New Approaches to Developing Affordable Housing James Morgan

1. New Approaches to Developing Affordable Housing • James Morgan • Heriot-Watt University, School of the Built Environment HSA Spring Conference April 2010

2. Structure of Presentation • Focus on innovation in affordable housing development by RSLs to achieve efficiency • Set this in context of modernising procurement in construction industry • Show the particular challenges for housing associations • Illustrate these challenges and opportunities with the example of the Devanha Phase 2 procurement initiative • Raise key questions for the future

3. Introduction • Housing associations have historically provided only a relatively small proportion of social housing in Britain. • But HAs main providers of new social rented and affordable housing since the 1980s, therefore significance of practice. • housing association and registered social landlord as ‘artificial’ and ‘diverse’ terms, (Malpass, 2001) • Expect variation in Development Process

4. Performance of UK construction industry • Seen to perform poorly in comparison to other industries and internationally • Latham Report (1994), problems, partnering. • Egan Report (1998) solutions, leadership, benchmarking etc. • “the main...opportunities for improvements in housebuilding performance exist in the social sector for the simple reason that most social housing is commissioned by a few major clients.” (Egan, 1998, p35) • Very positive ideas embraced, e.g. “Egan Compliance” • But “a few major clients” is only representative of part of RSL movement.

5. Tensions in Direction of Travel • Influential, many organisations promoted, Construction Best Practice Programme, Egan compliant since 2004. • Egan compliance pushes towards larger, expert clients. • Tensions in England and Scotland between economies of scale and localism. Contrasting approaches. Efficiency vs. community control. • Distinctive Scottish experience: delivery by smaller HAs with limited opportunities for partnering etc. • But...Need for greater no. affordable houses for the same investment: Building a Better Deal e.g. pilots, LA preferred partners, Investment Reform Project - opportunities and concerns. • Devanha - innovation

6. Partnering • “….organisations working together to improve performance through agreed mutual objectives, devising ways for resolving any disputes and committing themselves to continuous improvement, measuring progress and sharing gains.” (Egan, 1998) • reduced disputes, better working, more effective use of personnel, promotion of innovation and organisational learning. • Should benefit all parties, targets for improvement.

7. Egan Targets and KPIs

8. Demonstrating Improvement Housing Forum Demonstration projects used • Performance measurement and benchmarking, • Longterm partnering, • Integrating supply chains, • Sharing risks and rewards, • Establishing a culture and providing incentives for the elimination of waste , • Improving working conditions for employees. Generally modernising procurement: • Selection based on quality, not just lowest tender • Single project partnering not meaningful, therefore: • Use of framework agreements e.g. Devanha

9. Partnering: Contractual Framework • Aim to reduce reliance on contracts • ensuring value for money, quality and efficiency • partnering charter • in reality, need contracts to identify risk and responsibility • ACA Project Partnering Contracts PPC 2000, SPC 2000 and TCP2005 • New Engineering Contract (NEC3), less adversarial, Core Group, risk register.

10. The Devanha InitiativeResearch • Heriot-Watt University and DTZ commissioned by Scottish Government to carry out m&e study of procurement initiative • 5 RSLs in Grampian to deliver 1563 new homes for rent and LCHO from 2007/08 to 2010/11. • Demonstrating quality improvements and efficiency savings. • 4 year evaluation period – recommendations for Devanha and for the Scottish Government which may inform Investment Reform Project.

11. Research Method and Progress • Two Interim Reports • Documentary analysis, • Analysis of programme management data, • Use of ‘data capture’ forms to minimise the administrative burden, • Workshops, • Interviews, • Questionnaire surveys, • Not just cost but quality and social gain.

12. Interim Findings: Governance • Devanha limited company with board drawn from member RSLs. • Independence of member RSLs and Devanha’s relationship to them is a defining aspect of the Devanha structure. • Devanha can galvanise the group, but also cause conflicts of interest. • Initially, there were deficiencies in the support and information. • NEC3 contract was useful in facilitating this improvement. • But struggled to try to deliver its programme. • Lacked leadership of a Chief Executive – RSLs reluctant to give up power.

13. Interim Findings: Programme Delivery £7.9m expenditure almost 60% less than £17.7m in Programme Agreement. Difficulties over system of approving schemes. Inflation monitoring part of problem. Year 2 system worked but lack of flexibility in national budget led to ‘front funding’. Lessons for National system.

14. Interim Findings: Cost & Grant 1 • Two main routes to efficiency • Bulk Procurement • No evidence of economies of scale had emerged. • Is programme big enough to influence market? • Variation from common specification. • To what extent is this needless duplication as identified by Egan and to what extent a reflection of local choice? • Lessons from private sector standard layouts with variation in “jacketing”.

15. Interim Findings: Cost & Grant 2 2. Collaborative Working using NEC 3 Approach • Currently only be based on projected costs at scheme approval stage. • Collaborative approach may lead to efficiencies on site, reinforcing need for caution in drawing conclusions at this stage. • Real progress in cultural change: trust, cooperation and openness within Core Group (involving all partners) and evidence of contractor engagement with open book costing

16. Interim Findings: Cost & Grant 3 • Lack of progress in process implementation: • Operation of NEC open book process remains problematic. • Need to urgently address Final Target Cost setting, Cost Monitoring and Forecasting, Programming and Risk Management. • Collaborative culture had been achieved but amount of innovation and novelty in procurement practice almost overwhelming.

17. Issues for Discussion and Development • What benefits have been demonstrated to arise from the move to larger housing associations and development consortia? • Specifically, has bulk procurement been shown to result in quantifiable cost savings? •  What has been lost in the process of growth? • How can the best aspects of local control be maintained while seeking efficient development? • Is there a place for small independent housing associations and co-operatives continuing to develop their own stock? • What are the appropriate models for the future – lead developers, non-developing consortia members, development vehicles which develop but don’t own stock?