HAMMARWest Midlands

Does size matter in procurement?

Central Housing Investment Consortium Ltd

John Fisher – Managing Director CHIC - Partner Ark Housing Consultancy

CHIC Presentation

1. Asset Management Market Summary – How we see it

2. Where does size matter?

3. CHIC’s response

4. CHIC in brief

5. A view of the future

1. Asset Management Market Summary

HOW WE SEE IT

12.5%

Affordable Housing LandlordsBusiness Model

ANNUAL RENTAL INCOME c.£4,680 (£90 per week)

Asset Spend = £1,600 - £2,000 C.35% - 40%

25%

Planned

Responsive

ManagementLoans

Surplus

20%

Labour

Preliminaries

Overheads

Profit

Materials 22%

18%

% of cost

100%

6%

4%

Sub Contractors

Contingency

Risk

10%

40%

Understanding Cost (Not Price)

Ownership

Management

Labour

Materials

Housing Asset Management

Responsive / Cyclical

Assumed Unit Costs and Life Cycles – Planned (Low Rise)

Component Life Cycle (yrs) Unit Rate (incl.) Annual Unit Cost

Bathroom 30 2,250 75

Boiler 15 2,000 67

Chimney 60 800 13

Consumer Unit 30 500 17

External Doors 30 800 27

External Wall Finish 60 3,500 58

Fascias/Soffits 30 750 25

Heating Upgrade 30 3,500 117

Hot Water Tank 30 500 17

Kitchen 20 3,600 180

Rainwater Goods 30 500 17

Roof Covering 60 4,500 75

Windows 30 3,200 107

Wiring 30 2,500 83

£878

Assumed Unit Costs and Life Cycles – Planned (Medium and High Rise)

Component Life Cycle (yrs) Unit Rate (incl.) Annual Unit Cost

Bathroom 30 2,250 75

Boiler 15 2,000 67

Chimney 60 800 13

Consumer Unit 30 500 17

External Doors 30 1,500 50

External Wall Finish 60 5,000 83

Fascias/Soffits 30 2,500 83

Heating Upgrade 30 3,500 117

Hot Water Tank 30 500 17

Kitchen 20 3,600 180

Rainwater Goods 30 1,500 50

Roof Covering 60 6,000 100

Windows 30 3,200 107

Wiring 30 2,500 83

Other Building Repairs 10 1,000 100

Communal Area Works 5 500 100

£1,242

Typical Unit Annual Costs

Responsive Planned Development

LABOUR

MATERIALS

Housing Asset ManagementVolume of orders

Low

Low High

High

Value of orders

Client Function – Silos or Integration?

Responsive Planned Development

MATERIALS

LABOUR

PRELIMINARIES

LOCAL OVERHEADS

CLIENT MANAGEMENT

CONTRACT MANAGEMENT

Planned e.g. Kitchen Replacement

Planned e.g. Bathroom Replacement

Planned e.g. Rewiring

Benchmarked Materials Costs Through Contractors

3 Big Spend Items

People (50-60%)

Materials (20-50%)

Vehicles (10%)

Contractor Order Book

Any business needs to know what it needs to deliver

Order book is king

How good is your AMS?

Good strategic planning – avoids the wheels falling off…

Procurement Solutions

Is procurement a FUNCTION or a CAPABILITY?

Does the plan drive the delivery solution or procurement

drive the plan?

Stage 4 of Planning Process = Order book

Test – sustainable order book

for constant volumes?

Smooth the Programme?

Where does size matter?

Assumption: ‘Size’ means more than one RP working alone

Responsive Planned Development

LABOUR

MATERIALS

Housing Asset Management

Responsive Planned Development

LABOUR

MATERIALS

Volume of ordersLow

Low HighValue of orders

High

Opportunities from Aggregated Size

1. Share the ‘costs of shopping’.

2. Combined volume for M&E Servicing contracts (SMEs’)

3. Purchase materials direct (control the price and transparent transactions).

4. Combine planned programmes (shared overheads and prelims and improved social value : CSVs’).

5. Opportunities for SME contractors from ‘market management’

CHIC’S RESPONSE

What is CHIC?Formed in early 2010 CHIC is a company limited by guarantee, established by eight member landlords, which operate together as a consortium across and now beyond the Midlands.

CHIC is established to secure efficiencies in the procurement of asset management services for housing organisations. We pride ourselves on being the first procurement consortium to operate across the Midlands.

CHIC is supported and sponsored by the Homes and Communities Agency (HCA) and is being managed by Ark Housing Consultancy on behalf of its members.

Current Membership 25 Member organisations throughout the

UK comprising: 21 Housing Associations

2 Local Authorities

1 ALMO

1 Consortium (we also work closely with another)

Collectively managing 287,500 homes

CHIC’s USP’s1. Joint Procurement– Share the cost of

shopping.

2. Contract with ‘ecommerce’ agent

3. Procured Materials / Merchants contracts

4. Joint (M&E) Service Contracts

5. Member benchmarking

6. All contracts have E & S requirements (including materials)

Works & Services Contracts ExampleSpecialist, Mechanical & Electrical Services

Electrical Services

Electrical Testing, PAT Testing, Upgrades & Rewires

Laker Building Management Solutions Central England (Based in Birmingham)

Upgrades & Rewires G F TomlinsonMidlands (Derby, Birmingham & Worcester)

Specialist

Mobility Lift Servicing – Service, Repair & Installation

Lift & EngineeringThroughout England & Wales (Some restrictions may apply)

Fire Safety – Supply, Service & Repair

Sunfish ServicesMidlands, including Cambridge & Peterborough

Water Hygiene – Inspection, Testing, Risk Assessment, Cleaning, Disinfection

Green Compliance (Pure Group) Nationwide

Gas Auditing

BlueFlame Associates Throughout England & Wales

Actual Efficiency Gains – Works & Services

Business Plan target 7% Actual Saving 18%

Members saved >£1m on the cost of shopping in 2010/11 – 60 Lots in one go Plus annual contract efficiencies:

Delivery Savings Spend £’k Saving £’k %

Responsive Repairs/Voids 3,487 1,063 23

Kitchen replacements 1,471 131 8

Bathroom replacements 959 101 10

Central Heating replacements 108 21 16

Gas Servicing 390 42 10

Electrical Upgrades 55 55 50

Replacement Doors 409 53 11

2011/12 Total 6,879 1,466 18%

Materials Supply Overview Long term 5 year (+ 5 year) contracts All EU Compliant Currently used by in-house and external contractors Unique Nationwide Merchants Framework Managed by ecommerce provider, Valueworks Ltd Suited to Asset Management and New Build works Can be used within external contracts & contractors

Key benefits: Savings, 19% average saving by members in 2011/12 Price control & Invoicing compliance Consolidated invoicing Transaction accuracy Supply chain management Reduced administration

Materials Supply (1) - ‘Big Ticket Items’Description Supplier / Manufacturer

Boilers & Associated Heating Products

Bosch Thermotechnology (Worcester)

Vaillant

Baxi Heating (including Potterton)

Ideal Heating

Kitchens Rixonway Kitchens – Delivery Nationwide*

Sanitaryware Twyford Bathrooms

Showers Applied Energy Products

PVC WindowsNationwide Windows – Delivery nationwide*

Wrekin Windows – Delivery nationwide*

Composite Doors (incl. Fire doors) Nationwide Windows – Delivery nationwide*

PVC Doors (incl. Fire doors) Wrekin Windows – Delivery nationwide*

Timber Doors Manse Masterdor Ltd

Aluminium Windows Sovereign Group Limited

Fires & Surrounds Be Modern Group

*Some delivery restrictions may apply

Catalogue Management – Cashable Savings

Actual Efficiency Gains - ExampleExample individual item savings achieved by members are summarised below:

ItemPrevious

Price Paid

Price Paid through

CHICSaving £ Saving %

28kW Combi Boiler £713.78 £442.78 £271 38%

Pedestal £13.96 £11.91 £2.05 15%

RCD Consumer Unit (Min 9 way) incl. MCBs & RCBOs

£279.20 £245.41 £33.79 12%

2 way light switch £2.20 £1.87 £0.33 15%

Loft Insulation (150mm/18m2) £22.85 £18.51 £4.34 19%

1000x600 Full Height Base Unit (Kitchen) £72.85 £49.29 £23.56 32%

Electric Fire incl. Surround, back panel & hearth

£245.26 £146.38 £98.88 19%

So Does Size Matter?

Yes….But

Programme planning is key (sustained order book = continuity for workforce)

Understand the detail (cost, not price)

Be prepared to do it differently (materials vs, labour / joint contracts)

Commitment for Employment and Skills Strategy

Does it work?

A VIEW OF THE FUTURE

Real Choice of Service Delivery Models

Option Type Ark’s View

1 ContractBest private model (SMEs’ or

big contractors for big projects)

2 WOS – Managed ServiceYet to be proven still being

tested – stepping stone to 4?

3 JV Co. – Managed ServiceToo complex and

expensive /HMRC Risk

4 IHCBest insourced model (not a

DLO!)

5 Cost Service VehicleReal opportunities – may

become the market solutions6

Shared Services Vehicle – Managed Service

Materials Procured Direct

Shared Costs of Shopping