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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