price per property - managing the risk
DESCRIPTION
Price Per Property – Managing the riskTRANSCRIPT
Price per PropertyPrice per Property
Managing the RiskManaging the Risk
14.06.1214.06.12
Passion for... People Performance Procurement Partnering
•Mathew Baxter – Managing Directorechelon consultancy
•Sue Cooper – Director of Property Services Affinity Sutton Group
ASG Objectives Identified
•Rationalise the geography•Refresh the cost •Benchmark the DLO•Simplify the management •Revise the incentives
ASG Process
•Development of bespoke PPP Model•Draw out risk elements through process•Focus on incentivisation through model•Flexibility for different delivery models •(i.e. isolation of labour/overhead/profit)•Detailed Term Brief - full stakeholder input•CD process to hone the delivery model and PPP
Is it the right model for you?
Considerations……
Heading Overview Impact
Reduces Administration
Significant reduction in paperwork as the number of components in the invoices are reduced
Cost savings for Client and Service Provider
Management by Exception
Management is focussed on exceptional items.Standard costs are covered by the PPP.
Improves the probability of better outcomes with more focus on the issues that matter
Visibility of Budgets and Costs
Service Providers are able to plan and declare their budgets with cost certainty. Resources are managed to achieve the project goals.
Improved likelihood of successful Service Provider delivery and budget control
Clients obtain better visibility of planned and actual resourcing
Early warning of deviance from plan
Incentive to Perform
Service Providers are incentivised to improve efficiency within the framework of Key Performance Indicators (KPI’s)Avoids diversions to maximise cost recovery under SoRs.
Cost savings to Client and Service Provider Improved focus on exceeding KPIs
Risk Can Be Managed
Risk can be defined and shared (e.g. TUPE) Shared benefitManaged equitable position
Benchmarking Benchmarking can be used with other Clients Confirm performance against peers
SoR rates are obtained at tender
SoR rates are used for exceptional items outside of the PPP.These can be used if it becomes necessary to abort from the PPP
Contingency procurement plan for Client
Market Tested
Recent tenders show convergence of pricing (within 2%)Echelon model developed through experience and dialogueMarket tested with Clients and Service Providers
Creating the right environment for success
• New model – market sophistication developing• Reliant on accurate data from Client• Service Provider risk of Client taking calls• Service Provider taking more commercial stance on repairs
responsibility (i.e. saying ‘No’)• Service Provider IT capability of capturing cost & repairs
data• Changes in processes within Client• Service Provider underestimates risk• Cultural shift in ‘control’ of repairs ordering (i.e. currently
dictated by Client orders)
Defining the PPP/PPV Model
Price Per Property (PPP) Concept
Wide range of costs brought within single average
Development of Model - ConceptDevelopment of Model - Concept
•Reviewed what’s out there – mixed bag•Drew on our combined experience of PPP•Emphasis on comprehensive Inclusion/
Exclusions List•Clear process for managing exceptions•Understanding risk is critical factor•Strip back to basics!
Inclusions/ Exclusions – Key!Inclusions/ Exclusions – Key!
• What’s ‘in’ and what’s ‘out’• Comprehensive list of both• Referrals system• All comes down to risk?
Inclusions/ Exclusions – SampleInclusions/ Exclusions – SampleNo.
Component Exclusions Inclusions Notes/Limitations
Section I - Internals
I.1 Kitchen Tenant Owned AppliancesKitchen Units (to include doors, hinges, handles and shelves)
Where the SP confirms the kitchen is beyond economical repair it will be referred to Client for a full replacement. If the referral is accepted the SP will only be responsible for maintaining for a further 2 years if not replaced (after which point SP will be reimbursed for repairs)
Carpet or other tenant fitted floor covering
Worktops
White GoodsMastic sealant to worktops and floor covering
Sink Chains and Plugs End Panels
The Tender Model…..The Tender Model…..
Element of Cost
Percentage of Cost
Labour
_____%
Materials
_____%
Site Overhead
_____%
Head Office Overhead & Profit (Fixed)
_____%
Variable Profit
_____%
Risk
_____%
Total PPP
100%
LabourLabour
•Pricing Matrix for net labour costs•Detailed breakdown of resource requirements
in Method Statement•Focus on productivity•Sub-contractors quantified and named
MaterialsMaterials
•Fully priced schedule of components•Schedule will be volumised based on history
(Note – indicative only volume is SP risk)•Focus on high demand items•Qualitative assessment on integration of Supply
Chain
Site OverheadsSite Overheads
•Fully priced overhead scheduleFully priced overhead schedule•Template provided in modelTemplate provided in model•Clear breakdown on what’s includedClear breakdown on what’s included•Some prescribed items (Call Centre/Some prescribed items (Call Centre/
Mobilisation Workshops etc.)Mobilisation Workshops etc.)•Cross-referenced with MSCross-referenced with MS•One-off mobilisation costsOne-off mobilisation costs
Central Office Overheads & ProfitCentral Office Overheads & Profit
•Contribution to Head Office•Fixed (guaranteed) Profit•Expressed as percentage of PPP•Ring fenced as % of PPP •Clear definition
IncentivisationIncentivisation
•Incentivised Profit – Variable Profit•Ring-fenced against PPP •Paid monthly – key driver will be Resident
Satisfaction•Targets will be defined in KPI Handbook•Focus on 2 KPIs (more later!!)•Potential shared savings mechanism(s)
Voids Voids
•Inclusions/Exclusions Inclusions/Exclusions •Single PPV (AR over and above)Single PPV (AR over and above)•Capped by volume Capped by volume •Based on existing volumesBased on existing volumes•Performance on key to keyPerformance on key to key
Risk – Critical Factor in PPPRisk – Critical Factor in PPP
• Provision of accurate dataProvision of accurate data• Understanding what Contractor’s Risks areUnderstanding what Contractor’s Risks are• Tenderers price Risk Tenderers price Risk • High Risk items isolated (within PPP) High Risk items isolated (within PPP) • and ‘risk pots’ with draw-down or capand ‘risk pots’ with draw-down or cap•Risk will be reviewed at the end of the 1Risk will be reviewed at the end of the 1stst year year•Risk is capped for subsequent yearsRisk is capped for subsequent years
Risk Strategy Risk Strategy
Risk – Areas identifiedRisk – Areas identified
• Data gaps (defined)Data gaps (defined)• TUPE x3TUPE x3• Stock familiarityStock familiarity• Specific work-types – Capped by annual spend Specific work-types – Capped by annual spend
(not per item)- Aids and Adaptations, Fencing,(not per item)- Aids and Adaptations, Fencing,Drain Clearance, Asbestos WorksDrain Clearance, Asbestos Works
Risk – SampleRisk – Sample
Description of Risk Allowance
Quant Unit Rate Risk Allowance
Total
% Prob
Allocation to Year 1 Tender
PPP
Residual Allocation to
Year 1
Scope Definition Mitigation Strategy Measures Reporting/Update Process
Increase in the volume of jobs caused by Residents or unforeseen circumstances
4851 Props £ 112.00
£ 543,312 5% £
27,165.60 £ 27,165.60
Volume increase caused by Residents or unforeseen circumstances requiring
more repairs
Weather is the main reason and we will seek the most cost effective repair solutions,
including batching repairs where possible. We will involve Origin's officers in cases where the
resident is over-using the service.
4851 Properties x 1 extra repair at £112 x 5% probability. We have assumed an average of 2.2 jobs per property i.e. 10,672 per year. If, at the end of the year, the number of jobs was 25% or more higher than that, we would request that Origin pay for the jobs over the cap i.e. any jobs above 13,340 in a year at an average cost of £112 per job
We will capture the information as part of our monthly report. We will report to Origin on a quarterly basis on the number of jobs compared to the cap. In the event that the number of jobs is over the cap or indeed close to it, we will present a detailed analysis to Origin of which properties are causing the breach of the cap with our suggestions of the number of jobs can be reduced. This may mean looking at the need for planned works in some properties or the more active management of a resident and their use of the service
Performance IncentivesPerformance Incentives
•Variable fee linked to 2 KPIs•Customer Satisfaction – Repairs – Target 8.5•Average number of Days – Void – Target 9 DaysIf hit….•Equates to £18k month (£10 PPP) on Repairs PPP •Equates to £43 per void
Performance Incentives – Exceptional PerformancePerformance Incentives – Exceptional Performance
•Extra payment of 3.57% if exceed score of 9•Between 8.5 and 9 paid incrementally•Extra payment of £15/day for each void <9 days
Thank you – Questions?
