Annex A PROPOSALS FOR A PROCUREMENT STRATEGY FOR THE SOCIAL HOUSING DEVELOPMENT PROGRAMME Endorsed by: CONTENTS 1.0 Introduction 2.0 Background 3.0 Proposed Procurement Strategy 01 Key Objectives of the Procurement Strategy. 02 Delivery Vehicle for Social Housing Development Programme. 03 Formation of Procurement Groups. 04 Future Procurement Methods. 05 Guidance for Procurement Groups. 06 Programme Management 07 Communication, Coordination and Benchmarking 4.0 Equality and Regulatory Impact Assessments 5.0 Responding to the proposals Appendix A: Questions for Response Appendix B: References 1. 1.0 INTRODUCTION 1.01 The Department for Social Development (DSD), Housing Division, is required to maximise efficiency in the delivery of the Social Housing Development Programme in a manner consistent with overall Departmental objectives. 1.02 In line with wider Government policy, DSD has to prepare a Procurement Strategy for all construction procurement funded directly or indirectly by the Department. This document has been prepared to allow effective consultation with stakeholders in the Social Housing Development Programme over DSD’s proposals for a Procurement Strategy. 2.0 BACKGROUND 2.01 The Social Housing Development Programme is a five year programme covered by the second Investment Strategy for Northern Ireland (ISNI 2). The current programme has a target to provide 1,500 additional social housing units each year 2.02 Between 1980 and 1996 registered housing associations had delivered most of the supported housing provision and part of the general needs social housing provision. In 1996 they became the sole delivery vehicle for the provision of social housing. 2.03 Housing associations are non-profit making, private sector businesses. On the basis of their ‘private sector’ status - combined with the asset value of their existing stock - associations can lever-in private finance* from various private lenders. This private borrowing does not score as public expenditure. Associations have provided a substantial element of private finance to the Social Housing Development Programme from 1991/92-2005/06. This equates to over £360m at today’s value and, without the private finance contribution from associations, the programme could not have been maintained at present levels. Associations now have a combined stock of around 30,000 dwellings/units. As well as providing a private finance contribution for provision, they take full responsibility - including cost – for the future management, maintenance and major repairs provision for the dwellings provided. [Note:* the total Private Finance contribution – from 1991/92-2005/06 - from Associations would equate to the equivalent average cost of approximately 5,000 General Needs ’family’ dwellings.]. 2.04 In respect of procurement activity in the Social Housing Development Programme, contracts are still let generally on a ‘one-off’ basis for relatively small ‘traditional’ type schemes. Evidence from the DSD Regulation & Inspection process indicates that although some associations have made improvements in their procurement processes, others have made little or no progress – and overall there is room for improvement in this area within the movement as a whole. 2. The programme for 2005/06 made provision for 1,500 additional social housing units using a variety of procurement methods (see Table below) to which 26 associations contributed. This included some 57 new build schemes using traditional type procurement methods. The construction (Works) element of the 2005/06 programme would equate approximately to around £101m in construction works and an estimated £10m in associated consultants’ fees. Social Housing Development Programme - On-Site Approvals 2005/06 Procurement Method Used No of schemes Average size of Scheme New Build (Traditional): 57 17 units New Build (Package Deals): 7 25 units Existing Satisfactory Purchases: 68 2 units New Build (Off-the-Shelf): 1 79 units Rehab (Traditional): 9 6 units Rehab (Package Deal): 1 33 units Re-Improvement: 2 8 units Rehab (Off-the-Shelf): 1 3 units Associations also spend around £2m on Disabled Adaptations and have substantial on-going maintenance and major repairs programmes – which for 30,000 dwellings/units could average out at around £10m* each year on maintenance activities and around £18m* each year on major repair type works. This could equate to a total annual spend on construction related activities – i.e., consultants’ fees and works costs – of around £140m (based on 2005/06 levels). In the programme for 2005/06 only 2% of the new build consisted of modern methods of construction. In England the equivalent figure is over 60%, in Scotland the equivalent figure is over 70%. [Note:* the actual total costs for these types of work may fluctuate from year to year, as works will depend on the ‘life’ of the component being maintained/repaired/replaced.] 2.05 Since 1996 there have been changes in the requirements of the European Union and Government for procurement which affect association activities – with non-compliance being a potentially serious matter. Government policy on construction procurement has also changed during this period and through the Achieving Excellence initiative Government now seeks to introduce changes arising from Sir Michael Latham’s Report ‘Constructing the Team’ and The Egan Report ‘Rethinking Construction’. The central ‘message’ from the Achieving Excellence initiative is that change should be led by clients in demanding better value and improved performance from suppliers (i.e., all those involved in the construction process). In return, clients must demonstrate that they will act as good employers and will procure work in a way that allows best value to be delivered and provides fair rewards for good performance. All organisations procuring construction using public money should: - become best practice clients; - improve efficiency in procurement; - include partnering in procurement; - promote sustainability; and - promote standardisation and whole-life costs. 3. 2.06 DSD now considers it time to make the ‘structural’ changes necessary to ensure that associations are able to meet the procurement challenge both now and in the future. 3.0 PROPOSED PROCUREMENT STRATEGY 3.01 KEY OBJECTIVES OF THE PROCUREMENT STRATEGY The key objectives of the procurement strategy for the Social Housing Development Programme are to: - procure the programme on a value for money basis and in accordance with best practice; and - reduce the transaction costs of construction procurement by establishing procurement groups 3.02 DELIVERY VEHICLE FOR THE SOCIAL HOUSING DEVELOPMENT PROGRAMME A Programme Board will be established to overview the delivery of the Procurement Strategy for the programme. The composition and organisational structure of the Programme Board will be developed at the earliest opportunity. The main delivery vehicle for the development programme will continue to be housing associations. This will ensure that a ‘private finance’ element is maintained to supplement the public expenditure allocated to the development programme. DSD considers that in order to meet government policy, capitalise on longer-term contracts and to utilise modern methods of construction, association procurement needs to become more professional and ‘centralised’ to a smaller number of procurement groups or centres. This is a necessary prerequisite to provide a programme of sufficient size to enable significant improvements to be introduced, and ensure efficiencies through economy of scale, consistency and continuity. Associations will be required to form themselves into procurement groups and DSD considers that three would be the optimum number for the size of programme envisaged. DSD recognise however that cases can be made for between three and six groups and will re-consider the matter upon completion of the consultation period if a strong and convincing case is made for an alternative number. DSD would welcome feedback, particularly from associations, as to the minimum number of groups that could operate successfully and efficiently. The formation of a small number of procurement groups would allow associations to come together for a mutual purpose, but would still allow individual associations to retain their own ‘corporate’ identity and to specialise on particular types of housing provision or locations. With procurement recognised as a specialist skill and ‘consolidated’, this would allow development staff to concentrate on the ‘client’ role and the demanding scheme delivery process. 4. 3.03 FORMATION OF PROCUREMENT GROUPS The formation and composition of particular procurement groups is a matter for individual associations. However, the Department will wish each group to have an adequate composition of size, experience, location and programme allocation in order to be effective. It is anticipated that the procurement groups will eventually cover not only construction related activities, but the full range of association procurement activities such as purchasing fuel/energy, cleaning services, office supplies, services etc., i.e., wherever the buying power of the group can realise efficiencies. DSD would propose to have procurement groups in place by 1 April 2008. To expedite the formation of procurement groups DSD is to make available grants for this purpose. A grant fund will be made available and the grant will be paid in two parts: - a grant for potential procurement groups to produce a business plan. This would explain the formal composition of the group, how it would operate, staff structures, resources etc., and - a grant to implement the agreed business plan. This would cover initial set-up costs such as additional staff resources, training, accommodation, IT facilities etc. To assist the formation of procurement groups, DSD proposes to engage the National Change Agent (Housing) to advise on the merits of individual group applications and on the award of grants. The National Change Agent (Housing) is the first point of call in England for all Social Landlords – Housing Associations, Local Authorities and Arms Length Management Organisations - who wish to improve the procurement and delivery efficiencies of their capital works programmes with its specific remit ‘to support the establishment and development of procurement consortia’. Standard National Change Agent (Housing) publications will be amended for Northern Ireland use. For further information see www.ncahousing.org.uk. - For specific information on the scope and content of feasibility studies click Procurement Consortia then Feasibility Studies, then NCA Housing Feasibility Study Guidance. - For specific information on bidding guidance for support from the Efficiency Challenge Fund click ECF, then Bidding Guidance (1), then NCA Housing Bidding Guidance. Grants will be made available to the Procurement groups – or a lead Association acting on behalf of a Group - as follows: - No grant will be provided for the provision of a Feasibility Study. - On the basis of a satisfactory feasibility study and confirmation of same by DSD / National 5. Change Agent, a grant will be made to each Procurement Group to help towards the production costs of a business plan. - On the approval of a satisfactory business plan, and the establishment of the procurement group, a grant of will be made to each procurement group to help with establishment costs etc. [Note:* The grant amounts will be based pro-rata on grants awarded in England and are subject to the final number of procurement groups that will be acceptable to the Department.] DSD may set broad guidelines for the formation of the procurement groups. Guidance will be provided on the preparation and content of the feasibility studies and it is proposed that each completed feasibility study be submitted to DSD no later than 30 September 2007. 3.04 FUTURE PROCUREMENT METHODS The formation of a small number of procurement groups may bring some efficiency in itself but additional efficiency will be required. DSD will, through the Housing Association Guide (which shall remain the conditions for issue of Housing Association Grant), require associations to use preferred procurement routes and methods. The preferred procurement routes in order of preference will be: - Long-term contracts i.e. Frameworks or Strategic Partnering Contracts (in appropriate circumstances). - Design & Build - Traditional Procurement - Off The Shelf - Existing Satisfactory Purchases Each group will be required to document and justify its choice of procurement for each scheme. It is expected that each procurement group will be required to create framework contracts to source its design teams and integrated supply teams (design & construct) shortly after their formation and certainly prior to the end of 2008. It is also expected that there will be a movement towards the use of the New Engineering Contract version three (NEC3) suite of contracts where possible. DSD will keep the procurement requirements set within the Housing Association Guide under review in light of developments such as wider use of Article 41 planning agreements etc. 3.05 GUIDANCE FOR PROCUREMENT GROUPS To assist procurement groups meet the procurement requirements set by the Housing Association Guide, and expedite the use of efficient procurement methods, advice on construction procurement will be provided to groups as required by the Northern Ireland Housing Executive (NIHE). NIHE as a 6. Centre of Procurement Expertise (COPE) will be available to provide advice to procurement groups and will provide liaison with the Procurement Practitioners Group as required. Procurement groups may agree to undertake or commission certain activities or work communally if they consider that this will be more efficient or offer other significant benefits. While guidance will be provided to procurement groups by NIHE, responsibility for all procurement and compliance with the terms of the Housing Association Guide will rest solely with the procurement group and its constituent members where appropriate. DSD will continue to ensure compliance with the Housing Association Guide by use of the DSD’s Regulation and Inspection process. 3.06 PROGRAMME MANAGEMENT Overall programme management will be undertaken by the NIHE who will agree the overall five year programme with DSD. DSD shall set the annual budget and long term programme size. Each procurement group shall manage its own programme on a tariff basis that permits schemes to be brought forward or delayed to ensure consistent progress. The groups shall draw consultants and Integrated Supply Teams from its framework as required. Project management shall be carried out by each procurement group until appointment of a project manager from the Integrated Supply Team framework to undertake project management. 3.07 COMMUNICATION, COORDINATION AND BENCHMARKING A Housing Forum to deal with construction related issues regarding private and public housing will be created by the Constructing Excellence Centre for NI in the University of Ulster. DSD will expect the procurement groups to take part in this forum and in the exchange of information with the Northern Ireland private sector housing bodies as well as UK and Irish forums. The procurement groups will be required to have Clients Charter status. Individual associations have been encouraged and will continue to be encouraged to seek Client’s Charter status. No individual association will be able to procure construction services except through a procurement group. Upon the successful completion of a Clients Charter programme by the housing association movement generally the next logical step will be for procurement groups and individual associations to sign up to the 2012 Construction Commitments adopted by the Housing Corporation. 4.0 EQUALITY & REGULATORY IMPACT ASSESSMENT DSD will carry out equality and impact assessments where required on any policy change arising from consideration of a new procurement strategy or this consultation document. 7. 5.0 RESPONDING TO THESE PROPOSALS Please provide feedback on the questions provided by Friday 6 July 2007 to:- Ian Ervine Department for Social Development Housing Operations Branch Level 2, James House Gasworks Business Park 2-4 Cromac Avenue Belfast BT7 2JA e-mail: firstname.lastname@example.org Tel: 028 9081 9559 8. Appendix A RESPONSE TO THE PROPOSALS FOR A PROCUREMENT STRATEGY FOR THE SOCIAL HOUSING DEVELOPMENT PROGRAMME RESPONSES WILL BE TREATED AS CONFIDENTIAL AND HELD IN THE DEPARTMENT. A SUMMARY WILL BE MADE AVAILABLE Name of Respondent: Organisation represented (if applicable): Q1 Housing associations will, for the foreseeable future, be the main delivery vehicle for social housing provision. Have you suggestions for other delivery vehicles? Q2 Housing associations will be expected to provide a substantial private finance contribution towards the provision of social housing. Do you consider it reasonable to assume that associations will want to retain control and be responsible for any associated procurement activities given the association’s financial commitment? Q3 The Procurement Strategy recommends the formation of a number of procurement groups to deliver the Social Housing Development Programme. What is your view on the minimum number of procurement groups that should be established? Q4 The Procurement Strategy recommends a Procurement Board to overview the delivery of the procurement strategy. What is your view on the make up and role of this board? Q5 The Procurement Strategy has set a timetable for delivery of the procurement groups. Is the proposed timetable sensible and achievable? Q6 In addition to the areas mentioned in the consultation paper, are there any other areas or activities that the procurement groups could contribute to to effect efficiencies? Q7 Is the proposal to make grants available to help establish the procurement groups reasonable? Q8 The Procurement Strategy recommends long term contracts such as Frameworks or Strategic Partnering Contracts as the preferred procurement route for the Social Housing Development Programme. What is your view on groups setting up long term contracts before 31 December 2008? Q9 Do you believe that the proposal for general procurement advice to be provided by the NIHE as a Centre of Procurement Expertise will be sufficient for the procurement groups to meet the procurement requirements set by the Housing Association Guide in future? Q10 Do you consider that DSD should lay down criteria for the formation of groups on the basis of maximum/minimum stock size or previous development activity? Q11 Have you any other comments? Appendix B REFERENCES: The Housing Policy Review (1995). The Housing Association Development Programme 1995/06. Regulation & Inspection Reports on Registered Housing Associations. The Housing Association Guide. The Public Contracts Regulations 2006 (SI 2006 No 5). Policy Framework for Construction Procurement - The NI Practical Guide to the Green Book (2003 ed). - Procurement Board Meeting – 11 Oct 2005 – Achieving Excellence for NI. - Procurement Guidance Note 06/04 - The OGC Gateway Review Process. - Achieving Excellence for NI – Implementation Programme. - Procurement Guide 01 – Initiative into Action. - Procurement Guide 02 – Project Organisation. - Procurement Guide 03 – Project Procurement Lifecycle. - Procurement Guide 04 – Risk and Value Management. - Procurement Guide 05 – The Integrated Project Team. - Procurement Guide 06 – Procurement and Contract Strategies. - Procurement Guide 07 - Whole-Life Costs. - Procurement Guide 08 – Improving Performance. - Procurement Guide 09 – Design Quality. - Procurement Guide 10 – Health and Safety. - Procurement Guide 11 – Sustainability. - Procurement Board Meeting – 11 Oct 2005 – Sustainability in Construction projects. - Achieving Sustainability in construction Procurement – Sustainability Action Plan. Sustainable Construction Group (SCG) – Feb 2006 - Guidance for Project Sponsors and Project Managers. - SCG – Guidance Note 1: General Roles and Responsibilities. - SCG – Guidance Note 2 – Targets for Recycling. - SCG – Guidance Note 3 – Construction, Demolition & Excavation Waste Materials. - SCG – Guidance Note 4 – Bulk Inert Materials/Aggregates – Re-use and Recycling. - SCG – Guidance Note 5 - The Considerate Constructors’ Scheme. - Action Plan for Buildsafe-NI (Feb 2004). - Action Plan 2 for Buildsafe-NI (Jan 2005). - OGC - Key questions to be asked when granting Public Money to Grant Aided Bodies The Comprehensive Spending Review (2004). The Comprehensive Spending Review (2007). The Review of Public Administration. Strategic Investment Board/Partnerships UK report of Social Housing in NI. National Change Agent (Housing).