APPENDIX A. This is the current form of relationship the Council has with its repairs and voids contractors, and is familiar with its operation.

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1 APPENDIX A 1. Options Appraisal A. Traditional contracting The key points in a traditional contract are: Can potentially obtain the best prices available in the market at tender stage, although care has to be taken to ensure the contractor has not bid too low a price Approach gives relative certainty over price and contract terms and conditions Historically, when a contractor has underbid the price, attempts can made to increase revenue, by requesting variations to individual jobs, and thus increase revenue Contract is written for the client to be able to manage the contractor and direct the service Contract can be inflexible and expensive to change This is the current form of relationship the Council has with its repairs and voids contractors, and is familiar with its operation. The current method of paying for the work is through a nationally recognised list of tasks, called a schedule of rates (SoRs). Each task is priced and during the tender process tenderers are invited to bid a + or - % price. The nature of the risk to the contractor is that there is no guarantee of revenue stream, even though there will be historical data to indicate the likely volume of repairs being ordered. Of course, as part of its drive to improve the service, the Council is keen to reduce the overall number of responsive repairs. Another method of pricing is price per property. As a method introduced to reduce the administration costs, bidders can be invited to offer an overall annual price for all properties, taking the risk for the repairs, no matter how many there are. The format currently used excludes the renewal of components. (Thus creating extra income for the contractor) This method provides certainty of income to the contractor but can reduce the information held by the client about the repairs history for a property. Originally introduced for PFI contracts, where all components had been renewed in the initial 5 years of a 30 year contract, the contractor then took the responsibility and risk for ALL repairs and replacements for the remaining 25 years of the contract. The length of the contract is determined by the Council, mindful of the markets preference for longer contracts. The management of the supply chain (materials) is also determined by the Council, and an option under consideration, (that would assist in the standardisation of all components) would be to insist that all Page 1 of 6

2 components are provided by a single, local supplier. This arrangement could have a positive effect on component cost. This same methodology could also be applied to void properties: contractor to bid a price per void. In order for that to have any chance of success, considerable historical data would need to be provided to bidders. B. Partnering Track record of innovation and value management Shared objectives and ongoing user involvement Can deliver some efficiencies Team approach can allow space for creative change Flexible and adaptable through an annual service review Some contractors adopt a cynical approach to partnering A lack of client skills Open book agreements may have to be policed adding to costs Clients can be outgunned by national contractors Most recently, a partnering contract has begun for gas servicing, but after some poor experiences with repairs contactors, it is considered that this contract should be evaluated before any further consideration is given to this approach. During the appraisal research no other partnering contract was found. C. Contract separated into separate lots (trades). Can supplement an in-house team-potential benefits can be realised through working with a more diverse group of specialist contractors and associated supply chain Specialist contractors can be engaged directly by the client who will not have to pay the main contractor s additional on cost Each lot would be for a specific trade. This form of contract has been used to encourage the use of local trades, However, it has the disadvantage of complicating the delivery of the service when the repair might need more than one trade. It can be seen as retrograde step with regard to completing a repair right first time. D. In House Team (IHT) Using a team of staff within the organisation means there is no dilution of the culture/message. Staff are on Council terms and conditions, including pensions, so the team is unlikely to be able to compete on price or efficiency. In summary: Strong client influence/control shapes service Flexibility means the client can make changes Local knowledge and expertise can be harnessed Page 2 of 6

3 Viewed positively by residents Not subject to competing priorities from other clients Can have core of directly employed labour supplemented by others Supports local craft and employment Shortage of skilled and experienced management in the sector could compromise viability Risk of provider led internal culture losing customer focus and becoming dysfunctional Dealing with the peaks and troughs of demand may be problematic Client is liable for risk of any trading losses, redundancy and health and safety requirements The current In House Team has specialised on communal repairs, decorations for the elderly and assisting in resolving issues that had not been effectively completed by the existing contractors. Further investment in both IT and managerial resources are needed for the team and it is considered that the existing arrangements should continue, allowing further consideration to extend its remit in future years E. Managed Service Under this arrangement, a private sector partner is procured to manage the In House Team and provide other support. The commercial partner usually: 1. Provides a senior manager to oversee the IHT who is focused on service and productivity improvements with tight budget management 2. Provides the IT system for the IHT to use and manage work flow 3. Gives the IHT access to the partner s nationally negotiated materials supply chain arrangements 4. Pursues agreed efficiency savings 5. Allocates support when and as required to address key risks such as Health and Safety, customer service and supply chain management 6. Provides strategic input to the Landlord including budget reviews and growth plans where business growth is viewed as desirable / a priority. Other benefits include: The majority of repairs and maintenance staff, including operatives, are directly employed by the Landlord. Low set-up costs. Innovative mix of direct provision with private sector know-how which reduces client exposure to risk. The manager of the IHT would be employed by a contractor. Working with the in house team, acting as managing agents, the contractors staff / manager would responsible for the day-to-day operations. Page 3 of 6

4 The Landlord retains direct control and assurance over service continuity. Imports proven management expertise to drive service improvement. The pricing arrangement with the external partner is based on a straightforward management fee. Additional support can be procured at any time by the Landlord on the basis of tendered / pre-agreed sums. Specific charges for IT apply where this is part of the arrangements, again in line with the tendered / pre-agreed prices. The Landlord is not dependent on the skills of a single or small number of interim managers / consultants with no infrastructure behind them. To date there are only a few existing or mature examples of this form of provision to learn from or understand what the long term outcomes are Would still have the challenge of selecting a provider of the management service and demonstrating compliance with EU procurement requirements The In House Team is not yet in a position to benefit from this initiative because of its current limited functionality F. Joint Venture (JV) Extends the partnering commitment into an organisational form Binds the provider into a long term relationship with Ealing in which it would be expected to make appropriate investment Can provide an income stream for the host client if wider trading success is achieved Creates a monopoly situation which undermines competition Long term lock-in eliminates flexibility to change direction Total reliance on contractor s business model and IT system may be misplaced Difficult and costly for the client to extricate themselves from the JV if it fails to deliver Incentive to generate shared savings may be outweighed by the incentive to make higher profits The main disadvantage here is that there is some complexity to setting up a JV and therefore should only be considered where the turnover is significant enough to justify the effort and complexity. The complexity of creating a JV is such that it is unlikely to be the right vehicle to deliver just a repairs service in Ealing Page 4 of 6

5 G. Shared services arrangement Recognises that there is a very high degree of common service needs between social landlords and wasteful duplication can be avoided Might avoid need for lengthy and costly procurement exercise but stays within EU procurement rules Most customer service standards applying are likely to compare with or match Ealing s expectations Potential benefits can accrue from aggregating the Ealing workload with that of other landlords operating locally and from being in league with another client(s) to jointly evaluate the service being received and exert collective client influence Can still engage tenants in assessing, testing, interviewing and choosing the contractor partner During the appraisal process it was learnt that Kensington and Chelsea TMO have formed a company to deliver its repairs service and discussions are continuing to establish whether there could be an opportunity to operate a shared services arrangement for a specific are: i.e. Copley Close. However, recent events may affect the feasibility of this option. H. Framework Not always able to customise the existing or standard terms and conditions to match Ealing s requirements where these are more specific Contracts may have been priced by contractors with some degree of risk for the unexpected and may not therefore reflect the most competitive rates the market can offer Ealing would need to insist on receiving a minimum level of dedicated resources to meet its repair needs as could be in competition with other clients for these resources There would need to be a local exercise to test the compatibility of the contractor with the Ealing culture and the Council s strategic objectives A framework sets the rates and terms for work but without there being any guarantee of work. It is therefore more useful for planned works. The very nature of a responsive service means that a framework may only be useful to provide a backup contractor in the event of a performance failure. However, the same back-up facility can be provided if more than one contractor is operating across the responsive service. It is not considered that a Framework for responsive repairs is appropriate Page 5 of 6

6 I. Wholly Owned Subsidiary This is a relatively complex arrangement compared to a traditional or in house delivery. Many of the benefits can be accrued without the cost and complexity of establishing a separate limited company A Wholly Owned Subsidiary is a relatively complex arrangement compared to traditional contracting or in house delivery - would need to set out how the operational and managerial responsibilities are to be implemented to avoid confusion or disputes Detailed procedures and arrangements involving considerable legal and financial input would be needed. Elements of the private contracting sector may view it as unattractive because they would not possess the usual flexibility to use the local overhead arrangements to undertake contracts for other clients at their sole discretion. Many of the benefits can be accrued without the cost and complexity of establishing a separate limited company. A Wholly Owned Subsidiary is worthy of further consideration as a vehicle to deliver first class repairs services in a similar same way as regeneration is being delivered through Broadway Living. Under this arrangement, the Council could establish a Subsidiary of which it is sole owner whilst also entering into contracts with a private sector contractor to lead on the service delivery and the management of the Wholly Owned Subsidiary employees. Page 6 of 6