Curo Senior Procurement Manager Matt Steele reflects on the impact that a series of dramatic changes have had on housing association procurement in recent years. This article first appeared in In Procurement magazine.
Procurement in the housing sector is never dull! This regulated sector of 'registered providers of affordable housing' (aka housing associations) has been through momentous time over the past few of years.
Recently we’ve seen reduced government funding for house-building, the imposed reduction of rents, and a new form of right to buy, allowing housing association tenants to buy their homes at a significant discount. Throw in the 2012 Social Value Act and the Value for Money agenda from our regulator, the Homes & Communities Agency, and this is a hard sector for providers to navigate. Add the impact of the Brexit vote and the weakening pound and this adds up to a perfect storm for procurement in our sector.
The housing sector has been relatively protected from the austerity other sectors have faced, with the government setting the ‘social rents’ we can charge at above-inflation rates for many years. This came to an abrupt end with a new government who stipulated that social rents would reduce 1% year-on-year for the next four years.
For Curo, a housing association and house-builder with 13,000 homes, the impact of this rent reduction was immense and we had to adjust accordingly.
An immediate response was the temporary scaling-back of our house-building activity – a programme that’s seen us build up to 300 homes a year in recent times. Successive governments have relied heavily of the housing sector to tackle the growing housing shortage across the country, so the impact of the rent cut on our sector’s ability to plug this gap is significant.
With the introduction of the National Living Wage and the rent reduction, this means both resource and services costs will go up, as our income comes down, compounded by a weakening currency.
All this represents a major challenge; a challenge that we’re overcoming at Curo by being creative and innovative in our approach. We set up a commercial enterprise division that enables us to generate new income streams to reinvest back into our core social activity. This includes building, selling and renting homes on the open market.
As one of the larger providers of social housing within the South West, we have a responsibility to support the local communities and economies where we work. We take this responsibility seriously, and improving the lives of our customers is enshrined in our mission and priorities. We welcome the Social Value Act because it chimes with our mission and ensures we think about our impact on our communities. However, the EU Procurement Directives and Public Sector Contract Regulations somewhat contradict this, sometimes making for a difficult balancing act.
As a procurement professional, I believe in the need to be transparent in our procurement activity. But this approach can make things difficult for the sole trader or micro businesses in the region.
Some of these businesses would really benefit from the support and relationships that Curo could provide. However, they don’t always know the opportunities exist, or know where to look. And we are often unable to find these potential suppliers.
The result is that the same contractors and suppliers bid for the same contracts, time and time again. Even opportunities advertised on OJEU rarely provide us with fresh business partners, because we are a regional provider.
One of Curo’s priorities is to help people live independent and successful lives. We do this by helping people into work and enabling them to grow and develop. By focussing on local contractors and suppliers, we have a better opportunity of succeeding by placing local people with local contractors.
The new obstacle here is the cost of employing people. Where a contract size is too small, is doesn’t lend itself to apprentices or growth of the workforce… consider this against a growing skills shortage within the construction industry.
However, the larger contracts are more often than not awarded to the larger contractors and suppliers, who might not have a presence in our geographical area.
What about Brexit? With the weakening pound, material prices are going up. Maintaining 13,000 properties – as well as 7,800 trees, 300,000m2 of pathways, 650,000m2 of grass and 20,000m2 of hedges – is not cheap. Curo spends between £1.3m and £1.6m a year on building materials alone. Prices are increasing, income is reducing and, through increased productivity, our material consumption is also on the upward trend.
These are the everyday challenges that a procurement or commercial function within the housing sector is facing today.
I would love to say I have all the answers, but I don’t. The landscape is fast changing and it will continue to change.
We must continue to be agile, to adapt and react, while planning for the future to ensure we can always provide great properties and places for our customers while supporting them to lead independent and successful lives.
We’re not alone… our contractors and suppliers are experiencing similar obstacles and naturally will look to pass some of the increases on to their clients. Answers on a postcard please!