Construction pipeline security: how public sector frameworks offer shelter from recession
Faced with a predicted 38% drop in new housing starts over the next two years, and a likely reduction in private sector domestic RMI (repair, maintenance and improvement) work owing to householders’ spiraling costs, SME construction companies and suppliers might have concerns for their pipeline of work.
Social landlords and local authorities may also be finding contracts planned, priced and secured earlier this year face uncertainty as contractors and suppliers struggle to honour original costs.
Chancellor Jeremy Hunt’s Autumn Statement, announced Thursday 17 November, also gave little comfort in this area. There was no mention of support for retrofitting the UK’s energy-inefficient housing stock – loft insulation and boiler replacement funding aside – nor reassurance for new social housing provision.
Nonetheless, public sector construction frameworks are offering some shelter from the risks wrought by recession.
Traditionally operating on four-year cycles, they present better industry access and cost consistency for the public sector. And for contractors and suppliers, they bring more predictable pipelines of work.
As such, now may be the time for industry to consider whether public sector work won via a framework brings a more reliable, sustained and secure source of jobs. After all, building and retrofit must continue in social housing to move towards net zero and protect vulnerable tenants from the rising cost of living, compared with private sector projects which depend more on inflation and the promise of higher profit.
Why the social housing maintenance show must go on
Our housing stock is ageing; 26 million require retrofit – 4.5 million of which are in social housing. Those on the lowest incomes are often worst hit, living in properties in the poorest condition.
Housing associations and local authorities have a target to bring all properties up to an EPC band C by 2030 for all ‘fuel poor’ homes, meaning the task of retrofitting – or building new – homes remains a high priority.
Doing this cost efficiently will be even more important in the coming 12 months, following Chancellor Jeremy Hunt’s 7% cap on the amount social landlords can increase rents for tenants as part of the Autumn Statement. This offers a tough compromise: while providing some relief for residents at the sharp end of the cost-of-living crisis owing to a benefit cap lift and local housing allowance (LHA) freeze, it means housing associations will feel a tighter squeeze.
On the new social housing front, recent Regulator of Social Housing statistics also show just 31,000 social homes were built from March 2021 to 2022 – almost five times short of the National Housing Federation’s (NHF) 145,000 estimated annual requirement in the next decade to meet the population’s needs.
Many housing associations and local authorities LHC works with are using construction frameworks because the benefits, especially in turbulent times, are clear. By working in this way, they find they are able to build stronger, longer working relationships and contacts, have better supply chain engagement, and better pipeline security.
The following factors could also be vital in helping contractors – especially SMEs – weather the impending economic storm.
Framework benefits in tough times
Frameworks improve value and reduce risk for both contractors and clients by facilitating a truly collaborative approach from the outset.
Benefits for contractors
1: Pipeline of work
The pipeline of work that should come from using a procurement framework creates greater certainty and helps protect jobs for contractors who may be worried about the future.
2: Partnering for shared benefits
The collaborative nature of frameworks allows each company to benefit from one another’s insight and expertise. This in turn develops strong contacts and increases the opportunity of appointment to future projects.
3: Long-term pricing and cost aggregation
Frameworks enable all parties to explore a project in detail and more accurately consider costs to reach an agreement up front. While there may be negotiation further down the line at individual project stage, the long-term nature of frameworks and pricing facilitates improved cost aggregation by providing full visibility from day one. This lessens the financial blow of reduced contractor margins in the case of price rises.
4: Better economies of scale
Having awareness of the client’s longer-term pipeline provides opportunities for contractors to plan work more efficiently, improving their resource planning and identifying cost efficiencies – and driving economies of scale.
5: Shared risk
Using a procurement framework also allows contractors to explore potential risks – including rising costs – and agree how the impacts might be managed between them and the client. Without involving contractors before putting out a tender, clients miss the opportunity for potential risks to be identified, scoped and properly priced into a contract, using projections into the four-year framework lifespan.
Benefits for clients
1: Approved contractors and suppliers
Identifying risks early and accounting for these in contract pricing allows public sector clients more reassurance about project costs and resources, while demonstrating the quality and security of fully vetted and approved contractors.
Having access to pre-approved suppliers – already assessed for quality and cost – gives assurance to clients where the resource may not exist to undertake a procurement process alone.
2: Access to contractor capacity
Frameworks provide clients with better visibility of contractor and supplier capacity visibility through the improved forward view of project dates and pipelines they offer. This, together with collective discussion and collaboration, means frameworks can capture the interest of the construction sector, owing to the visibility and guarantee of work in advance that they bring.
3: Long-term cost efficiencies
While there continues to be plenty of discussion around sustainability and creating buildings fit for the future, procurement frameworks can facilitate access to expertise in carbon net zero building, or asset maintenance long-term.
4: Working with regional SMEs
Frameworks deliver routes through to SMEs public sector clients would otherwise find hard to reach. This means clients can access a mix of national and local expertise, ensuring the projects they deliver drive economic benefit in their area.
5: Improved social value
LHC’s appointed companies are selected for the social value they will bring to projects. This is not simply based on arbitrary figures, but on the difference they will make to communities and employment levels directly linked to the projects they will deliver.
To speak to a local contact about our public sector construction frameworks, visit https://www.cpconstruction.org.uk/contact-us/