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Who is going to win the race to the bottom? Make sure it's not you

Rebecca Rees and Scott Dorling look at potential solutions to some of the significant issues facing the social and affordable housing sector.

Local authorities have a huge number of urgent policy demands placed upon them, including: helping to address the housing crisis (delivery of a new-build pipeline of "council housing") and the climate crisis (adopting net zero carbon measures to existing stock) as well as maintaining homes to a "decent" standard and undertaking works required by the upcoming Building Safety legislation which comprises complete regulatory reform for the sector to get to grips with.

None of these policy demands is cheap or easily delivered: but there are common features to possible effective solutions: solutions that are fit for the 21st century; that improve, upskill and modernise our construction industry; and that avoid the problems created by procurement solutions based on lowest price and "a race to the bottom". In turn, such solutions adopted by the sector must be cognisant of the impact they have on the people that live in the homes created and the wider community.

The pandemic has showcased how resilient local government is and the myriad of ways it has been able to step-up at a time when so many have been under pressure. What we have just experienced, however, is only the beginning of a period of increasing pressure for communities, councils and their tenants. So many of the pre-COVID issues haven’t gone away, and in some respects have been heightened by the pandemic: not only the policy demands noted above but also, rising homelessness, debt and tenancy maintenance arising from growing unemployment, resident involvement, leaseholders and the costs of addressing cladding, securing quality outcomes, and the need to transform public services - all need addressing and for some of these, there is huge urgency but inadequate budgets. Given the tightening of the purse strings and a short term public spending review to contend with, have we actually listened to Dame Judith Hackitt's warnings around avoiding a race to the bottom, where lowest price is always king, and do we have the available tools to do something about it?

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1. We need to collaborate

We are currently on the cusp of significant regulatory and regime change as a sector: we have the social housing white paper, a planning consultation, a green paper on public procurement due imminently, a draft Building Safety Bill and an entire post-Brexit landscape ahead of us to contemplate and get to grips with. In all of these reform agendas, the need to collaborate is recognised as a key and core principle underpinning most initiatives.

But why do we see collaboration as optional or a "nice to have" rather than a necessity? Collaborative procurement has been around for yonks: it is recommended in the 2011 and 2016-20 Government Construction Strategies and there is a tonne of empirical evidence demonstrating the additional value and improved outcomes generated when project teams can be persuaded to collaborate. Yet despite this evidence, collaborative approaches to procurement and contract delivery remain thin on the ground. We therefore have to ask ourselves: are we prepared to spend the time, money and effort to embed collaboration within our organisations and procurement practices? Are we in the mind-set to start collaborating with our supply-chain and other organisations? Are we prepared to aggregate spend, share specifications, innovations, resources – or are there certain areas where collaboration is still not welcome and what should our approach be when we spot this in our organisation?

The importance of collaboration should not be underestimated: we need to collaborate in order to provide the space within which we can embrace innovation and make sure we are not compromising quality and safety and – bluntly - creating the next scandal in our sector.

2. We need to upskill

One of Dame Judith Hackitt's recommendations in her 2018 Building a Safer Future report was based on the recognition that the construction sector is highly fragmented and has no fixed ideal or standard of competency in key areas. Hackitt commented that there was a lack of willingness to progress towards a coherent and collaborative standard of competency and there was a need across the industry to set standards and upskill.

"Am I competent to do the job asked of me?" is a very personal question but one that Hackitt demands is asked of each and every person working in, on and around a higher-risk building in order to ensure that residents are safe and feel safe in their homes. The task of assessing and auditing competency throughout an organisation, as well as across entire supply-chains is a vast task. Furthermore, new duty holder roles and a new role of building safety manager have been created and will need to be executed by those newly assessed as competent across the new job specifications. The assessment and accreditation of individual competency will demand significant resources and training from those within and currently outside the sector but will be held up as a hallmark of the new building safety regime.

In order to avoid a two-tier workforce being created, councils will want to ensure their staff hit the required standards as soon as possible. But what of those who don't? Difficult conversations lie ahead, with councils needing to be clear-sighted as to the centrality of competence in the new building safety regime.  

Whilst being competent to work in, on or around higher-risk buildings is an accepted, and soon to be legislated, requirement, asking yourself "am I competent to the do the job asked of me" should be the undisputed norm for anyone working in an industry where residents are at the heart of the service. Let's race to the top on skills and competence.

3. We need to avoid the race to the bottom

At this time of fiscal squeezing, procurement can be seen as a way to achieve savings and we should rely on our procurement professionals to help achieve Best Value solutions. However, the narrative has changed: the focus is now on quality, on safety and on value-led collaborative procurement. Given that focus, councils need to ensure that their evaluation criteria and procurement documents also change – so that they do not undermine or derail the current direction of travel.

Of particular importance are price evaluation models that cause the "race to the bottom". If we don't want contractors to submit artificially low prices to win a bid then we need to stop asking them to do it in the first place. By using a relative price evaluation model that awards the lowest price with the highest marks you ask the bidder to create a fiction from which the job may never recover. Why do we all suspend disbelief at the procurement stage to bag ourselves a bargain?

Dame Judith Hackitt spotted it in her 2018 Report and we all know it from experience and practice – but why haven't we fixed the problem? Procurement sets the tone of the entire contractual relationship: why can't we get the message right from the outset?

Yes, you might argue we have bigger fish to fry in the world of public procurement: culture, the evaluation of quality proposals, navigating those pesky public procurement rules (are we really waiting for Boris' bonfire of red tape?!), competence and upskilling, gold-plating, threats of litigation (not always vexatious!), but price evaluation is on the list too - and get that wrong in a highly competitive, low margin market and we end up in the mess we are in.

We also need to understand that "social value" is not an add on or a "nice to have" – it needs to be at the heart of our decision making process – particularly as we need to make decisions in the next 12-18 months that are going to have impact in the next 10 – 15 years. A short-term or narrow focus NOW will damage the future success of our organisation and of our communities.

There are a number of organisations who have been blazing a trail on this but it is far from the norm, and being the norm is where it needs to be. As anchor institutions, working alongside other anchors, councils are here for the long term and how you choose your delivery partners, make choices about how you invest and how you encourage those who work with you to deliver that longer-term impact is key, it deserves your scrutiny and, ultimately, significant root and branch reform to make it fit for the challenges ahead.

Rebecca Rees and Scott Dorling are partners at Trowers & Hamlins.

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