Repairing the Trust

Last week, Nick Sterling from Osborne spoke to “Inside Housing” as part of an article the publication were running about Circle Housing. Read the article below:

“When Circle Housing entered into a £350m repairs contract in 2013, little did it know that within 18 months the deal would be cancelled amid blistering criticism of ‘chronic failure’ from the regulator.

In February 2013, Circle Housing – one of the largest landlords in the social housing sector – signed a £350m contract with Kier for repairs and maintenance in its central and West Midlands regions.

At the time, it spoke of a ‘robust procurement process’ which ‘ranked bidders able to offer the quality service we want for our customers at the best value for money’.

But from the start, there were question marks over the deal. The contract had been initially awarded to Morrison, ahead of its merger with Mears. But Mears, following the merger, pulled out, saying the price was too low.

‘We were very disappointed when that contract changed,’ recalls Alan Long, executive director at Mears. ‘I can’t comment on Kier, but I know we wouldn’t have been able to deliver at that pricing.’

Just 18 months on, the contract is dead. After months of missed deadlines and tenant complaints in London, Circle is now spending millions on emergency cover and paying consultants to help arrange a new deal.

It has also found itself on the wrong end of one of most savage Homes and Communities Agency (HCA) judgements issued in recent years, where it was slammed for ‘a chronic failure… made possible or contributed to by serious and enduring failures’.

Nick Sterling, managing director at contractor Osborne, notes: ‘When the likes of Mears walk away and say they can’t do it at that price, that should have set some alarm bells ringing,’.

Being nimble
Osborne had been one of Circle’s London contractors before the deal with Kier, and Mr Sterling says it had been providing ‘an excellent service’.

However, Mark Rogers, chief executive of Circle, is adamant the problem was not the price. The selection criteria used was based 70% on quality and only 30% on price, and was checked by external consultants, he says.
So what went wrong with Circle and Kier’s contract? Was it just priced too low? Or was it a more fundamental issue? Mr Rogers hints at the latter when he says that in future, Circle is planning to move away from the model of getting one big provider in to do the work.

He says he wants to be more ‘nimble’, and to ditch the model that holds landlords to one contractor, even when they know things are going wrong.

‘I certainly don’t see us in these central London contracts… going for the one [contractor],’ he says. ‘That concept of a partnering contract that holds you into a certain route is something I don’t want to see.’

Mr Rogers emphasises that the specific deal with Kier meant – for better or worse – the landlord felt it had to keep on working at making the contract function, despite the difficulties.

‘The way partnering contracts work… you go through a series of prescribed steps when things don’t work, so we were doing that, and we got some limited success out of that, but clearly it was limited,’ he says.

Another chief executive of a large London landlord, who prefers not to be named, echoes these concerns. ‘You have to be in a position with these contracts where the client has control,’ he says.

Shortly after the Circle judgement was announced, Affinity Sutton, another large London-based social landlord, unveiled plans to take its repairs service in-house. It comes after it brought in Osborne on a two-year fixed contract, which expires in May, to recover the service after a 20-year deal with Wilmott Dixon was ended after just 12 months.

Steve Douglas, a partner at consultancy Altair, says this is part of a ‘clear trend’ of landlords seeking to take repairs in-house.

‘The problem in the London market is there are too few contractors who are big enough to undertake the sort of works required,’ says Affinity Sutton chief executive Keith Exford.

‘It’s really gritty work. We do over 500 repairs every working day and getting around London is not easy. The sheer logistics of it makes it difficult.’

Future thinking
This chimes with Circle’s problems. According to the HCA, only 20% of emergency repairs were being done in time in 8,000 of the 13,000 homes covered by the contract, and 50% elsewhere.

Mr Rogers says this figure came directly from data supplied by Kier, which eventually turned out to be pessimistic – when double checked, the 20% figure should have been 65%. However, he admits that this was ‘not an acceptable position’.

However, Osborne’s Mr Sterling – and Mr Long – feel the issue with the Kier contract came down to price.
‘That particular contract looked unsustainable for us in terms of price,’ says Mr Long. ‘If you could get better checks on pricing, I think we would see a lot of the problems go away.’

The Kier contract worked out at a price per property of around £300, while industry experts say a more realistic figure in London would be closer to £350.

Mr Sterling adds: ‘We have proven we can deliver pan-London services and that we are more than capable of making it work at a price appropriate to the level of service asked for. To be fair, some of our competitors are as well.

‘However, you do have clients who know some prices are sub-economic, but [landlords] take it anyway to save money. We also know some contractors bid too low purely to fill their order book. What the market should be thinking about is best value rather than lowest price to avoid these sad situations recurring. It is easier to drive down costs in a quality service than it is to drive up quality in a cheap service.

Kier says that since it prides itself on delivering a high quality service for clients, it believes ending the contract is the best decision for all involved.

‘This change to our partnership will allow us to focus strategically on those services that we have been delivering successfully, and enable Circle Housing to concentrate its efforts on reviewing and reforming the nature of its responsive repairs in its Central Region to best meet residents’ needs,’ the spokesperson added.

But whether it was a result of the price or the partnering model, Circle’s key concern now is getting its repairs service back on track and rebuilding satisfaction among its tenants.”

To that end, Kier remains Circle’s contractor for planned maintenance work in London, Birmingham and East Anglia, and Wates Living Space and Mitie will step in to provide emergency cover for responsive repairs in London.

Long term, the landlord is now working with consultants, primarily Savills, as it seeks to find a solution which repairs not just its homes, but its bruised reputation.”