Part 1 (Open to
the public)
ITEM NO.
REPORT OF THE DIRECTOR OF HOUSING SERVICES
To the Cabinet Meeting
On 5th March, 2003
TITLE: Securing an Improved Repairs and Maintenance Service
RECOMMENDATIONS:
1 That the City Council support the decision taken by the Parent Board of New
Prospect Housing Limited to procure the repairs and maintenance service for council
housing in Salford via a partnering arrangement and a Joint Venture Company.
2 That the City Council participates in the creation of a Joint Venture Company as a
partner
3 That a join OJEC advertisement is placed for expressions of interest as soon as
possible
EXECUTIVE SUMMARY:
Following the Best Value review and inspection of housing services a nil star (poor)
with likely to improve rating was awarded, with the repairs service being a key
weakness. In September 2002 New Prospect Housing Limited was set up to manage
housing and maintenance services on behalf of the City Council and to implement
improvements within the Service Improvement Plan in order to achieve a two star
service by the summer of 2004 and to qualify for additional ALMO resources needed
to bring Salford's stock up to the Decent Homes Standard.
A key project within the SIP is the future procurement of repairs. Following a robust
option appraisal, the company's Parent Board has decided to pursue a Joint Venture
Company as the approach most likely to secure both value for money and the service
improvements needed.
The City Council's agreement and participation is required for this project because the
likely length of any contract (up to 10 years) will exceed the current management
agreement the Council has with New Prospect. The proposed JVC will also be likely
to include work currently carried out by the Development Services Directorate.
BACKGROUND DOCUMENTS:
Report to Parent Board 7th February 2003 is attached.
ASSESSMENT OF RISK:
Risks of not achieving an improved repair service and best value rating include
intervention and the non-availability of ALMO funding. A details risk assessment will
be developed as part of the development of the JVC.
THE SOURCE OF FUNDING IS:
To be determined. There will be an option to recover the initial outlay on this project
via the preferred partner within the contract price.
LEGAL ADVICE OBTAINED:
Initial advice via KPMG and Anthony Collins Solicitors. Further advice will be
obtained as the project develops.
FINANCIAL ADVICE OBTAINED:
advised by consultants, District Audit and the Housing Inspector that a JVC
established after market testing will be an effective way of demonstrating value for
money as well as improved quality.
CONTACT OFFICER:
Harry Seaton
WARD(S) TO WHICH REPORT RELATES:
ALL WARDS
KEY COUNCIL POLICIES:
Best Value; Employee Matters; Housing Strategy; Performance Management;
Procurement Policies;
DETAILS:
ITEM 4
REPORT TO NPHL PARENT BOARD
FEBRUARY 7TH 2003
Title: SECURING AN IMPROVED REPAIRS AND MAINTENANCE
SERVICE
1.0
Purpose of the Report:
i)
To examine how each of the two shortlisted options satisfy the main objectives
for the repair service.
ii)
To provide to Board Members detailed information in relation to the
discussions with Colchester and Islington Council’s regarding their repair
services, who are operating Third Party Management arrangements and a Joint
Venture, respectively.
iii)
To report to the Board the outcome of discussions with the Housing Inspector
on 3rd February 2003 in respect of the potential of the Third Party
Management and Joint Venture options in delivering an improved repair
service.
iv)
To recommend a preferred procurement option for the repairs service.
v)
To agree the next steps that will be required in order to effectively procure the
preferred option.
vi)
To agree how and when the decision is communicated to staff.
vii)
To recommend that a working group is established in relation to the
Procurement Project.
2.0
Background
This is the third report concerning Securing an Improved Repairs and
Maintenance Service.
The Board will recall the first report dated and presented on the 20th December
2002, which introduced the various procurement options, and recommended
the options appropriate for further consideration by the Board.
The Board will also recall the second report dated and presented on the 17th
January 2003, which undertook further detailed analysis of the remaining
options.
At the meeting on 17th January 2003 the minutes (and discussion) confirmed
that the Board wanted investigate both JVC and Insourcing further. The CE
was to meet with the Housing Inspectorate and seek views on the Insourcing
option in particular to determine whether it met with their expectations, given
the initial feedback reported to the Board at the meeting.
Within the meeting the Evaluation matrix was considered at length and each of
the Options was scored against each of the Objectives. The result of this
exercise was that the two options that scored most favourably were Third
Party Management and the Joint Venture with overall scores of 185 and 187
respectively.
The Board also resolved that it would be interested in visiting or undertaking
discussions with other Authorities where the Third Party Management and
Joint Venture options are operating in practice.
The report now examines in detail how each of the two preferred options
meet the service objectives in addition to detailing the outcomes of the
meeting with the Housing Inspector and the visits to Islington and from
Colchester. Based on this analysis and outcomes the report will make a final
recommendation to the Board.
3.0
Satisfaction of service objectives
As part of the appraisal process, to ensure that the shortlisted options will
satisfy the service objectives, the Third Party Management and Joint Venture
options are examined below against each objective:
Objective: Ensuring value for money and best value via a market testing
process.
Third Party Management
Joint Venture Company
Through the full re-engineering of
internal processes, improving
performance and satisfaction,
examining areas of spend and making
savings, this option will be able to
demonstrate value for money in time.
However, if it does not involve a full
market testing process, other than
benchmarking, in the short term, it may
not satisfy the requirement.
This option will market test the
entirety of the repair service on a cost
and quality basis within a competitive
market. The contract agreement will
require the JV to operate within
existing budgets but meet demanding
performance targets. Performance
and cost improvements will be
negotiated with potential partners in
advance of the agreement and
included within the conditions. As a
consequence, providing the JV
delivers this option should ensure
value for money and Best Value.
Objective: Improving quality and performance by introducing more effective
management at a strategic level.
Third Party Management
Third Party Management will involve
securing a new senior management
team, which will clearly satisfy this
objective.
Joint Venture Company
A Joint Venture arrangement will
comprise of existing transferred
employees. However, the partner will
undoubtedly want to bring in its own
managers in key posts to work with
the existing senior staff team to
provide strategic direction for the
organisation as well as improving
organisational capacity and
effectiveness.
Objective: Improving performance against key performance indicators and a
positive contribution to achieving a 2 star service by summer 2004.
Third Party Management
Joint Venture Company
The Third Party Management team
would be specifically engaged to work
on improving performance. Payment
conditions would be specifically linked
to achieving performance targets. This
arrangement could be procured
reasonably quickly and could therefore
bring about a significant degree of
positive performance improvement prior
to the inspection in 2004.
Although the long-term improvement
potential for a JV is considered to
exceed that of Third Party
Management, its short-term impact,
due to the procurement period
involved, is more limited. As a
consequence some interim
management arrangement would be
required (see later in report).
Objective: Building into new contractual arrangements robust quality
objectives
and customer feedback.
Third Party Management
Joint Venture Company
The Third Party Management
arrangement would have quality and
customer feedback objectives at its
core, which would be key requirements
of the agreement. Equally any
additional partnering contracts
The Joint venture agreement will
have quality and customer feedback
objectives robustly but fairly built into
the contract terms. The meeting of
these terms will be a conditional
requirement for the ongoing
subsequently procured by Third Party
Management could include these
objectives within the contract terms.
continuation of the agreement.
Objective: Bringing additional investment into the service to maximise the
impact
of information technology on service provision including call centres, modern
computer systems, hand held computers, etc.
Third Party Management
The Third Party Management
arrangement would not in itself be able
to generate any external investment.
This would have to be generated from
internal budgets through efficiency
savings. Any subsequently procured
partner would need to bring in
additional investment (say IT) to meet
the objectives of the service for the
future, however this is unlikely to be on
the same scale that a JVC would bring.
Joint Venture Company
The Joint venture agreement will
require an external company to bring
significant investment into the
agreement. This could be expressed
either in monetary terms or through
specific service and innovation
requirements where significant and
appropriate investment will be
required if these are to be met.
Objective: Increasing investment in training to offset shortages in skilled
labour.
Third Party Management
Joint Venture Company
The Third Party Management
arrangement would not in itself
generate investment for training. This
would have to be generated from
internal budgets through efficiency
savings. Some training investment may
be attained through subsequent
partnering arrangements with external
providers.
The Joint venture agreement could
have, as part of its contractual
requirements, the need to train a
specified number of apprentices and
a requirement to bring significant
investment into the agreement for
training schemes. The performance
requirements within the agreement
should also demand extensive
training programmes. NPHL would
have the benefits of training
investment from day one without
paying up front. Although this would
be recouped back by the partner over
the lifetime of the JV, it would be
hoped that the investment would
result in cost savings for the benefit
of both the JV and NPHL. The JV at
Islington had expended £350,000
over 18 months on technical,
management and customer care
training and development.
Objective: Streamlining processes and cutting unnecessary bureaucracy.
Third Party Management
Joint Venture Company
The Third Party Management
arrangement would have a reasonable
chance of streamlining processes if
given full autonomy to make the
necessary changes. However, as staff
would not be actually employed by their
managers this could potentially reduce
the ability of the organisation to change.
There is a very strong chance that a
Joint venture agreement would be
very effective in achieving a
streamlining of processes. This is
due to the aggregation of all services
into a single entity, managed by a
strategic team, whose main
objectives would be the improvement
of the service to customers and
achieving cost efficiencies.
Objective: Maximising local employment opportunities.
Third Party Management
Joint Venture Company
It is possible to include the requirement
to maximise local employment
opportunities within contractual
agreements. Therefore the procurement
work undertaken by the Third Party
Management arrangement could help to
support local labour.
Local labour agreements could be a
fundamental part of the Joint
Venture. This could also be
supported by local training schemes,
that through investment, could be
developed by the Joint venture
contract (see training objective
above).
Objective: Securing equality in service provision including meeting the
appropriate equality standards and statutory obligations.
Third Party Management
This could be a key objective for the
Third Party Management arrangement
and a requirement for subsequently
procured contracts. Within the existing
organisation it may be difficult to
implement effectively without
investment.
Joint Venture Company
Equality will be a key feature with
specified outcomes for the Joint
Venture, which will have to be
adequately resourced. As a
consequence it is highly likely that
the Joint Venture will be able to
effectively implement this objective.
Objective: Addressing the current fragmentation of service provision and
Increasing capacity to carry out additional Decent Homes work funded by
Additional ALMO resources.
Third Party Management
Joint Venture Company
The Third Party Management
arrangement would have a reasonable
chance of addressing the fragmentation
of service provision if given full
autonomy through re-engineering and
effective procurement. The
arrangement could also procure large
partners to deliver Decent Homes
programmes.
There is a very strong chance that a
Joint venture agreement would be
very effective in addressing the
fragmentation of service provision as
managers would have total control to
make the service as effective as
possible. Through effective strategic
procurement large partners could
also be engaged to deliver Decent
Homes programmes.
Objective: Securing fair and reasonable conditions of service for all employees
including, depending on the chosen option, transferred staff.
Third Party Management
Joint Venture Company
The Third Party Management
arrangement would not involve a TUPE
transfer and therefore terms and
conditions for employees would not be
an issue.
A Joint Venture Company would
involve a TUPE Transfer of existing
technical staff, surveyors and
operatives into the new organisation.
As this will be an area of major
concern for employees it is essential
that the Contract agreement secures
existing conditions for its full term and
that the JV attains admitted body
status into the Greater Manchester
Pension fund.
Objective: Cost effectiveness.
Third Party Management
The Third Party Management
arrangement would have to operate
within existing budgets. Through
improvements in efficiency from reengineering and effective procurement
it would be hoped that cost savings
could be made for re-investment in
service. However this estimation is set
Joint Venture Company
This option would also have to
operate within existing budgets. The
costs of the service would be secured
as part of the tendering exercise and
subject to negotiation. As a
consequence, due to the attractive
nature of the Joint Venture to the
private sector, it is highly likely that
within a climate of increasing
maintenance costs, (tender prices rose
by 8.5% in past year) which may require
extra funding in order to maintain
existing levels of work.
these costs would be competitive. It
is anticipated that there would be up
front investment by the partner in
order to improve performance and
increase productivity (better IT,
handheld technology etc). These
developments will then achieve
savings as the joint venture
progresses for reinvestment in the
service. However this estimation is
set within a climate of increasing
maintenance costs, (tender prices
rose by 8.5% in past year) which may
require extra funding in order to
maintain existing levels of work.
Objective: Support of customers.
4.0
Third Party Management
Joint Venture Company
The initial view of the customers on the
ALMO Board is that Third Party
Management arrangement would be the
more attractive of the two options as
this does not involve a TUPE transfer.
Although a Joint Venture Company
would involve a TUPE Transfer this
option will potentially provide greater
benefit to customers through
investment, increased quality and
performance, potential ALMO
finances, the delivery of wider
agenda issues, employment of local
labour. Even though the service
would be delivered by a Joint Venture
Company the actual operatives
serving customers would be the
same operatives who currently
deliver the service. The main
difference is that they would hopefully
be operating within a more effective
and customer focused environment.
Meeting with the Housing Inspector
The Chief Executive and Improvement Plan Project Manager met with
representatives from the Housing Inspectorate and District Audit on 3
February 2003. The Insourcing Third Party Management proposal was
presented in detail by NPHL and a letter was handed to the Inspectorate
setting out robust responses to questions raised on this issue. The Board will
be aware that a representative of District Audit had been present at the
meeting with Colchester Borough Council.
A thorough debate took place, and the background to Insourcing and its
potential benefits were considered. Although the short and long term issues
faced by NPHL were understood, both organisations had significant
reservations about this new model, which remains untested. They felt that as
NPHL is an organisation of significant size that the benefits of a JVC in terms
of changing the culture of the service and sharing or passing risks to others
had more benefits.
In summary the concerns that they expressed about Insourcing were:




Value for money testing would not be satisfied by Insourcing,
This option had not been tested elsewhere,
The arrangements in Colchester are in their early days,
It is uncertain how this option will look, operate and deliver
improvements,
 No clear understanding of the lead in time required to deliver
improvements,
 No sharing of risk and all financial risks will remain with NPHL,
Discussions about proposals to bring in additional capacity in the interim were
positive, they would welcome the early introduction of new management to
ensure that improvements start immediately to pave the way for longer term
improvements. They expressed grave concerns about the repairs and
maintenance service which they felt was undoubtedly the worst area of service
provided by the organisation. Without early intervention (and the organisation
being able to demonstrate improved outcomes soon) it is clear that the
Inspectorate would not anticipate the 0* rating being improved during 2003.
However, there were also positive messages from the meeting. Both
organisations seemed comfortable with the robustness of the process used by
the Board in the procurement debate, and seemed satisfied with the
organisation’s demonstrated determination to change and to improve its
services.
5.0
Key findings from visit from Colchester to discuss Third Party
Management
arrangements
7000 stock. Setting up an ALMO with a second inspection in December 2003.
Third party arrangement in since 2002. There has been significant investment
by the Authority into housing to drive improvements. Total spend by Housing
is approximately £10 million.
In addition to managing surveying department Third Party Managers
procuring a
partner to work with existing organisation to bring in commercial practices,
bring in investment for improved systems, processes and training, provide the
organisation with flexible capacity to deal with increases and decreases in
work, and build capacity into the existing organisation in terms of resources
and skills to attain better quality, continuity of labour, and the capacity to
spend ALMO monies.
OJEC Notice put out for partner to enter into Joint Venture. Existing staff and
operatives will work within this on a secondment basis.
Call centre set up by DLO to take calls direct.
No step improvement yet but anticipate favourable response from Inspector
due to the processes being put into place.
The third party management team is reimbursed through a fee plus a share of
any saving resulting from efficiency savings. The works partner will run an
open book accounting system for an agreed profit plus a share of any “super
profits”.
The Board could ultimately decide to get rid of the partner for poor
performance and undertake the service in house. If however performance
problems were due to the existing workforce the partner would be given the
opportunity to take measures to improve. If a termination of employment was
necessary this would be reasonably simple to execute compared to a JV, which
would have to be “dismantled” and the assets transferred back.
A full record of the meeting is contained at Appendix 1.
6.0
Key findings from Visit to Islington to discuss Joint Venture
arrangements
30,000 stock.
JV route chosen due to stock reductions (redundancy risks), a dramatic loss on
the trading account, no confidence in the service from customers and a poor
relationship with the Housing Client. There was a lack of management
direction (mixture of changing managers and consultants). As a consequence
decision made to seek alternative business solutions (JV).
Spend with the JV is £20 million out of a total spend of £75 million.
The existing operation, when taken over by Caxton was organised into 3
business units. This arrangement plus a clear focus on objectives leading to a
more motivated workforce have been the major drivers for improvement
(Urgents went from 85% to 100% completions. Void repair times reduced
from 4 to 3 weeks).
Culture now heavily focused on engagement with the customer. The 2 main
objectives for all employees are to serve the customer and make a profit; this
provides all staff with a clear sense of direction. In the past there were too
many (and often conflicting) objectives to meet.
Investment has included 40 new vehicles, £250,000 on training, Servitor
repairs system and major upgrade of the existing server.
Service improvement measures have included developing the existing subcontractor base to be more quality and customer focused, the development of
multi-skilling, the development of a bonus scheme based on productivity,
quality and customer service, the employment 14 new apprentices last year,
the establishment of a single Housing call centre.
Performance indicators are improving significantly and customer care
feedback is good. Current BV rating is 1 star and improving.
The JV was set up in October 2000. This involved the TUPE Transfer of 500
council employees (200 maintenance, 300 cleaners) to Caxton Islington. Since
commencement they have recruited a further 50 employees on the repair side
of the operation.
Caxton Islington are in approved pension scheme so all staff pension rights
transferred.
JV has 5 Caxton Directors plus a Council shareholder who is a Councillor.
The Council share is given special rights to veto certain decisions.
The JV has also picked up some additional work from local housing
associations.
The agreed profit level to Caxton is 3%. Profits above this are shared with the
Council.
It took 18 months to procure the agreement. Bidders made submissions
offering proposals on delivering the service. Bidders were reduced to 2 and
then detailed negotiation took place on all elements of the service.
KPMG and a large legal consultant were employed at an estimated overall cost
of £1 million.
The negotiation team of Kier actually came in to run the JV when it went live.
Promises were delivered.
A full record of the meeting is contained at Appendix 2.
Please note that thanks have been extended to Pennington, Anthony Collins
Solicitors, Islington Council and Caxton Islington Ltd for sharing their
experiences with the Board.
7.0
Local Boards
At a meeting on 22nd January local board members received a presentation on
the options available to the company and the deliberations of the Parent Board.
Following discussion, local board members indicated their support for a Third
Party Insourcing option. However, they were also aware that the ultimate
decision on this matter lay with the Parent Board.
8.0
Conclusions
1. The Board has already decided that a partnering approach to procuring repairs
services offers the best prospect of substantial improvements in the service,
and that of the partnering options available a Third Party Insourcing and a
Joint Venture Company are the favoured options.
2. The Board received an informative presentation on a Third Party Insourcing
model adopted in Colchester including the advantages of that model in
bringing potential short and long-term improvements. However, it was also
clear that the Colchester model was new and as yet untested, and was being
applied to a much smaller organisation than that in Salford.
3. Board members who visited the Caxton JVC in Islington met representatives
of the company and the Council. Both parties confirmed significant
improvements in performance, a greater customer focus, and a greater
commitment to the service from staff. There had been no compulsory
redundancies, terms of employment had been left unchanged following a
TUPE transfer, and the company had taken Admitted Body Status in the local
authority’s pension scheme.
4.
Whilst the Housing Inspector and District Auditor accepted the NPHL’s
concern for both short and long term improvements in the current service, they
had significant reservations concerning the Third Party Insourcing option in
terms of its newness, the lack of risk sharing, value for money and the
prospects for radical improvement. Board members will want to take these
views into account, not least because of the crucial best value inspections due
in 2003 and 2004 and the need to achieve a two star service.
5.
Whichever option the Board ultimately choose, there will be a need to ensure
that management capacity within the existing team is sufficient to ensure the
service improves in the short term prior to partnering and that Service
Improvement Plan targets are met. The Board is recommended to authorise the
Chair’s Committee on Appraisal and Remuneration to agree the necessary
changes.
9.0
Recommendations


The Board considers the options and, given concerns raised by the Housing
Inspectorate about the Insourcing option, that it approves the Joint Venture
Company approach to procurement
The Board approves the exclusion of Special Needs Housing Team (adaptation
works) from these arrangements so that sensitive and appropriate
arrangements are able to be made to meet individual needs within the spirit of
partnering principles




The Board requests the Chief Executive to submit a report to Cabinet to
engage support from the Council before procurement commences
The Board delegates to the Chief Executive the authority to engage the
necessary legal, financial and management consultants to take the process
forward to ensure that a potential partner is identified in Autumn 2003 and that
TUPE issues are clarified and appropriate advice given to staff
The Board request the Chief Executive to identify suitable candidates to
provide interim support within repairs and maintenance to ensure a step
change in performance over the next 3-6 months. It is recommended that
suitable candidates be appointed subject to agreement by the Chair’s
Committee (Appraisal and Remuneration) at the earliest possible date
The Board delegates to the Chair’s committee (Appraisal and Remuneration)
the consideration of requests for VER from some senior members of staff at
the earliest possible date to enable retirements
10.0The next steps
 Information to staff, tenants and other stakeholders (see below)
 Consideration and endorsement by the Council’s Cabinet at its next
appropriate meeting
 Advertisement for expressions of interest (Joint Notice involving Salford
Council and NPHL) in the prescribed European journals
 Creation of a project steering group to take key decisions and make
recommendations to the Board, and include:
 Board members
 1 representative from Development Services
 1 trade union representative
 2 tenants
 1 Project Manager
 legal, financial and human resource input as required
 Establishing a detailed implementation programme
11.0
Staff Information and Consultation
The Board is conscious of the sensitivity of partnering issues in respect of the
current workforce. It will be of paramount importance, therefore, that staff are
kept fully informed of the decision taken by the board and have the
opportunity to have their concerns addressed. The Board may wish to consider
the following approach to keeping staff and other stakeholders informed:





an immediate newsletter to all staff from the Board explaining its decision
and the reason for it
information on the decision to local board members
information via the press to tenants spelling out the positive service
implications to them, with frequent updates by newsletter
An early meeting with trade union representatives and the Stakeholder
Group
Inform local board members




Group information and discussion sessions with all the staff affected to
explain more fully the implications of the preferred option and how staff
might be affected, as well as the positive advantages for both the service,
and the career and employment prospects for staff
Early visits by staff to partnering sites where they can see for themselves
the improvements made and how staff are affected, and meet the staff
concerned
As soon as a preferred partner is identified, give them access to staff to
discuss their plans and management approach
Set out a programme of newsletters and staff meetings to ensure that
people are kept fully informed
APPENDIX 1
Record of meeting held on 30.01.03 involving Board Members, Stakeholders,
and Pennington Consultants who are facilitating an Insourcing arrangement in
Colchester.
Note: Discussions were with representatives of Pennington and their legal advisors
Anthony Collins.
Background information
Colchester has 7,000 Council dwellings. The housing Department has generally been
a good performer, however the Maintenance Service has been an area of weakness.
The DLO employs 30 operatives and the Housing Department also has a surveying
department of 20 staff. There has historically been conflict between these operational
and technical departments when undertaking schemes.
The DLO undertakes all Housing responsive repairs, which have an annual value of
£2.5 million.
The overall repair and maintenance budget is approximately £10 million.
Most of the planned work is undertaken by Private Contractors.
The non-decency level is 70%.
Repairs resource strategy
Following a comprehensive option appraisal Colchester chose to set up an ALMO in
order to secure funding for Decent Homes programmes.
At their 1st inspection Colchester’s Housing Service received a rating of 1 star. Their
second inspection is at the end of 2003 when they plan to attain a 2 star rating.
Performance improvement work
Over the past years the DLO and the surveying department have brought in new
initiatives but none have achieved step improvement. There is now recognition by all
that radical solutions are required in order to achieve the 2 star rating.
New management have been brought in to the DLO and the Surveying Department.
There has been some significant investment provided by the Council to bring in new
skills bearing in mind that the repairs service needs to be making good progress in
performance if 2 stars are to be achieved by the end of 2003. A new manager was
brought into the DLO in 2001.
The DLO has set up a call centre and takes all repair reports directly from the
customer.
Pennington are mainly involved in improving the surveying department, which nearly
failed in 2002 and 4 managers from Pennington were brought in. Pennington are
currently in the process of procuring a partner to work with all existing DLO and
surveying staff to improve the repair service. Colchester are looking to this insourcing
arrangement to:




Bring in commercial practices.
Bring in investment for improved systems, processes and training.
Provide the organisation with flexible capacity to deal with increases and
decreases in work.
Building capacity into the existing organisation in terms of resources and
skills to attain better quality, continuity of labour, and the capacity to spend
ALMO monies.
The OJEC Notice seeks a service provider rather than a works contractor and will be
selected through the negotiated procedure. The agreement will be for 10 years and
there may be more than 1 partner depending on the nature of the applicants. The
partner will initially concentrate on improving the DLO, will run the surveying
department, break down the barriers between these 2 departments and deliver the
major programmed works.
At the present time the 2002/2003 programme is progressing as normal, though
efforts are being made to improve the responsive service.
Colchester does not anticipate a TUPE Transfer to occur.
A partner appointment will be made in July 2003, with this coming into effect in
September 2003.
They are confident that they will be able to demonstrate to the Housing Inspector the
implementation of an effective procurement strategy and the right processes that will
deliver step change; and although this will not yet have resulted in significant
improvements to customers, this will be good enough for a 2 star service rating.
Managing change
To some respects, managing the change process with insourcing has been more
difficult than with the use of a more common option such as externalisation as staff do
not really fully understand what is at the end of the insourcing route. What is planned
is a relationship (CO-OPERATOR) that will develop over time. However there is a
consensus amongst all employees that change has to happen.
There is a communication plan operating to assist the change process.
Colchester had too much emphasis on contractual drivers rather than performance
outcomes for customers. This emphasis will be changed with service specific PI’s at
the heart of performance management.
Employee conditions
The insourcing arrangement will involve seconding existing employees so a partner
will not be able to change terms and conditions. Any changes to terms and conditions
would be made by the ALMO Board.
It is likely that there will be different Terms and Conditions between existing
employees and employees brought in by the partner.
Accountability for performance
The Board is ultimately responsible for repair performance, however sanctions would
be taken against the partner if they were not “adding value”. The Board could
ultimately decide to get rid of the partner and undertake the service in house. If
however performance problems are due to the existing workforce the partner would
be given the opportunity to take measures to improve.
If a termination of employment was necessary this would be reasonably
straightforward to execute compared to a JV which would have to be “dismantled”
and assets transferred back etc.
Method of payment
The third party management team is reimbursed through a fee plus a share of any
saving resulting from efficiency savings.
The works partner will run an open book accounting system for an agreed profit plus
a share of any “super profits”.
Investment
Colchester is currently expending £3 – 400,000 per annum in relation to the interim
management arrangements. There are also significant procurement costs. Colchester
Council has provided this investment for Housing in order to attain improved
performance.
In terms of the insourcing partnership investment will be based on solutions (handheld
technology, IT etc) rather than a monetary value (specifying a figure is not allowed
with a LA organisation as this is in effect taking a loan – credit borrowing).
Procurement
The view of the consultants working for Colchester was that a JV would be more
expensive to set up than an insourced partnering arrangement due to the cost of the
legal agreement, the cost of setting up the constitution and the cost of transferring
assets. Also if there was poor performance, it would be hard for the Council to
extricate itself from the agreement.
Views of the market to preferred procurement option
20 companies have responded to date to the OJEC Advert. 3 of the respondents are
companies that have already been involved and know full details of the proposed
arrangements.
Value for money
Top up works (e.g. ALMO monies) will be done on a price. Management
arrangements will compare costs and benefits of internally procured works before and
after reengineering. The DLO rates will be examined by the partner and if appropriate
reduced to reflect a reasonable market rate.
Business growth
There will be skills sharing between the partner and the in house teams and if there is
extra capacity they will look to pick up work outside the immediate service and share
the benefits.
Pictorial representation of proposed new relationship
ALMO
Co-operator
Management expertise
Increase skills
In-house
repair
service
Increase capacity
Flexible resource
Development of external
APPENDIX 2
Record of visit on 4th February 2003 involving board members, and
stakeholders to Islington who are running a repairs joint venture
Note: Discussions were with the client manager from Islington Council and business
manager from Caxton Islington.
Background information
Islington have 30,000 Council dwellings. There is predominantly a mix of low-rise
houses and medium rise flats. The stock is due to be reduced shortly, through transfer
by 2,500 and then by a further 7,000 next year.
The primary reason for the JV route was the potential forthcoming stock reductions
(redundancy risks) and a dramatic loss on the trading account. There was also no
confidence in the service from customers and a poor relationship with the Housing
Client. There was a lack of management direction (mixture of changing managers and
consultants). As a consequence decision made to seek alternative business solutions
(JV).
The JV model was already being successfully operated in Islington when the option
appraisal was being undertaken and was chosen as the preferred solution.
Spend with the JV is £20 million out of a total spend of £75 million.
Caxton tender for other programmed works schemes and are on all tender lists (like
former DLO).
The work comprised originally of voids, responsive, cyclical maintenance and a
portion of the Councils gas servicing. They have subsequently won all the gas work
for Islington.
Average void value is £2000.
Maximum order value under the contract is £13,200.
Performance improvement work
The existing operation, when taken over by Caxton was organised into 3 business
units each roughly serving a client of 10,000 properties. This arrangement plus a clear
focus on objectives leading to a more motivated workforce have been the major
drivers for improvement (Urgents went from 85% to 100% completions. Void repair
times reduced from 4 to 3 weeks).
Big change has been the culture, which is heavily focused on engagement with the
customer. The 2 main objectives for all employees are to serve the customer and make
a profit; this provides all staff with a clear sense of direction. In the past there were
too many (and often conflicting) objectives to meet.
40 new vehicles were purchased in the 1st year of the contract.
Caxton have developed the existing sub-contractor base to be more quality and
customer focused. Those that can not deliver have been removed. There was
originally £7m spent with sub-contractors. This has been significantly reduced by
undertaking more of the work internally.
Caxton is developing multi-skilling to improve the service. They are also bringing in a
bonus scheme (Islington DLO did not have a scheme) based on productivity, quality
and customer service (balanced scorecard).
There is a strong emphasis on training and development with £250,000 spent over the
last 18 months. This included technical, customers care and management training.
There are competency issues at 3rd tier management level, which are being addressed
mainly by training.
Caxton have introduced the Servitor repairs system and upgraded the existing server.
The Council system interfaces and stock condition information is automatically
updated on the Council database.
Employees have been made more effective and productive. A number of operatives
have been dismissed who were not willing to embrace the new culture.
They are also heavily involved in apprentice training and employed 14 new
apprentices last year.
There were 12 housing offices taking calls at one time. There is now a single Housing
call centre employing 23 staff. Repair requests are passed via computer to Caxton.
There were 120,000 repairs raised last year. Call centre hours are 8.00am – 8.00pm,
Saturday mornings and out of hours on a reduced staffing level.
All operatives have mobile phones.
The Housing client still undertakes pre-inspections (this was a client decision not in
line with proposals of the bidders). There is a big problem in recruiting technical staff.
This situation is being reviewed as the relationship develops. The housing client is
also keen to reduce the amount of responsive work and increase planned spend.
Caxton have their own Care cards an Islington undertake sample surveys. Results are
good. Councillor surgeries are experiencing reduced repair complaints.
There is a joint Housing and Caxton customer repairs focus group.
Current BV rating is 1 star and improving.
Employee conditions
The JV was set up in October 2000. This involved the TUPE Transfer of 500 council
employees (200 maintenance, 300 cleaners) to Caxton Islington.
Since commencement they have recruited a further 50 employees on the repair side of
the operation.
Islington decided to close the admitted body scheme after the transfer. As a
consequence existing employees keep full pension rights but new starters cannot enter
the scheme. New starters also get less holidays but more pay.
Redundancy was never an issue though there was a drop in morale due to uncertainty
and when the initial decision to “externalise” was made. A small number of operatives
left before the transfer and a further number took VER.
The Joint Venture in operation
This has 5 Caxton Directors plus a Council shareholder who is a Councillor. The
Council share is given special rights to veto certain decisions.
There was no performance drop at commencement.
The JV has also picked up some additional work from local housing associations.
Monitored on 107 P.I’s. 22 of these link directly top incentive payments and penalties.
10 year agreement but break clauses after BV Inspections in 2004 and 2007.
Relationships with the Trade Unions have been good.
The agreed profit level to Caxton is 3%. Profits above this are shared with the
Council.
There was no profit sharing in year 1 but a substantial return to the Council in year 2.
The Client has full access to all Caxton systems for performance and financial
information.
Any redundancies due to stock losses – the liability lies with the Council.
The most problematic area for the client was sorting out the charging arrangements –
IT and competency issues.
The Client feels that Islington got a very good deal out of the JV.
In year 1 the JV turned over much more work than anticipated but coped.
Kier have faced head on all challenges and resolved them.
Procurement
It took 18 months to procure the agreement. Bidders made submissions offering
proposals on delivering the service. Bidders were reduced to 2 and then detailed
negotiation took place on all elements of the service (other bidder was Accord). Bid
difference between bidders was the management of risk.
KPMG and a large legal consultant were employed at an estimated overall cost of £1
million.
No investment values were specified – just service requirements.
Bidders specified the performance targets that they anticipated they could reach.
There were subsequently written into the contract.
The negotiation team of Kier actually came in to run the JV when it went live.
Promises were delivered.