Procurement: getting a good deal for housing

The value of everything

Over the years, it’s become an accepted truth that social landlords are pretty savvy at harnessing their buying power to lever in added benefits for the communities where they operate, but are they as clued up as they like to think? 

By Mark Cantrell

From Housing magazine, June 2013

SOCIAL landlords have long prided themselves on standing for more than ‘mere’ bricks and mortar, with social value being at the heart of their operations, but new legislation now means that individual housing organisations need to be sure it isn’t just talk.

The Public Services (Social Value) Act 2012 places a duty on public bodies to consider social value before embarking on the procurement process – and that includes housing associations. The emphasis is placed on considering the economic, environmental and social benefits at the pre-procurement stage.

That’s something that social landlords are considered to be good at, but as Mark Cook, partner at Anthony Collins Solicitors, has pointed out, that prowess is not uniform across the sector, so individual housing providers can’t afford to rest on the industry’s overall reputation, but must build up their own capacity in this area.

“Some housing associations are taking it very seriously, and others don’t even know about it,” said Cook. “It hasn’t come across their radar, but quite a lot of different organisations have been holding workshops. We as a law firm have spoken to a number of workshops involving people in procurement, particularly at the repairs and maintenance level, but I am not convinced that the senior hierarchy – the chief executives and directors – necessarily have become familiar with the implications for the whole organisation.”

The Social Value Act began life as a private members’ bill, introduced to Parliament by the Conservative MP for Warwick & Leamington Spa, Chris White. It received royal assent in March 2012 and became live in January this year [2013].

The aim is to “support community groups, voluntary organisations and social enterprises to win more public sector contracts and to change commissioning structures so that a wider definition of value rather than just financial cost was considered.”

In a guidance note on the new Act, published in December last year, the Cabinet Office said: “In these tight economic times it is particularly important that maximum value in public spending is achieved. However, currently some commissioners miss opportunities to secure both the best price and meet the wider social, economic and environmental needs of the community. Commissioners and procurers should be taking a value for money approach – not lowest cost – to assessing contracts and the Act complements that approach.”

The Act doesn’t single out housing associations, of course; local authorities, government departments, the NHS, PCTs, fire and rescue services, and so on, all fall under the legislation’s remit. In theory, given the housing sector’s long-standing involvement in multi-agency partnerships, it is a powerful advocate for social value among these bodies. So it does rather put the onus on the sector to show the way; there’s a lot at stake, after all.

“Billions of pounds are spent in local government and this Act now clarifies that purchasing decisions will not be based solely on cost,” said John Skivington, director at procurement consortium LHC. “It will change the way of working to actively encourage the delivery of added-value benefits such as training and employment opportunities for local people.

“However, the authority still needs to ensure that it focuses on product and service delivery, and proportionality needs to be a key focus. By including social, economic and environmental considerations in tenders, the importance of other evaluation criteria shouldn’t be diluted and the correct balance must be struck.

“It is a challenge for the authority as ultimately the ‘social factor’ doesn’t show up on an already strained balance sheet, and many will need advice to ensure that they can incorporate this alongside efficiency, value, product and service delivery quality, which all remain vital elements of the tendering process.”

For Cook, it’s about organisations changing the way they think; meeting a community’s needs – its tenants’ needs – means that a social landlord needs to be “much more methodical and much more intentional” in the way it designs and delivers it services. It means “re-engineering their services” so that they don’t simply deliver their immediate function, but serve to help deliver considered added benefits that address local need – in a way that isn’t “tokenistic” or a “bit of added value you bolt on”.

“They can be organisations that help catalyse the thought process elsewhere,” said Cook. “Housing associations and local authorities are better at talking about their relationship to place, whereas central government departments really don’t understand their relationship to the place they serve – and that’s going to be the big test here.”

The Social Value Act makes no changes to procurement law, though the knock-on effects will undoubtedly impact the process and outcomes, but change is nothing new. The procurement function has evolved considerably over the last 30 years or so, from simply buying materials at the cheapest price, to today’s more strategically focused approach, with an awareness of the added-value aspects that have come to be enshrined in the Social Value Act.

“There’s a stronger emphasis on sustainable procurement when there’s a good procurement strategy. There’s an emphasis on the amount of impact on the local economy,” said Andrew Carlin, commercial director with Procurement for Housing (PfH). “In a traditional sense, there’s not that broader understanding of its function; we’re just buying things today for what we need tomorrow.”

The evolution from what you might call the ‘institutional consumer’ to the modern procurement professional is currently the focus of a research project commissioned by PfH; not the history of it, but the ongoing development, the next steps as it were. To that end, it is looking to explore just how sophisticated the sector’s approach to procurement has really become.

“Our first [aim] is to test to what degree social landlords are taking on the culture of commercialisation, and we’re trying to ascertain whether or not some myth-busting needs to be done,” said Carlin. “I think when people mention that term they immediately think of profits and shareholders – and that’s not what it means in the context of social housing.

“It’s about building that more commercial intelligence in the business, and unlocking a culture where everyone within that organisation becomes very cost-aware about every line of activity; whether that be about the physical property management, the maintenance, or whether it’s about some of the social value and social investment that landlords make in their local communities. When we’re considering that, we’re also bringing into consideration the role that procurement strategy and procurement people in organisations play in driving commercialisation.”

Carlin is leading on the research with Dr Jo Meehan of the University of Liverpool, which was commissioned to conduct the project, with assistance from Affinity Sutton. The research is exploring how procurement functions and people in social landlords are responding to the changing environment – the impact of welfare reform, the changing funding regime, the diversification of the sector – as well as assessing the implications of such changes.

The research aims to challenge the assumptions of traditional approaches and policy rhetoric, with an aim to help the sector create the next generation of procurement innovation. The project grew out of a survey PfH conducted of its members last year. The results were intriguing and prompted further inquiry; hence the research project with the university.

“The survey revealed some very interesting things,” said Carlin. “The first thing was that social landlords only had 42% of staff that were actually qualified procurement professionals. Only a third of organisations in the sector thought they were sufficiently resourced from a procurement perspective. Only 14% thought they had total spend ability, where they get an understanding of where the money was going and whether that was contract compliant; 80% didn’t think that the procurement team would increase in size, but 70% felt the procurement function was becoming more important in their organisation.

“So that, really, triggered us to start to delve a little deeper and think about where procurement is going as commercial pressures are coming the landlords’ way.”

The research programme remains ongoing, so findings are hardly definitive at the moment. The organisation will be hosting a discussion of its provisional findings at the PfH Live event at the CIH Conference and Exhibition in June, with the full report to be published in September.

“It’s fairly early stages, but it’s telling us that procurement definitely needs to mature more within the sector,” said Carlin. “I think we’ve got the evidence there’s been a lot more collaboration on procurement, but we’re still tethered to process probably a little too much more than we are tethered to the outcome.

“The other key thing is that there are differentiating positions based on organisational size, so as you’d expect, the larger organisations have got more commitment to procurement as a function in terms of resource and head count. Some of the smaller organisations still have procurement managed by functional heads and don’t have any procurement specialism. So, it’s about how we go about transferring the skills and knowledge into those organisations to build their procurement capacity.”

The sector as a whole might be a savvy spender, then, but there’s clearly a lot of scope to get smarter. But that’s evolution – it never ends.

This feature first appeared in the June 2013 print edition of Housing magazine and subsequently republished on the Housing Excellence website, 14 February 2014