Is this the way to develop housing policy?

On 7th April Grant Shapps announced Tenant Cashback; there was the press release with footnotes saying that three housing associations thought it was a good idea and they would be happy to pilot the proposed scheme.

The media got exited, Mr Shapps was interviewed and largely repeats the press release and commentators give their views.

But if you try to find any details behind the proposals there aren’t any! The idea has been thrown into the arena for people to pull and push about, to put it to the test and to expend time, effort and money to see if it is a practical idea.

Surely there should be a responsibility on government to provide a little more detail

Of course nobody wants to say that tenant choice is a bad idea, and few want to offend the Minister, so most formal responses are prefixed with ‘We are very much in favour of tenant choice and welcome the proposal…but we need to look at what the difficulties may be’ or words to that effect (see the Chartered Institute of Housing and National Housing Federation responses).

Surely there should be a responsibility on government to provide a little more detail when making proposals and at least be able to demonstrate that the proposals have been evaluated to some degree before being announced.

There has been comment that tenants will be able to claim up to a thousand pounds a year for repairs that they do themselves, or commission themselves, but this was not in the press release (and I can find no other formal information about the proposals); the press release said that social landlords currently spend a thousand pounds a year in repairs per household – it didn’t say this was how much each household would be allowed. But even this figure has been disputed by Abi Davis, from the CIH who, speaking on BBC Radio 4′s You and Yours programme, said  the figure is more like five to six hundred pounds and HQN, who were reported on the Inside Housing website as saying that on average homes have three response repairs a year valued at one hundred pounds each.  I give this as just one example of how the nature of the announcement causes confusion and uncertainty that wastes time and money when it can least be afforded.

This isn’t a blog entry about the Tenant Cashback scheme itself, that will follow when I too have spent time and energy developing my own response to it, but this is about how responsible government should develop policy.

New trends in social housing?

As I read the social housing press I begin to feel that I’ve been here before.

Recently there was discussion of new measures to introduce rigour into the process prior to eviction; there was discussion about ensuring that tenants were actually seen before enforcing an eviction.  When I worked as a housing officer we were required to thoroughly research our arrears cases before serving notice, let alone enforce eviction!  I can recall being made to feel very inadequate because although I knew that a household had children I didn’t have their ages readily to hand when asking for agreement to serving a notice on a case of increasing arrears.

A recent question asked ‘can we ask tenants to pay their first week’s rent at signup?’ Again, it used to be required practice to have the first fortnight’s rent paid up front and only in exceptional cases to allow just one week’s rent to be paid. Certainly if the first week’s rent couldn’t be paid the keys wouldn’t be handed over.

I worry that many of the good practices of yesteryear have been forgotten and need to be re-learnt to tackle today’s housing management issues.

Parent Company Guarantees and Performance Bonds

When letting large contracts there is often the need to consider the client’s interests in case there are performance or liquidity problems with the appointed contractor.  Two commonly used tools to protect this interest are the Parent Company Guarantee (PCG) (or Parent Company Indemnity as it is sometimes known) and the Performance Bond (PB).  So what are the differences between the two and which is most appropriate in any given situation?

Lets look at the two options and then compare and contrast them.

Parent Company Guarantee

A PCG is an undertaking given by the parent company where the Contractor is a subsidiary of a larger company.  The parent company undertakes to guarantee the due and proper performance of the contract generally – this means that if the Contractor fails to perform the contract in any respect the parent company can be held responsible as well as the Contractor (its subsidiary).

If the subsidiary should cease trading the parent will indemnify the Client from all losses and damage resulting from the non-performance or improper performance of the Contractor’s obligations.

If the parent company and Contractor go into liquidation at the same time the Client can be left without any recourse to be compensated.

The PCG provides the Client with a second party to hold responsible if the Contractor should fail to perform its obligations.

Performance Bond

A PB is an insurance taken out by the Contractor, usually at the Client’s expense.  This introduces a third party who is external to both the Client and the Contractor.  The Bond assures the Client that if the Contractor should fail to perform the duties under the contract the Client may recover losses from the Bond provider (usually an insurance company or bank).  Bonds are usually limited in value and are typically for 10% of the contract value.

It should be noted that there are two forms of PBs, the usual ‘adjudication bond’ where the Client has to prove the default of the Contractor, and a less common, and potentially problematic (for the Contractor) ‘on demand bond’. In an ‘on demand bond’ the client is not required to prove a default on the part of the Contractor, it is simply necessary to call in the bond.

Compare and Contrast

Firstly, a PB is a form of insurance and is provided by an external third party.  The fee for the bond is usually charged to the Client and is an immediate contributor to the cost of the contract.  A PCG is provided by the Contractor’s parent company and there is no corresponding charge to the Client unless the Contractor should choose to introduce an administration fee (but if he is alone in doing so it will of course affect his competitiveness).  In the case of a PB the Client needs to consider carefully whether the benefits of the Bond outweigh the costs involved.  This will be dependent on the level of cover, but also the nature of the works specified, an assessment of the Contractor and a number of other matters such as the Client’s appetite for risk!

The extent of the protection will differ between a PB and a PCG.  In the former, as has been said, the cover is limited in the bond agreement.  The level of cover may not be enough to cover the cost of delays due to appointing a replacement contractor and multiple problems can quickly exhaust the level of cover provided.  Often in projects there is more than just the costs to be considered, there is also reputation and goodwill.  A PCG will provide the Client with the same level of cover as if the Contractor himself was being held responsible.  Typically the Contractor will go into liquidation – at that stage the parent company will be responsible as though he were the original contractor (provided he hasn’t also gone into liquidation – and that is a real possibility).

This last point is particularly important.  If the parent company and Contractor go into liquidation at the same time the Client can be left without any recourse to be compensated.  It is for this reason that clients often seek both a PCG and a PB.  If there is no charge for a PCG and all bidders are required to provide a PB then the Client gets maximum cover for no additional cost.

The final difference is the period of liability under the two arrangements.  A PB will usually last throughout the contract period and for a limited time after practical completion as allowed in the contract; a PCG will place the parent company in the same position as the Contractor and this will usually mean that the parent company remains responsible for 12 years following practical completion.

Practical issues

During periods of business uncertainty the availability of bonds to smaller businesses may reduce (or the cost may increase to reflect uncertain times).  Clients should therefore think carefully about the need for bonds.

Some parent companies have a policy of not providing PCG and Clients need to consider how to handle such situations carefully.

As has been discussed above, ‘on demand’ PBs have a significant advantage to Clients and may be considered quite dangerous for Contractors.

If the Client makes it necessary for bidders for work to include a PCG, or a PB where there is no parent company, the playing field will not be level so far as costs are concerned.

Clients also need to consider that not all bidders will have parent companies and how they will safegurd the contract in these circumstances – here a PB may seem appropriate but consider how you balance this against those from whom you ask for a PCG.

Residents play a leading role in selecting new grounds maintenance contractors

When Dorset based Signpost Housing Association needed to tender its grounds maintenance service saving money was not its only consideration; getting a standard of service that met residents’ needs was also of great importance.  Working with specialist social housing consultant Peter Bird from Primary Business Support the association formed a project working group from staff and residents who were already members of the Association’s Planned and Responsive Repairs Review group (PARRR).

The contracts were let at the higher standard, which, following the tendering exercise, could be afforded within existing budgets

The working group comprised three members of staff and 18 residents and its first task was to agree the tender specification.  Working with a draft the group had real and meaningful input and introduced a number of new elements as well as adjusting the specification to meet their own needs.  There was a desire to improve the standard of specification and the group identified two key areas where it wanted to see improvements.  Grass cutting had long been an area where improvement was wanted, in particular those who lived in communal schemes wanted to see the grass cuttings collected up and taken away.  The group also wanted to see the maintenance of hedges improved.  It wasn’t clear whether improved services were affordable and so the group decided on a three standard specification where the standards on grass cutting and hedge maintenance varied between a reduced, middle and enhanced standard.

Having established the standard the group delegated responsibility for tendering to a sub-group that comprised three staff and six residents.  Because of the size of the contract – the Association has stock in Dorset, Devon and Somerset – the tendering had to be undertaken through the EU tendering route as a ‘Part B’ service and the work was split into three lots each covering different geographic areas.  The restricted tendering procedure was followed which meant that a pre-qualification questionnaire (PQQ) was sent out to potential suppliers.  The sub-group agreed the content of the PQQ including the project specific questions to be included and it also agreed the PQQ evaluation model.  The group went on to undertake the PQQ evaluation and decide which potential providers to invite to bid at the Invitation to Tender (ITT) stage.

Again, the working group agreed elements of the ITT requirement, including the subject areas for method statements that would be used to evaluate the tenders under the ‘most economically advantageous tender’ (MEAT) model employed and also, again, the evaluation model to be used.   The method statements decided by the group covered working methods, staff training, customer service and adding value to the contract.

The procurement process was complicated because the grounds maintenance service is recharged to many residents under variable service charge arrangements.  Alongside the tendering arrangements around 4000 residents were also consulted under a mixture of S20 Consultation for variable charge payers and general consultation with other residents who benefited from the service.  The working group also considered the representations made by residents under these consultation arrangements.

Having completed the tender stage the working group evaluated the tenders for the three contract areas and, based on the evaluation model, selected the preferred suppliers for each contract based on price but also the content of the method statements, and references.

The contracts were let at the higher standard, which, following the tendering exercise, could be afforded within existing budgets.  Residents will see grass maintained at a shorter standard than previously and those in communal schemes will have grass cut using box mowers and clippings will be taken off site for disposal.  Hedge cutting will also be provided at an enhanced standard.

The residents involved have found the process stimulating and enjoyable.  John Pearson, a resident from Winterbourne Whitechurch, said ‘I have found the whole process interesting and I feel that the residents have had a very real role to play in determining the standards to be agreed and the selection of the best contractors for the work.’

Residents continue to be involved and attend joint client/contractor meetings monitoring the delivery of the service in the three contract areas.

Further details about the process can be obtained from Julie-Ann Foster, Divisional Manager for Signpost Housing Association, on 01258 484829 or from Peter Bird, at Primary Business Support, on 01264 324403.

A full case study that includes greater detail and learning points from the project is also available from Peter.

Gender Identity and the Tenant Services Authority’s Regulatory Framework

Going through the TSA’s new Regulatory Framework for Social Housing in England from April 2010 I have come across the requirement for providers to ‘demonstrate how they have taken into account the needs of tenants across the seven equality strands’.  The seven equality strands are race, disability, sexual orientation, age, gender, religion or belief, and gender identity.

I’d be interested to hear from others how they manage to ensure that their services take into account the needs of people across this particular aspect of the seven equality strands in housing or any other service area.

I’m genuinely in favour of equality for all but there do seem to be some practical difficulties in being able to demonstrate having taken some of these aspects into account. Before these factors can be ‘taken into account’ I would think that the landlord needs to identify the numbers, location and needs of the various groups.  I must confess I was not totally clear on the difference between ‘gender’ and ‘gender identity’ and so I turned to Wikipedia.  It told me that gender identity is:

the gender(s), or lack thereof, a person self-identifies as. It is not necessarily based on biological fact, either real or perceived, nor is it always based on sexual orientation. The gender identities one may choose from include: male, female, both, somewhere in between (“third gender”), or neither.

For some time registered providers have had difficulties in obtaining a high rate of return when asking tenants about sexual orientation.  I’m not sure how they will obtain information about such personal, and technical, issues as the Gender Vs Gender Identity of tenants.  I understand from other googling that gender identity seems to be discussed in terms of transgender situations but again many people who have gone through the process of changing gender, or who are in the process of changing gender, will presumably want to keep their situation private.  I can also see great difficulties in getting tenants to understand the differences between ‘gender’ and ‘gender identity’.

I’d be interested to hear from others how they manage to ensure that their services take into account the needs of people across this particular aspect of the seven equality strands in housing or any other service area.

Managing Budgets and Improving Services by Tendering

As the financial squeeze begins to take hold this may be just the right time to consider tendering services.

It surprises me how often people stick with an existing supplier, rolling over contracts, undertaking value for money assessments and generally finding reason not to re-tender services convinced that what they have is the best service possible.

If you are looking to make financial savings now might be the time to consider re-tendering some of your existing contracts.

There are good reasons to re-tender periodically. Number one is that as you are feeling the pinch so are potential suppliers – they are more likely to give better prices or find innovative ways to add value in these circumstances; number two is that as technology moves on so do opportunities for suppliers to make their offerings more attractive, for example, through cost savings brought about by new machinery, equipment and systems.

Another reason is that companies are constantly adjusting to ever changing circumstances; companies are merging and changing so that the offer that they made you two years ago when you asked them for a price may be very out of date to what they can offer today.

Re-tendering also gives you an opportunity to revise the specifications that you currently use to manage your externally supplied services.  These can usually benefit from being brought up to date in terms of user needs, technological advances and legal requirements.  We have undertake numerous tendering exercises and have good experiences working with project teams that comprise staff, residents and external consultants to ensure that the needs of the various stakeholders are recognised and addressed.

People often avoid tendering because they have a comfortable working relationship with current providers: ‘they know what we want and we know how to handle them’.  This can be a good thing but it can also be limiting – when new suppliers are appointed they are usually full of enthusiasm to satisfy you, make you a reference site, go the extra mile.  When the contract has been running for some time the enthusiasm can fall off and ‘what gets measured gets done’.

This is not to say that long term contractual arrangements cannot remain good but a good supplier has little to fear from a bit of healthy competition so long as the competitive process is fairly managed.

If you are looking to make financial savings now might be the time to consider re-tendering some of your existing contracts.

Gas Auditing

I have a client who recently asked me to undertake a number of tenders in readiness for the new financial year.  One of those that he wanted me to tender was a service for gas auditing.  Now I hadn’t come across gas auditing before and so I asked him what he needed.  He explained that in view of the legal responsibilities placed on landlords to have gas systems inspected annually he needed to be assured that the work was being undertaken competently.  I was unsure this was necessary since the engineers are Gas Safe registered, but that was what my client wanted tendered and so that’s what I have been doing.

As I reflected on this I came to realise the wisdom of my client’s decision to have gas audits undertaken, even if his contractor is registered.

I have had a rude realisation that my client was correct to have concerns.  At home we have oil heating (no gas available) and when the boiler stopped working recently (for the umpteenth time and it’s only two years old – but that’s another story) we called out an OFTEC registered oil service engineer.  A week after his visit we found that he had cleaned the oil filter enclosure and left it with a very small leak.  This has led to the Environment Agency being involved and considerable work being undertaken by a specialist oil spills company (thankfully being paid for by our insurers).

As if this wasn’t enough we woke this morning to a cold house (we’re getting used to that…) and when I checked the boiler I found that a large jubilee clip had been left off the flue hose that carries away the noxious fumes.  The boiler is in a rear porch area and so the fumes had not entered the house but our dog sleeps out there!  Fortunately, he seems none the worse for it.  I replaced the clip and within seconds the boiler restarted.

As I reflected on this I came to realise the wisdom of my client’s decision to have gas audits undertaken, even if his contractor is registered.

If you have your gas installations serviced annually and don’t have the work audited you may want to consider where you might stand if one of the engineers has an off day.

Incidently I discussed with my client the percentage sampling to be undertaken in the audit and we thought between 5% and 10%.  Upon checking with one of the specialist suppliers of this service it seems many opt for 10% in the first year and once they are satisfied that work is of a good standard reduce the sampling to 5%.  It also depends on the size of stock and geography and how may different contractors you use and how many different staff they employ.

The Supreme Court has rejected an application to appeal from L & Q in the Weaver case

The Supreme Court has rejected an application to appeal from L & Q in the Weaver Case.

In June the Court of Appeal decided that L & Q, and by implication all other similar registered housing providers (formerly RSLs) were public bodies.

Associations may want to revisit the original case to consider whether they consider themselves to be a similar association to L&Q in the terms expressed by the Court of Appeal.

The Court of Appeal decision has wide implications for all similar RSLs/Registered Providers. It means that their decisions can be the subject of Judicial Reviews and, like all other public bodies, they are subject to the Human Rights Act. It may also mean that, like other public bodies, they are subject to the Freedom of Information Act.

Associations may want to review their documentation to ensure that it is clear that for various purposes they may be considere ‘Public Bodies’ and that information may be disclosed under the FoIA, for example in contract documentation.

Are Housing Association rents likely to reduce as September RPI is -1.4%?

Following concern over the RPI figure for September 2009, upon which housing association rent increases are based, the figure has been published as -1.4%.

This will mean that rent changes next year could be rent reductions as the rent restructuring formula allows only 0.5% adjustment from the RPI figure, as published in the preceeding September.  However, the NHF in its response to the Government’s consultation on “Directions to the Tenant Services Authority”, is currently arguing that the rent restructuring formula is aimed only at controlling rent increases and does not apply to rent reductions and so the position is, perhaps, still a little uncertain.

Associations have argued that the effect of reducing rents next year, which will have a roll-on impact in all future years, will be to put financial pressures on them that may lead to reduced new homes delivery and lead to a reduction in their activities that support local communities such as work creation and tackling financial exclusion.

Rent restructuring ‘guidance’ requires that rents should change each year by no more that 0.5% above inflation +/- £2 per week.  By use of the +£2 option social landlord should be able to avoid rent decreases and may be able to achive modest rent increases despite the deflationary RPI.

It can be understood that as financial pressures hit associations they may see the need to trim back on some of the peripheral work that they currently underatake and look for efficiencies within their existing processes. This doesn’t necessarily mean trimming jobs but perhaps reviewing how things are done may be enough to sustain associations’ ‘housing plus’ activities.

VAT payable on service charges?

I recently came across this article about VAT on service charges that was considered by the European Courts of Justice.

The ECJ ruling may have an effect on the charging of VAT on some service charges.  A good summary of the case can be found here

The jist of what is being said seems to be that if an element of the service charge can be ‘opted in’ or ‘opted out’ then it no longer becomes an integral part of the ‘rent package’ for VAT purposes, and VAT may become payable on that element. This has yet to be interpreted by HMRC for the UK but some lawyers are encouraging Registered Providers to consider what the impact may be for them.

This seems similar to the treatment of garages and telecare services, where, if there is an element of choice in the charge it will be VATable and where the provision is integral with the letting of the property there is no VAT payable.