Options Appraisal for Repairs and Maintenance Services for Babergh and Mid Suffolk District Councils (MSDC)

Transcription

1 Appendix 1 Options Appraisal for Repairs and Maintenance Services for Babergh and Mid Suffolk District Councils (MSDC) Executive Summary This report presents the options available for providing repairs and maintenance services to residents across Babergh and MSDC in the future. This service is currently provided by external contractors (Morrisons) in Babergh and by an in-house Direct Labour Organisation (DLO) in Mid Suffolk. The Morrisons contract has completed its term and has been extended pending the outcome of this exercise. There will be a need to extend these arrangements for an additional length of time to cover the transition to new arrangements. The opportunity has been taken to review and consider the options for consolidating and integrating the service to provide the best quality and value for money service for residents of both Councils. The options for providing Repairs and Maintenance Services are outlined this report. It is recommended that one or more are shortlisted to enable a further detailed business case to be produced with a final decision on the preferred delivery model being made by the Council in February An implementation plan will then be developed, depending upon the option chosen. Current status Since the integration of Babergh and MSDC in 2011 there has been a partial integration of the Asset Management teams, although the repairs and maintenance service has continued to operate different models based on their historical situation. Babergh and MSDC provide approximately 7000 tenancies across the two districts, carrying out approximately 12,000 responsive repairs per year and void repairs to approximately 600 empty properties per year. Each district spends around 1 million on responsive repairs annually and approximately 500,000 on void repairs. Babergh currently delivers its responsive repairs and void repairs service through a contract with an external provider; Morrisons. This contract has been extended beyond its original term and negotiations are currently under way to extend it further, pending the outcome of this review. MSDC has retained its in-house DLO to deliver its repairs and maintenance service. Trades are employed directly by MSDC. Initial repairs calls for the Babergh area are directed through a generic call centre based at Babergh and MSDC repairs calls go to a dedicated repairs team for MSDC. Across the sector it is generally considered that there is no 'one size fits all' operating model for the delivery of day-to-day housing repairs and associated services. Each of the different service models can be seen to be working successfully given the right situation in different organisations. Best practice advice is that the optimal solution is one which will best serve the needs of the organisation s customers, its business drivers, and its stakeholders. 18

2 Repairs and maintenance activity is a significant driver of customer satisfaction, being one of the core service interactions with tenants and is of importance in protecting both the brand and reputation of the organisation. Therefore the opportunity of a re-procurement exercise should be used to drive greater scale of economies and efficiencies whilst improving service outcomes for our customers. Morrisons contract (Babergh) The scope of this contract covers day to day repairs and maintenance and void repairs. It is a measured term contract which commenced in July The contract was for 3 years to June 2012 with an option to extend a further 2 years. The Procurement Team are leading the negotiation to further extend the contract to March 2017 to cover the period of review and implementation for any new arrangements across the 2 districts. There is no customer satisfaction information available to assess the performance of current or historical service delivery as this is not collected by Babergh in relation to the Morrisons contract. DLO (MSDC) Ridge consultants were engaged to carry out a review of the DLO in December The outcome of this review showed that although the DLO possessed strengths these were outweighed by the weaknesses and a list of recommendations were provided by Ridge to improve the performance of the DLO. Little investment has been made in the DLO since that time. In addition during the course of the current 2015 review it has become clear there are many issues that are adversely affecting the current delivery of the service and particularly affecting the DLO's ability to deliver an optimum service. If the decision was made to retain or extend the DLO an investment in areas such as IT, the introduction of dynamic work scheduling, investment in a new fleet of vans and a commitment to re-structuring the service would be essential to ensure the necessary management tools and expertise are in place. This would create the foundations needed to generate the performance levels expected from a top quartile repairs provider. Blue Flame Contract (Babergh and MSDC) In February 2015 a contract was commissioned with Blue Flame Ltd to provide whole-house servicing and repair for heating, gas, electricity, and water until This contract covers both Districts and will impact the scope of works covered by the repairs and maintenance contract going forward. The contract scope for the new arrangement, regardless of who provides the service, will in effect remove all electrical and heating repairs which constitute one of the core areas of a Repairs and Maintenance contract. This represents a reduction of approximately 40% of the existing spend for both the incumbent contractor and DLO. This makes the remaining package less attractive to external bidders and would impact the ability to drive costs down through negotiation as there is a reduced ability to gain economies of scale. 19

3 Travis Perkins Material Supplies Contract (MSDC) Travis Perkins supply all materials, tools and stock for MSDC. This contract is due for renewal in MSDC are currently in negotiation to extend this to March 2017, pending the outcome of this report. Should the decision be made to continue with an in-house DLO then this contract will need to be re-procured. If the decision is made to outsource repairs and maintenance to a contractor then this will not be required as materials are provided through the contractors own supply chain Budget Announcement and Autumn Statement The Government directive regarding a reduction in revenue from rent of 1% per year over the next 4 years has a significant impact on the delivery of housing services in the future. This in turn impacts upon the repairs service. Estimates show this could mean that social housing will receive on average 350 less funding per year per property, which may reduce the amount available for expenditure on repairs to properties. This has major implications on contracts with third parties as there may be additional need to review and adjust spend in line with spending cuts imposed on and by Councils, both now and in the future as the full impact emerges. This could necessitate re-procurement or renegotiation of contracts and pricing in the future. Contracts will need to be more flexible than they have been historically in order to adapt to market pressures. This may have an adverse effect on the ability to negotiate prices down due to uncertainty about volumes of work over an extended time period. Contract management will need to be robust in order to control the resultant cost pressure. Advice from sector leaders is that organisations should not immediately look at cuts but firstly look at efficiencies. There will need to be a greater emphasis on strong Client management of contracts and contractors. This would mean holding contractors accountable to the specification of the contract, creating a suite of performance measures that are tightly monitored, regular contract meetings held and appropriate escalation of issues with the right to enact penalties or exit clauses as appropriate. This context should be considered when making decisions about how best to deliver services in the future to ensure that both operating models and contracts are flexible and adaptable in order to provide a sustainable financial model with effective controls to manage additional levels of risk. Stakeholder Engagement In order to identify the drivers and priorities for the new arrangements, stakeholders have been engaged to explore the benefits and issues experienced with the existing arrangements. This has helped to develop an understanding of the needs and aspirations of residents and councillors in shaping the future provision. Staff, Councillors and residents representing both districts came together to review the positives and negatives of the existing models of delivery. Positives included that repairs and maintenance services are generally high quality. The benefits of having a level of familiarity with the Trades and Call centre operatives was noted. Communication was shown to be problematic across all services and this should be prioritised on implementation so that residents are well informed of the changes they will experience. 20

4 Residents and stakeholders were asked to express their aspirations for the future service, this feedback produced the following themes; Get it right first time - this would mean the resident gets the repair completed in a single visit, this would require better diagnosis of repair and greater trust that Trades could vary orders in order to complete the job properly. Flexibility - to tailor services to residents needs for example appointment times and repairs priorities. Standardised and consistent services - this would mean working to an agreed standard across the districts regardless of who provides the service, this would require a single specification and policy and applying it consistently across both councils. Better integrated with housing services - this would encourage repairs and housing staff to work more closely together to help identify other issues residents face so that support can be provided. Quality and sustainability - Stakeholders identified that keeping a high level of quality should be balanced against keeping costs down to provide value for money. Data - Better use of data so planning can be improved and expenditure managed. Performance Measures - measures should be agreed for the whole repairs and maintenance service to ensure residents receive good service regardless of the geography they live in. Introducing performance measures would improve the management of service performance and accountability when service is underperforming. Communication - improvements to the ways the councils communicate to tenants and internally needs to be improved particularly to ensure residents understand the changes to the service and are informed through all stages of a repair job being carried out. These principles should form part of the assessment criteria for the short-listing of the future model options as outlined in this paper and this will be further explored in the detailed business case. This will also inform the specification of the service regardless of what delivery model is chosen through the implementation phase. Options for future delivery of services Option 1 - Continue the split-delivery model This would see a continuation of MSDC delivering repairs and maintenance through the inhouse DLO and Babergh continuing to deliver through an external provider. In order to make this option successful there would need to be investment in the DLO at MSDC, and a procurement exercise for Babergh to appoint a new contractor from April There would be a need for an interim solution to manage the transition period whilst new contracts are put in place for Babergh. This would not fully maximise the opportunity to pursue the Councils integration agenda. There would be a continued risk of inconsistent performance unless both models were aligned in performance reporting and monitoring. In order to drive the necessary improvement in performance and gain benefit in terms of customer service there would need to be a step change in the culture and contract management skills, competencies and structures to mitigate the inherent risks associated with dual running and provide a more cohesive, joined up and consistent service to residents. 21

5 Option 2 - External provider This option (Option 2a) would mean providing a repairs and maintenance service through a single operating model delivered through a sole contractor. This would require a procurement exercise to identify and appoint a new contractor for the delivery of services to both Babergh and MSDC from April This would take a minimum of 12 months from the point of decision and would require an assimilation of the specification for both services. This would meet the Councils integration agenda by delivering a single model of service delivery and delivery through a single team. Different structures of contract could be considered eg schedule of rates or open book accounting. Flexibility would need to be created in the contract which would need to be adaptable to the changing external environment. This option would necessitate a TUPE transfer of staff across to the contractor. Client side management would require additional skills and competencies to manage the new contract in a more robust way and performance measures would need to be identified through the procurement process to ensure quality goals are met and maintained. An additional option (Option 2b) is to source a contract and deliver the service through a procurement framework. A procurement framework provides a bespoke solution to delivering contracts by using a pre-approved list of contractors. This considerably shortens the time taken to procure and implement a new contract. All contracts within the framework will be OJEU compliant, the contractors will have been selected by a strict selection criteria, and are likely to be major national sector leaders. There is greater leverage in dealing with poor performance and costs have been driven down through the competitive process to have been accepted onto the framework. Frameworks providers differ in the way they structure their business. The framework provider may charge a yearly or one off cost for membership of the consortium or the cost may be included as a % of the contract value. Services offered can include benchmarking and contract management support. Option 3 - In-house team (DLO) There is an option to provide a sole operating model, managed and delivered by the in-house DLO by utilising the foundations of the MSDC model and extending this across the two districts. Retaining the management and delivery of the service in-house gives ultimate control over the standard and consistency of service delivered to customers and greater cost control. This would be achieved by altering the structure to provide a dedicated management team, including the creation of a senior management level post to oversee the work of the DLO. Investment would be required into the technology, plant and infrastructure to modernise and make the service efficient. Productivity would need to be improved to maximise the capacity and improve the cost and quality performance. A business plan and trading account would need to be developed to prove viability and performance measures would need to be identified and monitored to evidence value for money. By managing the in-house function as though it were a commercial entity, there would also be the potential to sell services externally in future years, providing income to the council. There are further opportunities to support local employment including offering apprenticeships. This would also further the Councils Integration agenda by delivering a single model through a single team. There would be opportunity to work across borders with neighbouring social landlords and Councils. 22

6 Option 4 - Joint venture A joint venture option is the middle ground between an external and internal repairs service. A joint venture would involve the creation of a separate legal entity in which both the repairs contractor and the Council would have a legal and financial stake, but which the contractor would manage the day to day running of the service. This option allows the Council to benefit from the expertise of a private/commercial contractor whilst also providing it with a potential financial gain if economies were achieved in delivering the service. A further potential option is to enter a joint venture with another registered social landlord. A comprehensive management agreement would need to be put in place between the parties to ensure that the responsibilities of each party were clearly defined. It would be usual for the contractors IT systems to be used. This therefore carries a risk if the joint venture was not successful. Informal exploratory conversations have been held with potential local partners which has suggested that this option is less attractive since the government statement around rent revenue reductions as there is less appetite to take financial risks. Summary table of the options A summary table showing the advantages and disadvantages of each option is outlined in Appendix 2 - Summary table of the options. Risks/Constraints The most significant risk to seeing an improvement in repairs and maintenance performance is if no option is selected or jointly agreed. Continuation of the existing arrangement is not viable in the longer term or legal in the case of Babergh and therefore it is essential that there is an agreed way forward to enable implementation. This will rely on all parties agreeing and buying into the option that is chosen and ensuring there is the momentum and leadership to see the transition through to completion. Recommendation of pursuing any given option is highly likely to require investment and the council will need to prioritise this as appropriate. With all of the above options a method of interim service delivery has to be established and maintained whilst the new arrangements are put into place. These arrangements will differ depending upon the method chosen, but could need to be in place for at least 12 months. If there is a sustained period of uncertainty then staff will be unsettled and customers may experience a lower standard of service. There is currently an atmosphere of uncertainty amongst staff over their future, this pressure could be increased for some depending upon the option chosen and exacerbated by the need to maintain a service through this period of change. 23

7 Decision Criteria Members are asked to consider the following criteria to aid decision making in short-listing from the options outlined; Stakeholder requirements Future cost of service provision Investment costs Quality and Customer satisfaction Timeliness Localism, Integration & Sustainability agenda's Level of service provided and whether this should be consistent across districts Recommendation Based on the options outlined in this report the recommendation is to shortlist down to 2 options and produce a detailed business case on the following options; Option 2b - Single Outsourced Model using an existing procurement framework Option 3 - Retain and deploy the In-house DLO. These 2 options are being recommended for short-listing to move towards a single model of delivery which is either entirely outsourced or entirely in-sourced. The option to use an existing procurement framework is shortlisted because this would be relatively quick to implement contractually although there is a larger impact on staff. The option to manage and deliver through the DLO is being recommended for short-listing as the Council retains greater control and customer satisfaction is consistently high. The DLO is capable of moving to a positive trading position if investment is provided. This eliminates 2 options; Option 1 - Dual Model and Option 4 - Joint Venture. These options are not recommended as there is additional legal and operational complexity, cost and extended length of time to implement the new arrangements associated with these models. A further paper detailing the viability, cost benefit analysis and risks of the shortlisted options will be brought back to Council in February 2016 for final decision. Mobilisation will commence immediately following the decision. 24

8 Appendix 2 - Summary table of the options Options Advantages Disadvantages The Split Delivery Model External Provider only Contractor or Procurement framework Lessens risk to Council if contractor defaults or goes out of business No change One point of contact making contract management and administration more straightforward Management costs may be reduced dependent on the level of the outsourcing Contractors may be able to access greater economies of scale in the supply chain Advantage of benchmarking with other landlords through a procurement framework used Quicker route to implementation if procurement framework used Procurement Frameworks offer contract management support and regular contract meetings are held DLO investment would be required DLO restructure would be needed There may be redundancy implications for Trades due to over capacity versus demand Re-procurement of materials supply contract OJEU procurement (Babergh) will take 12 months from decision Smaller contract (Babergh) may not attract larger external bidders. Blue Flame contract diminishes package on offer and will discourage potential bidders Competitiveness of tender process may encourage bidders to undersell and contract may not prove viable over its term resulting in risk to the council if contractor defaults. Separate delivery models hinder integration and alignment of services TUPE implications for DLO staff and office staff OJEU procurement will take 12 months from decision Blue Flame contract diminishes package on offer and will discourage potential bidders Large contract may put off smaller local businesses Competitiveness of tender process may encourage bidders to undersell and contract may not prove viable over its term resulting in risk to the council if contractor defaults All eggs in one basket More difficult to tender contract to specific needs of the council when using multi award contract as offered through a procurement framework 25

9 Options Advantages Disadvantages In-House provider (DLO) only Joint venture Council remains in control of the service completely Avoids risk if contractor defaults or goes out of business or increases costs Shorter time to implementation of new arrangements as OJEU does not apply Workforce maintained Local employment opportunities increase through direct employment and supply chain The potential to run the Service as an externally-trading Council function in the future for example undertaking repairs and maintenance work for profit or reinvestment on behalf of other social landlords Greater potential for local employment and utilisation of local contractors in delivery Possibility of benefiting from better technology without the need to invest Potential synergy with entering into a partnership with other social landlords who understand the customer base and challenges Potential to share in profits of providing services for other organisations DLO investment would be required DLO restructure would be needed including additional role(s) for Leadership and supervision for the Trades Re-procurement of materials supply contract Risk of high level of investment being required whilst not being able to guarantee efficient or cost effective service Responsibilities and objectives of both parties need to be clearly defined at the outset of the contract Recent Government directive about rent reduction may make other social landlords nervous about entering into any long term agreements Procurement exercise will have to be undertaken to choose partner TUPE implications for DLO staff and office staff Highly complex arrangement for both procurement of contract and ongoing relationship and contractual management J:\DOCS\Committee\Task Groups\Joint Housing Board\Reports\ \JHB Review of Responsive Repairs Appendices.docx 26