Housing Davis Langdon
LLP, 71 High Holborn, June 2007 Colin
Proctor Programme Manager NCA Housing Davis
Langdon LLP
2
Contents

• The Role of NCA Housing
• Progress to date
• Sustainable benefits of Consortia

3
The Role of NCA Housing

• Facilitates and supports procurement consortia
• Supports the measurement and reporting of
  efficiency gains
• Works with others to identify and promote best
  practice

4
Progress to Date

• Overview of progress
• Running since Easter 2005
• 10 Consortia established with funding approved,
  more in the pipeline
• ECF grant regime fully operational
• Panel of accredited consultants
• NCA Housing Workshops for emerging consortia
• Guidance and useful template documentation in
  place
• Visit our website www.ncahousing.org.uk

5
Headlines to date

• 10 Consortia formed so far, encompassing 106
  social landlords
• Representing some 908,000 units, they have a
  total spend in excess of 4.3 billion up to 2010
• Approximately 1.7million Awarded in Business
  Planning Grants and 788,000 awarded in
  Implementation Grants
• Total targeted savings of approximately
  402million to 2010/11 (approx 100.5 million per
  annum)

6
North East Consortium
Cumbrian Housing
Northern Consortium
S. Yorkshire Decent Homes Efficiency Forum
Existing Consortia
IMPACT Manchester
GM Procure
Forming Consortia
Pennine Lancashire
Eastern Procurement
Procurement For All
CEPP
London Area Procurement Network
Orbit, Whitefriars, West Mercia
Herts/Beds
Buy4London
Westworks
South East Consortium
Sappling Partnership
Advantage South West
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• NCA Housing Programme How does it work ?
• Feasibility Study - triggers eligibility for BP
  Grant
• Business Plan - triggers eligibility for
  Implementation Grant
• Implementation of BP - on going support to
  consortia
• The process in more detail.

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Consortium for procuring capital works
Potential consortia members consider forming a
Feasibility Study
So, to obtain an initial grant, they produce a
Social Housing Providers
Business Plan
Business Plan Grant
Which proves appropriate for award of a
to cover part of the cost of producing a
Efficiency savings
Through which they make their targeted
Which triggers payment of the
And is the application for support towards set
up and
initial operation of an
Implementation Grant
With this support, members implement the
business plan and establish a
Consortium for procuring capital works
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• Economic
• Projected cost savings broadly in the range 5
  10 of capital spend
• Whole Life Costs (e.g. Improved warranties)
• Reduced transaction costs due to long term
  partnering
• Improved quality/specifications (more for less!)
• Increased productivity/reduced work times
• Work smoothing managing supply and demand
• Continuous improvement

10
Sustainable benefits of consortia

• Social
• Stimulating local employment
• Improving local skills
• Small business development
• Engaging with BME groups
• Improved services to tenants
• Pride in the community

11
Sustainable benefits of consortia

• Environmental sustainability
• Provision of community wide management
• Reduced CO2 emissions (e.g. better insulation,
  efficient heating systems)
• Use of Local labour and materials
• less travelling distance
• less congestion and CO2 emissions

12

• Further information
• www.ncahousing.org.uk
• Contact
• Email colin.proctor_at_davislangdon.com T 020
  7061 7820

13
Procurement Efficiency Seminar for Social
Landlords The National Change Agent for
Capital Works in Social Housing Davis Langdon
LLP, 71 High Holborn, June 2007 Colin
Proctor Programme Manager NCA Housing Davis
Langdon LLP
14

• Procurement Efficiency Seminar for Social Housing
  Providers
• Emerging consortium procurement models
• Wednesday 13 June 2007
• John Forde
• Solicitor, Trowers Hamlins
• for NCA Housing
• jforde_at_trowers.com

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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
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Funded consortium models to date
Buy4London
London Area Procurement Network
South East Consortium
Eastern Procurement
GM Procure
Advantage South West
Procurement For All
S. Yorkshire Decent Homes Efficiency Forum
Supply Chain
Main Contractor/Package
Main Contractor
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Main Contractor Procurement
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• 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 some Main Contractors

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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

20
Traditional Main Contractor Procurement Model eg
LAPN
Consortium Member 1
Consortium Member 4
Consortium Member 3
Consortium Member 2
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 3
Component Supplier 1
Component Supplier 2
Component Supplier 4
Tier 2
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Traditional Main Contractor Procurement Model eg
LAPN

• Targeted Savings (to 2010/11)
• Joint planning and procurement of suppliers and
  installers savings of 7m
• Convergence of existing frameworks to LAPN model
  forecast savings of 59m (low), 118m (medium)
  and 178m (high)
• Ongoing client and supplier development to
  deliver performance management, supply chain
  development, standard specifications and
  documentation
• Total targeted savings (low forecast) 66m on a
  spend of 640m
• Total targeted savings (medium) forecast) 125m
  on a spend of 640m
• Total targeted savings (high forecast) 185m on
  a spend of 640m

22
Main Contractor and Package Procurement
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• 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

24
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

25
Main Contractor and Package Procurement Model eg
South Yorks. Trailblazer
Consortium Member 1
Consortium Member 4
Consortium Member 3
Consortium Member 2
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 1
Component Supplier 2
Tier 2
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Main Contractor and Package Procurement Model eg
South Yorks. Trailblazer

• Targeted Savings (to 2010/11)
• Value engineering existing contracts based upon
  future volumes and comprehensive historical
  performance data savings of 30m
• Value engineering of future contracts utilising
  learned experience savings of 20m
• E-Auctions for supply of Heating Systems,
  Bathrooms and Flooring savings of 4.4m
• Shared Resources for pre-work surveys, combined
  leasehold management and planning supervision
  savings of circa 3.8m
• Total targeted savings 54m on a spend of
  1.4bn

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Direct Supply Chain Procurement
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• 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 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

29
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

30
Direct Supply Chain Procurement Model eg GM
Procure
Consortium Member 1
Consortium Member 4
Consortium Member 3
Consortium Member 2
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 3
Framework Supplier 1
Framework Supplier 2
Framework Supplier 3
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Direct Supply Chain Procurement Model eg GM
Procure

• Targeted Savings (to 2010/11)
• Joint procurement savings (inc. work smoothing,
  streamlined processes, compliance with negotiated
  arrangements, reduced transaction costs)
  savings of 115m
• Efficiency gains from group OJEU process
  savings of 5m
• Total targeted savings 120m on a spend of
  600m

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• 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 and EU procurement
• supply chain integration allows greater
  flexibility in selection procedure
• procuring suppliers through contractor avoids
  Section 20/EU problems
• savings on main contractor profits/overheads

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• For more information, contact
• John Connaughton, Davis Langdon
• john.connaughton_at_davislangdon.com
• David Mosey, Trowers Hamlins
• david.mosey_at_trowers.com
• Or visit the NCA website www.ncahousing.org.uk

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Reminder Who we are

• Client driven consortium to support DH RM
  programmes
• Sheffield Homes, Rotherham 2010, Berneslai Homes,
  St Leger Homes LAs
• Growing new members Hull ACIS
• 1.4BN spend across Decent Homes
• Manage 120,000 properties
• Individual delivery frameworks already in place

36
Our global objectives not just buying

• Driving capturing efficiency savings - 58.2m
• Sharing information best practice
• Benchmarking contractors performance (price
  quality) driving for continuous improvement
• Employment training

37
E Auction Strategy - Materials

• Market testing vs existing
• Review align specifications across 4 ALMOs
• Reverse E-Auction Bathrooms, Heating, Boilers
  Flooring
• Not just merchants
• Move purchasing to new arrangements where better

• Where are we now.
• Savings 5.67m on 54m materials
• Implementation planning with PCs/SubCs
• Must not impact on delivery
• Learnt from round 1
• Tie up with NHC on electrics, doors, windows,
  kitchens

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What is an e-auction ?

• Live internet auction for fixing price
• Follows generally a standard OJEU tender approach
• PQQ - ITT Clarification Quality Review E
  Auction
• As short as 30 mins could take all day
• Submit prices only see their ranking

• Any tips.
• At least 2 approaches eg NHC vs 4SY
• Benchmark hurdle vs transformed bids
• Competition drives price, as well as movement

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How our supply chain works
NET COST SAVINGS
NET COST SAVINGS
SY ALMO PARTNERS
40
Capturing the Savings
INDIRECT OHP
DIRECT OH
MATERIALS Net of Rebate
Difference between 4SY rate subcontractors
current net rate ( potential reductions in
applied OHP) AGREED CAPTURED PASSED TO CLIENT
LABOUR
41
Savings Breakdown
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Savings

• Bathrooms..
• 20 saving assumed
• Actuals vary from 19 to 28
• Generally close between all Contractors

• Boilers Heating Packs.
• Depends on preferred ALMO boiler
• 1.6M realistic view based upon current costs vs
  E-Auction rates
• Saving 30 - 60 per boiler
• Circa 85 per dwell saving on heating packs
• Additional revex savings

43
Shared Learning

• Processes
• Framework Agreement
• Implementation

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Shared Learning - Processes

• Key person with right experience, time, drive to
  lead process
• Decide on strategy E-Auction to create or call
  off framework
• Specification Coordination independent, driven,
  performance or product based - Outcome to get
  manufacturer competition
• Define as early as possible
• Who will be ordering the materials impacts new
  strategy may have
• Who is the existing supply chain and its set up
• Get buy in from the existing supply chain down to
  subctrcs
• Get granularity supply costs up frontKEY to
  savings, not easy

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Shared Learning - Processes

• Success down to both merchant manufacturer
  competition
• Expect poor quality tenders significant
  clarification period
• Warm up market/Engage early with draft documents
• Benchmark hurdle rather than transformed bids
  /-s
• Building in of significant spares - good outcome
• Use of e-tender evaluation tool recommended for
  disparate orgs/creation of audit trail
• Joint power of the clients was key to supply
  chain buy-in
• Different approaches spec can save more than
  supply arrangements

46
Shared Learning Framework Agreement

• Get a full workable set of documents up front
  before ITT
• Framework Agreement needs to be workable in
  practise
• Single set of purchasing TCs
• Provide detailed breakdown of SLAs KPIs
• Involve current supply chain in these, no
  surprises
• Failure results in agreement by negotiation
• 53 parties (30 SCs, 10PCs, 4 ALMOs 9 Suppliers)
  in 4SY !
• Work still in progress
• Use/modify an existing working model happy to
  share

47
Shared Learning Implementation

• Engagement of PCs SubCs key
• Happen early in process, dont hold off
• Savings have to be made to wash through
  existing supply costs
• Stepped implementation across region
• Getting docs buy-in at front end saves time in
  implementation

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Summary

• Takes a lot of time to run mechanics
• Seriously consider existing arrangements
• Focus on engagement/buy in and how savings will
  be captured/ washed through
• Get competition between manufacturers using your
  approach
• Use your combined power to your advantage

49
Thankyou for listening
QUESTIONS ?
For more info Carl Bairstow, 4SY Project
Manager carl.bairstow_at_sheffield.gov.uk
or 0114 205 3392
50
Housing Corporations Thematic Review on
efficiency

• Deborah Ilott
• Regulation Policy Manager
• NCA Seminar
• June 2007

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What is a thematic review?

• New regulatory product for 2007
• Allows the HC to comment on important issues
  facing the sector and a way of providing feedback
• An analysis of the Annual Efficiency Statements
  submitted to the HC in 2006
• AESs are an analysis of the three procurement
  workstreams defined by CLG (capital works,
  management maintenance and commodities)

52
Overall performance by the sector

• 2005 -06
• 81m for capital works
• 130m for mgt maintenance
• 27m for commodities
• Exceed CLG targets by 191m
• 80m of other savings (e.g. treasury mgt)
• Average per unit efficiency gain is 162
• Close proximity to gains forecast in 2005
• Largest variance was in capital works (17 less
  than forecast)

53
Overall performance by the sector (2)

• 2006-07
• Double CLG target for year
• Capital works and mgt maintenance significantly
  above the target
• Forecast for commodities is equal to the target
  (30m)
• Looking forward to 07-08, associations have some
  way to go to achieve final target of 55m

54
Areas incurring losses

• Capital works scheme environmental works
• MM increased subcontractor costs
• Commodities big utilities cost increases
• Other unexpected legal costs
• Total losses identifiable are 33.5m

55
Achievement compared to forecast

• Capital works impact of the indices higher
  gains mainly due to a greater volume of work
• MM staff savings reductions in overhead costs
  reduction in voids and re-lets
• Commodities service improvements
• Other substantial volatility office moves
  treasury mgt

56
Forecasts for 06-07 - commodities

• Reasons cited by associations for difficulties in
  achieving efficiencies in this area
• Fuel costs (especially in housing for vulnerable
  people)
• Failure to hit procurement gains in 05-06
  lowering expectations for 06-07
• Where associations have achieved substantial
  efficiency gains, switching focus on maintaining
  or improving customer satisfaction
• Where procurement related efficiency initiatives
  have yet to become effective

57
Other forecasts

• Capital works scale of gains suggests that many
  RSLs had initiatives in place to achieve more
  efficient procurement of works
• Mgt Maintenance source of largest efficiency
  gains in absolute terms
• Investment partners making a contribution of 0
  of total disproportionately high

58
The studys conclusions

• Tremendous achievement of gains reported in first
  year widespread engagement in efficiency agenda
• More cautious gains in 06-07 (NB recurring gains)
• Future opportunities realised through procurement
• Impact of mergers and restructuring
• Links between other HC data sources very limited

59
Where next?

• CSR 07
• Focus on existing stock HC Efficiency and
  procurement strategy

60

• Mechanisms for efficient
• Joint Supply Chain
• Partnering

61

• Background for Gary Hopkins
• Chester City Council
• Private Sector
• Newham Council
• Camden Council
• Basildon Council
• Hackney Council
• Background for Andrew Mackenzie
• 5 years working as Engineer for main contractor
  on site
• Been in the roofing industry for 14 years, 10
  years with Bauder
• Managing Director at Bauder for 5 years

62

• Overview of Hackney Homes Capital Programme
• Stock of approximately 30,000
• Approximately 20,000 rented
• Cost of Decent Homes approximately 400 million
• Approximately 140m spent

63

• Who is involved?
• Lovell
• Connaught
• Mulalley
• Kier
  Mansell

Hackney Homes/Residents
64

• The aim
• Facilitate partnering with 5 constructors
• Fully involve constructors and Residents
• Consistency of supply across the Borough for
  Delivery and Approach

65

• Strategic Partnering
• Supply Chain
• Manufacturers
• Suppliers
• Service Providers
• All linked to a Framework Agreement

66

• The aim of the workshops was to
• Form Common supply chain
• Prepare Basket Rates jointly agreed with 5
  constructors
• Interplay between constructors
• Added value

67

• How did Hackney achieve this
• Through Workshops
• Identified product or service area required
• The 5 constructors put forward companies
• Working Party was established
• Formal presentation to workshop
• 5 constructors selected the company

68

• Results
• Aims and objectives being met for Decent Homes
• A consistent approach
• Improved Costs
• Measurable Improvements
• Common Targets
• Wins for Residents
• Environmental benefits
• Standardisation

69

• AMP Process

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• AMP Process

Hackney Homes notifies Constructors of Programme
for Martins to survey
Martins completes survey
Supply Chain forms AMP
Supply Chain meets Client to agree scope
AMP is forwarded to Constructor to collate and
add additional items
Constructor sends completed AMP to Client QS for
approval
71

• Advantage for Supply Chain
• Longevity of Supply across 5 constructors
• Guarantee voice on any proposed changes
• Improved relations with all Parties
• Guaranteed payments
• Open approach for yearly Reviews

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• The benefits to Hackney
• No separate EU Tender Requirement
• Able to negotiate with Supply Chain on added
  Value
• More flexible approach
• Ability to change Supply Chain member if not
  performing across all 5 constructors
• Improved supply and support
• Improved costs
• Improved dispute resolution

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• The Benefit to Hackney Homes roof example of
  added value
• Extended Insurance Backed Guarantee 25 Years
• Agreed schedule of roof inspections for future
  years
• Design Warranties
• Full Project Management and technical support
  form manufacturer
• Management of pitched, flat and asphalt works
• One stop shop
• Supply Chain Management Team
• Cost certainty
• Simplified cost build up
• Reduced Qs time (50)
• Green roof sub-base
• 80 waste non to landfill
• Just in time delivery to site
• KPI monitoring

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• SUMMARY
• Vital requirements to successful Supply Chain
  Arrangement
• Willingness to partner
• Open minded approach by all partners
• Need for a condensed schedule of items (Basket
  Rate)
• Client involvement with Supply Chain support
• Correct timing for Supply Chain involvement
• Quality Assurance Team (to monitor consistency)
• Establish volume of work

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• Conclusion
• This is a win, win, win situation for all parties
• The client achieves effective Supply Chain
• Arrangement and ensures best value
• The constructor is able to manage more
  efficiently
• The Supply Chain has a place at the table and a
• guaranteed future relationship

76
Joint Supply Chain Partnering The View of
the SupplierAndrew MackenzieManaging
Director, Bauder Limited
77

The Supplier and Joint Supply Chain Partnering
Procurement

• The Roofing Alliance

• Advantages.

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Who are we? The Roofing Alliance

• Unmatched supply capacity
• Total accountability
• Co-ordinated approach
• Just in time deliveries
• Responsible for the installation
• Real commitment to Partnering.

79

The Supplier and Joint Supply Chain Partnering
Procurement

• The Roofing Alliance
• Advantages.

80
Advantages

• Value engineering - early involvement
• Understanding
• Commitment
• Elimination of duplication.

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A Traditional Team
Early Involvement
SUPPLIERS
CONSTRUCTORS
HACKNEY CORE PROJECT TEAM
HACKNEY CPMs and COWs
INSTALLERS
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A Fully Integrated Team
Early Involvement
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Early Involvement
Cost
Cost reduction potential
Costs to change
Value engineering
Time
Tender
Design
Construction
Operation maintenance
84
Understanding

• Suppliers understanding of clients requirements
• Clients understanding of manufacturers issues
• Build a relationship.

85
Commitment

• Planning
• Processes systems developed
• Resources.

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Commitment

• Processes systems developed

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Commitment

• Planning
• Processes systems developed
• Resources.

89
... in summary

• Huge resource one stop shop
• Single point responsibility

• Early involvement
• Value engineering and elimination of duplication

• Understanding
• Commitment.

90
Thank you
a.mackenzie_at_bauder.co.uk