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Saving brick by brick
Supply Management – 13 February 2003

In an effort to save millions of pounds, 32 housing associations joined a collective purchasing pilot scheme. Mark Smulian assesses the results

It's quite a challenge to organise a collective purchasing scheme for housing associations. There are about 1,400 of them, they vary greatly in size, guard their independence jealously, are governed by volunteers, regulated by a quango, and are prone to bouts of introspection about whether they are real businesses.

In the 14 years since housing associations took over from local authorities as the main providers of social housing, they have not even attempted a pilot purchasing scheme.

Yet they spend 200 million a year collectively, and that does not include the vast area of building materials, as these are usually bought in combination with labour.

That changed last spring, when 32 associations joined Network Purchasing, a scheme that pilots the collective purchase of office supplies, energy, land-line phone calls and repair materials.

Early indications show that savings of up to 100 million could be made through collective procurement - money that can be ploughed back into new and refurbished homes and community regeneration.

The six-month, 98,000 pilot is funded by the Housing Corporation, the quango that regulates associations, and Collective Enterprises Limited (CEL), a contractor.

It is being extended until April for further evaluation. But results are sufficiently promising that its transformation into a national scheme is almost certain.

CEL is working for HouseMark, a performance benchmarking spin-off of the Chartered Institute of Housing, and the National Housing Federation, the trade body for housing associations. The federation's members range from Places for People, which owns nearly 50,000 homes around the UK to, for example, Fred Lovering's House, which owns a retirement home in St Austell.

What they all have in common is that they have given little attention to purchasing, and they have all done it differently. Even the few that employ purchasing managers tend to use them in core areas, such as building materials, and not across the whole business.

Into this morass has stepped Ken Spencer, CEL's chief executive, who predicts housing associations will become the second largest sector purchasing scheme after the NHS.

Citing his experience of the National Union of Students bulk beer scheme, for which CEL provides back-office services, he says: "What makes it successful is co-operation in a sector where there is pre-existing affinity."

Housing associations fit this definition, because they work together as a sector but compete to win development money from the corporation and local authorities.

"The biggest barrier is the diversity of procurement practice," Spencer says. "Different organisations do it differently, even for different products, and creating a network that captures that diversity is challenging.

"There is some evidence that they have seen procurement as peripheral," he adds. "I have found no example of a comprehensive professional approach to procurement. Those with procurement officers tend to use them for things they see as central, but rarely for energy and never office supplies. They have not enjoyed the benefit of professional expertise generally."

Jane Greenoak, the federation's corporate services director, was aware the sector's rivalries might hamper a pilot. The strongest interest came from medium-sized associations.

"Everyone said housing associations do not work together and it is true that there weren't any large ones in the pilot at the start. They probably think their purchasing power is large enough, but it would be better if they did join," says Greenoak.

One problem was finding out what pilot participants purchased. Few had systematic records, making this a considerable effort.

The information eventually gathered allowed CEL to go to the market and invite tenders. These do not include specific commitments from each participant to buy a particular quantity of any commodity or service. Indeed, members do not undertake to buy anything from Network Purchasing.

However, if they choose to buy elsewhere, they have to explain why, except where fulfilling an existing contract.

"That is quite difficult for them," says Spencer. "There often is not a good reason except 'we've always done that', and we hope to get to the position where their own chief executive or finance director queries the reason before it even gets to us."

This approach is expected to continue once Network Purchasing goes fully live next spring. Discipline may evolve, but members will not be obliged to buy from the service. One problem is that housing associations have pressures other than price on their procurement.

The corporation increasingly expects them to play a role in creating and maintaining stable neighbourhoods, an activity that draws them into non-housing work such as training, environmental improvement and street wardens. One way many support their community is through local purchasing and labour supply policies.

Separately, the corporation has told all associations engaged in new building to move to the procurement principles of Sir John Egan's report, Rethinking Construction, which advocates long-term partnering contracts throughout the supply chain.

Ross Fraser, HouseMark's chief executive, thinks these factors need not conflict with collective purchasing, because an association could partner with a local firm to supply construction labour while using Network Purchasing for materials supply.

"The best partnering deals are supposed to be open book, so they share risk. But the customer picks up the bill, and so they will want to know if the contractor is not using the cheapest supplier," says Fraser.

Spencer thinks using Network Purchasing could even make it easier for associations to fulfil their role in the community.

"Our way allows better competition among local firms for labour. There is a very limited number of companies that can offer, for example, the range of kitchens needed, and if they are all bidding, no building firm can beat the price."

Spencer says this would be a big change from buying on schedules of rates, but foresees savings of "tens of millions of pounds".

Refurbishment is a large part of the associations' work, and it is set to grow as they strive to meet the corporation's "decent homes" target, which includes replacing kitchens and bathrooms more than 30 years old.

Another large market for refurbishment materials arises when councils transfer their houses to new housing associations.

This process, known as large-scale voluntary transfer, requires a positive vote by tenants, who are offered a large refurbishment and new building programme.

With an English repair backlog the government puts at 19 billion, there is a huge market available, but its complexity means the repairs pilot has been restricted to paint, electrical components and fitted kitchens.

The office supplies pilot has gone further. Supplier Guilbert won the tender and savings of 10-45 per cent have been recorded.

Procurement consultancy Inenco has been used for the energy pilot, which is limited to housing associations' own requirement, rather than the potentially much larger market of supplies to their tenants. The savings are around 20 per cent, Greenoak says.

Telecoms tenders were returned in December and a supplier has not been named.

"I'm very optimistic there will be quite radical savings because most associations pay, in effect, domestic rates and very few have explored possibilities since privatisation," says Spencer.

He admits there are sceptics, but adds, "this will work if we get the active participation of end users. It could be putting 100 million back into this sector."

Mark Smulian is a freelance journalist