Be sure to hammer out an effective contract

The drive for decent homes presents an exacting challenge for social landlords. The ODPM has concluded that a key risk for the drive to get social housing up to the standard by 2010 is the capacity of contractors and suppliers to meet the demands of the programme. It recommended long-term procurement and this can indeed be the most efficient way to do this work.

In its paper Housing Repairs and Maintenance – Learning from Inspection issued on 16 January 2002, the Audit Commission also concluded that long-term strategies are needed for repairs and maintenance programmes and that, to be effective, services require most types of repairs and maintenance to be procured in a co-ordinated way. It also recommended that to improve services, tenants need to be made more involved and their input incorporated much more into the decision-making and management processes.

Choosing the right contract will be a key factor. A traditional procurement route may not offer value, particularly if the programme is carried out in phases. In such an arrangement, tendering costs are increased and with finite budgets there is a risk of exposure to building cost that can’t be controlled on each tendering exercise.

Reduced overheads
Longer-term partnering arrangements, on the other hand, offer reduced overheads and admin costs, plus incentives for team members to achieve budgets and provide value for money, thus continuously improving and managing performance.

Contractors like them, too, because they offer the prospect of a long-term, evenly spread flow of work, allowing them to invest in training and resources.

Unfortunately there are no published standard contract forms governing a two-party or multi-party strategic relationship of this kind. So how do you establish a set of enforceable terms between the key partners that support your strategic requirements and objectives and also provide an accountable audit trail?

One option is to set up a single strategic agreement, created separately with the selected contractor or contractors and sitting above individual project contracts for delivery of the different phases. This sort of agreement should uphold:

• recognition of the parties’ commitments, expectations and mutual objectives
• the use of standard model documents that will govern each phase of delivery
• acceptable preconditions for proceeding with each successive delivery phase, covering design development, risk management, completion of the supply chain, finalisation of prices and the start of work on site
• agreed key performance indicators for contractors, to secure the expected work flow
• strategic and phase-by-phase commitment by contractors, underpinning a relationship of trust and cooperation
• long-term commitment from suppliers
• clear recognition of the other stakeholders in the programme, including residents.

But where more than one contractor is to be appointed, single agreements don’t offer the opportunity to link them together.

A conventional single building contract is too inflexible to accommodate ‘year on year’ funding

A single strategic agreement between the client and all of its partners allows for just that. It can also establish common documents, create a system of early warning if problems relevant to the programme as a whole arise and establish a “strategic core group” of key individuals to consider common issues and drive best practice across the programme.

Setting overall boundaries can also ensure that contractors benchmark their performance against each other, share information and develop common supply chain arrangements and other systems.

So could a standard form building contract achieve these strategic objectives?

Turning a standard form contract into a single building contract for the entire programme assumes that there is a single development process for design and prices, and an outright commitment for the whole programme. But it fails to take into account the need for mechanisms for a sequential process catering to delivery phases, each one of which needs all team members to be in full possession of information from the start.

Continuous improvement
Decent homes programmes may be funded on a year-on-year basis, for which a single building contract is too inflexible. There may also be problems in termination if continuous improvement targets, measured against key performance indicators, aren’t met.

And, because a standard form building contract doesn’t contain multi-party arrangements, it would keep the arrangements with each contractor entirely separate. So none of the features of a strategic agreement as outlined above could be accommodated in a single standard form building contract.

Social landlords need to make urgent decisions on how they intend to procure the necessary programmes to meet the decent homes standard. Tying contractors into

long-term partnering relationships is a good way to ensure you meet your financial objectives as well as your technical ones.