CIH Repairs & Maintenance Conference & Exhibition Pricing Models Analysing your costs and achieving value for money

Transcription

1 CIH Repairs & Maintenance Conference & Exhibition Pricing Models Analysing your costs and achieving value for money Ark Housing Consultancy LLP John Fisher, Partner David Brown, Senior Consultant 15 th May 2014

2 Approach 1. The Client Perspective 2. The Contractor Perspective 3. Cost Model options 4. Some Examples 5. The Debate

3 Strategic Asset Management

4 HCA Value for Money Standard Registered providers shall: Understand the return on its assets, and have a strategy for optimising the future returns on assets including rigorous appraisal of all potential options for improving value for money including the potential benefits in alternative delivery models measured against the organisations purpose and objectives

5 Lifecycle Asset vs. Liability Asset Management is an art and a science!

6 Asset Management Scope Volume High Value Low Repairs Cyclical Customer Impact Immediate Business Impact Short Term Planned Remodel Low High Development Delayed Long Term

7 Ark s Asset Management Wheel implementation current situation Procurement is stage 5! procurement and mobilisation evaluation implementation planning prioritise and plan

8 Affordable Housing Landlords Business Model Surplus 5% Loans Management 25% 30% Responsive 15% Planned 25% Asset Spend = c.40%

9 Typical Unit Annual Costs Low Rise High Rise Responsive/Voids 443 Responsive/Voids 555 Gas/M&E 200 Gas/M&E 245 Cyclical Decs and Planned Elemental 977 1,620 Cyclical Decs and Planned Elemental ,150 Regeneration? Regeneration? Development? Development?

10 ASAP Model Data Availability? DEMAND DATA HOUSING DATA PROPERTY DATA MARKET DATA COMMERCIAL DATA STAFF ANALYSIS CBL Voids offers Waiting list Refusals Turnover % Void Spend ASB Age profile Tenancy length Arrears Actual rents collected Management cost Quality of public realm Responsive spend Voids spend Planned spend Cyclical spend Deprivation Crime Market share Tenure mix Geographic concentration Location EUV-SH OMV Market rents Yields Ease of management Ease of maintenance Quality of neighbourhood Quality of public realm

11 Responsive/Cyclical Typical Costs Low Rise High Rise Responsive Repairs: Unit Cost Additional One Off Costs Communal Areas Voids: 7%-10% 1,750 per Void Gas: 3* Service M&E Servicing: (e.g. Water Treatment, Asbestos Management, etc.) non service charge items, say Cyclical Decorations: (Exclude call handling and client function)

12 Typical Unit Costs and Life Cycles Planned Component Life Cycle (yrs) Unit Rate (incl.) Annual Unit Cost Low Rise Annual Unit Cost High Rise Bathroom 30 2, Boiler 15 2, Chimney Consumer Unit External Doors External Wall Finish 60 3, Fascias/Soffits Heating Upgrade 30 3, Hot Water Tank Kitchen 20 3, Rainwater Goods Roof Covering 60 5, Windows 30 3, Wiring 30 3, Other Building Repairs 10 1, Communal Area Works ,260

13 Understand the Assets Ark s Strategic Asset Performance Model (ASAP)

14 Understand the Assets

15 Service/Contract Delivery Options

16 Asset Management Golden Thread CUSTOMER EXPERIENCE EXCELLENT CONTRACTOR (NEEDS ROBUST ORDER BOOK) ASSET MANAGEMENT STRATEGY / PLAN CLARITY OF SERVICE VISION AND STANDARDS

17 Service Delivery Structures Service Cost Profile Governance Management & Systems Delivery Supply Chain

18 Contract Critical Success Factors All Solutions Longer contract length Certainty of volumes in forward order book Clear Service & Technical Standards Simple/transparent cost model One team approach Understand cost, not price measure value Define and manage risk >50% is people

19 Contractors People Units Turnover Staff* Materials** 5, m m 10,000 15m m 20,000 30m m 30,000 45m m 40,000 60m 1, m 50,000 75m 1, m * 80k t/o per operative + management/back 40% ** 22% of turnover

20 Operative Cost Comparison Private Sector IHC IHC IHC IHC Cost (Salary & NI/Pension etc) 26k 33k 29k 27k 30k Availability & Work Days Hours per week Comparison to benchmark - +29% +29% +17% +35% IHC Private Sector Ts & Cs?

21 Who is Buying the Materials? TIER CLIENT 1 MAIN CONTRACTOR 2 WORKS SUB-CONTRACTOR 3 TRADES SUB-CONTRACTORS 4 MATERIALS SUPPLIER

22 CHIC s Approach TIER CLIENT (CHIC Members) 1 MAIN CONTRACTOR 2 KITCHEN SUB-CONTRACTOR 3 TRADES SUB-CONTRACTORS 4 MATERIALS SUPPLIER

23 CHIC Materials Savings Can they be achieved? Organisation Summary Materials Category What they would have paid What they pay ended up paying Money Saved ( ) Money Saved (%) IHC / 10,000 homes Doors 1,200,357 1,102,871 97, % IHC / 5,000 homes Various 3,028,301 2,817, , % IHC /11,000 homes Heating 729, , ,546 26% IHC / 4,500 homes Merchants 367, ,363 77,185 21% External Contractor / 6,500 homes External Contractor / 3,750 homes IHC / External HA Client Kitchens 288, ,722 60,534 21% Bathrooms 65,028 46,170 18,858 29% Electrical 71,466 62,809 8,576 12%

24 Typical Cost Models SOR Industry standard but high administration Price Per Property Popularity growing, focus on service but rules must work Open Book Cost Plus Culturally challenging for many contractors, often becomes... High risk for client

25 IHC / CSV Principles Parent/Subsidiary Relationship

26 Service Delivery Structure Board of Directors Managing Director Commercial Team Service Support Team Operational Delivery Team Responsive Voids Planned Gas

27 A Contractor s Perspective: Commercial Management David Brown, Senior Consultant, Ark Housing Consultancy

28 Aim and Background Aim To share my experience and knowledge of commercial contracting and help define the approach needed for effective commercial management of an IHC Background 30 Years as a Contractors Quantity Surveyor (often referred to as Angels of the industry) 11 Years as a Consultant specialising in Cost Management

29 My World (Contractor) Contractors manage their income and costs - High turnover - High risk - Low margin Robust cost management systems Nothing given away They know what they are earning and they know what they are spending

30 What are the key principles? Costs not Price

31 Price not Cost Tender DESCRIPTION QUANT UNIT RATE TOTAL Removal Provide all necessary dust sheeting and protection to tenants property and internal finishes, fittings and 1 item appliances. Allow for the provision of crates so that the tenant can temporarily relocate kitchen utensils, crockery, provisions see risk account and other items during the course of the works. Carefully take out all existing kitchen fitments, sink, unit, wall and base units, built in units and worktops and clear 1 item from site. Carefully disconnect and set aside for reuse all kitchen appliances. Including relocating daily as necessary. Allow for temporary connections to appliances such as freezers, fridges, washing machine and cooker during the course of the work. Allow for temporarily capping off any exposed plumbing, item waste pipes or electrical services as work proceeds. No services are to be left unsealed during the course of the work. Temporary facilities are to be provided for the tenant for cooking and washing. Carefully strip all existing ceiling and wall coverings and remove from site. (one layer of wallpaper only) 1 item Carefully remove all existing ceramic wall tiling and other fixtures not required and remove from site. (splash backs) 1 item Carefully take up all existing vinyl floor and remove from site. (single layer) 1 item

32 Price not Cost Job Number 007 Address 10 Downing Street Ref Description Quantity Unit Rate Total Change tap 1 no Replace sink 1 no Repair door 2 no Repair door frame 3 no Remove plaster and replaster 4 m Renew Bathroom suite 1 no 1, , Total 1,380.00

33 Price Price = Contractors Income On many maintenance contracts the contractors income is built up using agreed SOR s, cost per property, activity schedules (you need to ensure it is not cost plus)

34 What Contractors do is: Understand their costs

35 Basic Cost Elements Net costs of works Net costs of preliminaries (Hub costs) Identification and understanding risk Overheads Profit What are the net costs of works ALWAYS made up of?

36 Cost of Works Cost of works are always made up of the following: Labour Plant Materials Subcontractors

37 Preliminaries Costs Still - Labour, Plant, Materials and Subcontractors Most contractors have a standard Preliminaries book Typical structure of Preliminaries Supervision Non Productive Labour Accommodation (Site Specific central location) Transport Plant Welfare (H&S) Quality Control Temporary Services (Utilities)

38 Overheads and Profit Overheads The costs of running the rest of the business The question is: What are you paying for? Profit Not a dirty word in contracting Surplus can be used as a driver for commercial awareness in any IHC

39 Risk (Commercial) Commercial Risk Key to the effective management of a commercial business is understanding and managing risk You need to define what the commercial risks are to your business You then need to, regularly, monitor and manage those risks

40 Where should you focus?

41 Key Drivers What is the key commercial driver for effective cost and performance management of a Contractor carrying out maintenance? Utilisation of Labour force It maximizes your income It reduces your cost per job Who does this?

42 Who Increases Productivity? Who increases the utilisation of the workforce? The Management The question you should be asking is: What can I/we do to help the workforce do more?

43 Characteristics of an Excellent Contracting Team (IHC) Effective leadership and management Responsibility for performance delegated to appropriate level in team High degree of commercial awareness Use information effectively Monitor and manage performance take action Continuous improvement part of the day job Learn from front-line staff

44 In order to maximise efficiencies you need a clear vision of what is coming up. With that you can plan and deliver efficiencies. If managed properly these efficiencies can be shared with the client in many ways including social benefit

45 How different is it as an IHC? It is the same

46 The vfm for an IHC is to use and utilise the same controls This does not need to be prohibitive. The IHC should be reporting (not relying on finance)

47 Typical Sector Cost Models SOR Old industry standard but high administration Price Per Property Popularity growing, focus on service but rules must work Hybrid Open Book Cost Plus PPP + SOR for exclusions Culturally challenging for many contractors, often becomes... High risk for client

48 Price Per Property Typical approach: a) Responsive repairs PPP + Exclusions b) Voids Base PPV + Exclusions c) Gas 3* PPP d) Planned elemental unit prices (e.g m/sq. kitchen) + one off works (e.g. plastering, DPC etc.) Materials can be bought separately via consortia with transparent transaction and price controls Minimises administration (regular reviews only on exclusions annual reviews of PPP) Regular cash flow for client and contractor Ideal solution for IHCs commercial open book internally

49 John Fisher, Partner David Brown