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Indecent exposure
Contract Journal – 15 June 2005

Councils have a 2010 deadline to meet the Decent Homes Standard, but a few are dragging their feet – which could end up costing them much more in the long run. Mark Smulian explains

All clients want their work done quickly, but when they have their backs up against a government-imposed deadline their power to negotiate a keen price with builders fades fast.

When the work they need done is basic improvements to thousands of council homes, the deadline is a mere five years away and some have so far done little, the problem is obvious.

The immovable object of the government's deadline for councils and housing association to meet the decent homes standard could come up against the irresistible force of the industry's capacity shortages.

When and if that happens, prices are sure to rise, or the deadline will be extended amid much political embarrassment and blame-passing, or both.

There is a huge amount of work for refurbishment contractors, much of it repetitive tasks on long-term partnering deals.

The decent homes standard was developed by the government to ensure that all social housing met "reasonably" modern standards (see 'What is a decent home?', foot of page), which are not technically onerous.

Indeed, more forward-thinking councils are taking the opportunity to carry out a higher standard of refurbishment while they have contractors at work.

There is though a major catch for councils with 'indecent' homes.

If they have enough money to meet the standard, they can organise the work however they please through their housing department.

But the majority could not afford this, and they must choose one of three options that bring extra money.

The first is the private finance initiative. This has been relatively little used in housing, not least because few private firms wish to take on ownership of a council estate of unpredictable structural condition.

Transfer to a housing association – a well-established route taken by nearly 150 councils since it began in 1988 – is the second option. This brings in ample refurbishment funds, but set-up procedures are lengthy and tenants must be balloted. The third option is the clumsily named arm's-length management organisations, known as ALMOs.

These are a halfway house available to councils with a satisfactory inspection by the Audit Commission.

The council still owns its homes but the ALMO is operationally independent and has access to extra money from the government.

Many contractors will come across talk of the 'fourth option'. Beware, it does not exist.

It would allow councils to keep ownership of their homes and also access to extra funding available through the other three options.

Despite a vote in favour at last year's Labour party conference, the government had adamantly rejected their idea as it does not want councils to incur uncontrolled borrowings.

According to the Office of the Deputy Prime Minister, progress towards the standard has been quite swift.

It says that when Labour took office in 1997 it was confronted by 2.1m homes owned by councils and associations that would not have met the standard, equivalent to a 19bn repairs backlog for council homes alone.

By the end of 2004, this had fallen to just over 1m, and by the end of next year some 25bn will have been invested in improvements to social housing of all kinds.

Governments never commit themselves beyond three-year spending rounds, but there is every reason to think the money will be there until 2010 to deliver the standard.

Or longer, if Julian Harajda, business development director of contractor Durkan, is right.

He says: "I suspect there probably will be a logjam of work for 2010, but the real problem is the skills shortage, that is what will drive prices up because the programme just will not get done if there are not the skilled workers.

"You need skilled trades to do this work, not just labourers."

Harajda "would not be surprised to see the programme extended by a few years by the government".

This is because some councils still have not assessed the condition of their homes and the work needed, he says.

Others have not decided yet which option to use deliver the standard.

"Local authorities are very well organised where they have ALMOs because those are focussed on housing and do not have the problems of council red tape," he says.

"The councils with in-house departments are doing a good job, but who is there to prioritise their decent homes work over everything else that they do?"

Steve Trusler, business director for social housing at Wates, says: "It is quite interesting that a lot of that work has been held back because councils have been trying to find which route they are going down.

"Overall a huge amount has been done, but there is an awful lot still to do."

Most contractors think councils "will struggle to meet" the 2010 deadline, and could need extra time, Trusler says.

Some, notably Camden and Birmingham, got into a mess when tenants rejected, respectively, an ALMO and a transfer, and must now meet the standard from their own money as best they can. Birmingham has diverted money from other projects to meet the standard through partner contractors.

Birmingham's rejection was a blessing in disguise, says Trusler, because "that would have left us very concerned about overheating in the west midlands market, but we now have a more levelled view of that market".

Trusler thinks some council's lateness has spared the market from overheating, and is not convinced that there will be huge price spikes as 2010 approaches.

"Over the last three years we have seen a ramping up of the amount of work with decent homes, and between now and 2010 our view is that the market is stable and will stay stable," he says.

"It will continue at some 2.5bn a year and that seems fully committed. There is a huge programme out there and certain local authorities have not got it sorted and they will run behind."

Price problems are likely to limited to hotspots, particularly London, where pressure on industry capacity is at its sharpest.

Most London ALMOs expect to join a procurement consortium this summer, which will enable them to use their clout in the construction market to achieve economies of scale in partnering.

"We are all well aware of how costs could shoot up towards the deadline," said one London ALMO chief executive.

"In London there is very aggressive competition for the services of construction contractors."

Good practice can be found in ALMOs, transfer association and council departments, according to Paul Nicholls, strategic relations manager at United House.

He praises well-organised ALMO partnering deals that have programmed works on target for 2010.

But he says: "Some local authorities have not got their act together and some are not geared up for long-term partnering.

"The lack of procurement skills is common to in-house departments where they are often reluctant to progress partnering without knowing the exact content of the work - but nobody can be certain about what that is, you just have to have a fair idea, you cannot survey every property."

He says that taken at its minimum interpretation, the standard probably will be met around 2010, but "very few councils are doing just the basic minimum not least because if you have a contractor on someone's property to do, say, the heating system, they might as well do the kitchen at the same time".

Nicholls adds: "Prices did go up over the past 18 months but they are pretty stable at present, though it is very competitive, there is no denying it.

"Prices may go up a bit by 2010 if councils are under the cosh to meet the target by then and have not done so. The lack of skilled labour may be an issue in 2-3 years' time."

He notes that money to meet the standard is usually sufficient only for works to houses themselves with nothing left over for the environment and security work that contractors are usually asked to deliver.

This is a key issue on many council estates, where decrepit and threatening public spaces deter people from living there no matter how good the condition of homes.

Connaught, which provides refurbishment, maintenance and estate management services councils and associations found in a survey that the standard would not be met until 2013 and that Scotland and Wales lagged even further behind at 2016.

The company called on councils and associations to focus on planned maintenance and capital works within partnering arrangements to speed things up.

A consultant who advised many councils on how to meet the standard, says: "We have been predicting the problem with the deadline and procurement for some time.

"Some local authorities will find that towards 2010 there will be a lot of backing up of work and that could put up prices."

The government has not announced any specific sanction against councils that miss the deadline, which fuels speculation that the builders who expect it to overshoot will be proved right.

Expect plenty of social housing refurbishment work to be carrying on into the next decade.

Different councils, different strategies

Greenwich – can afford to keep it in-house

Greenwich Council did its sums and decided to keep its housing stock.

Its stock condition survey showed that 70% of its 26,000-odd homes did not meet standard and it would have to find 220m to put this right.

It could rake up 332m from its own resources, government grants and 'prudential borrowing – a new power that councils have to borrow so long as they can demonstrate that they can repay the debt. Many councils have used the latter to help meet the standard.

This meant it could afford to meet the standard with a modest programme of additional works above that level, and neither an ALMO nor transfer offered much financial advantage.

Solihull – ALMO delivers wider regeneration strategy

Solihull Homes is the ALMO formed by Solihull Council to bring its 11,200 homes up to the standard.

It will spend 115m, roughly 10,000 per house, a level that chief executive Matt Cooney says is fairly typical of ALMOs.

He says: "There are dangers of price inflation and without doubt the shortage of skills makes that an issue."

Solihull has used the 5% of ALMO budgets available for regeneration work to train young residents in construction skills to NVQ level 2.

"We had 1,100 people wanting to be trained and only 300 places, but we didn't want to just take those who would get jobs anyway so instead took the more marginal people," he says.

Solihull has chosen open book partnering "so everyone has to show any increase in profit" to guard against price inflation as the deadline nears.

What is a 'decent home'?

According to the ODPM, a home is decent if it:

Is structurally sound, free from damp, and has heating, kitchen, toilet and bathing facilities.

Has foundation, external walls, windows and the roof in a reasonable state of repair.

Has a kitchen less than 20 years old and a bathroom less than 30 years old, both with appropriate layout, adequate noise insulation and adequate communal areas in blocks of flats.

Has a central heating system with time and temperature controls, and effective heat insulation.

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