The battle for lucrative new mega repairs and maintenance contracts is intensifying as jilted contractors turn to the courts to bolster their bids. Gavriel Hollander reports
Anyone conversant in the language of gambling will be familiar with the concept that the higher the risk, the bigger the reward.
That certainly seems to be the case when it comes to procuring repairs and maintenance contracts for social landlords. Two major housing associations, in the shape of Circle and Hyde Group, have this year gone to the market to re-procure work valued at a total of £1.7 billion while slashing the number of contractors they work with.
Circle estimates it will save £120 million over 10 years and Hyde a more modest but no less impressive £50 million, so it’s hardly surprising that other landlords are looking to follow suit. Metropolitan, Peabody and Places for People are understood to be among the other housing associations planning major procurement drives in the near future.
In Circle’s case, its £1.2 billion suite of responsive and planned maintenance work will be provided by just five lucky contractors. It used to have more than 200 names on myriad sprawling framework agreements.
For those contractors scrambling around for a dwindling supply of work it can mean a big payday or two, but on the other side of the coin it also means higher risks if they lose out on the bonanza. The question is what to do if you do happen to miss out on the prize.
‘There is a lot to lose,’ asserts Mark London, head of the construction and property services department at law firm Devonshires. ‘A lot of RPs [registered providers] are consolidating their repairs and gas services. Rather than having 10 or 20 [contracts] worth £1 million a year, they are having one worth £20 million a year.
‘Contractors potentially have a lot to lose if they are not successful.’
Although Mr London says he has not seen a marked increase in challenges reaching court, the risk for landlords is that contractors won’t take defeat lying down. The Circle contract has already attracted legal challenges from Breyer Group and Apollo, which now forms part of Keepmoat. Claim forms have been submitted to the high court by both companies.
Neither case has yet reached court - and there’s a chance that neither will. Both, however, share certain characteristics. The claimants are understood to have alleged that the winning bidder for the disputed contract - in Apollo’s case that bidder is Kier and for Breyer, United House - put in unrealistically low offers to seal the deal.
‘It is happening a lot more now, undoubtedly,’ agrees one senior figure at a repairs and maintenance firm, who did not want to be named, when asked about underbidding. ‘If you don’t win you are locked out for years and that stream of work is denied to you.’
One firm, NG Bailey, has already fired a warning shot across the bow of the sector, speaking out against ‘suicide bidding’ earlier this summer and claiming that the practice is likely to put some contractors out of business.
That might not be the case for a firm as big as Apollo but, nevertheless, the stakes are high when it comes to these challenges. Apollo did win one of the six lots available to bidders for Circle’s work - the £220 million responsive repairs contract in the south of England - but it is challenging Kier’s successful bids for the planned maintenance contracts in eastern England and central and west midlands. With the size of these contracts never before seen in the sector, it is perhaps not surprising that those involved are feeling litigious.
‘It’s possible to draw a link between the size of a contract and the probability of challenges given the size and scope of the business at stake,’ agrees Tracy Allison, director of corporate services at 48,000-home social landlord Hyde.
Circle has made similar noises regarding its own case, stating that it’s not unexpected to receive a challenge on contracts of this size. With longer contracts on offer, the key is often to ensure that good advice has been taken before the process starts.
‘At the end of the day, people are going to challenge,’ says one procurement specialist at a housing association. ‘It’s not about stopping them, it’s about knowing what you will do [if they happen].’
But it’s not only the size of deals that is inviting more skirmishing.
‘It’s true that challenges have become more prevalent over the last two to three years,’ says Alan Long, executive director at contractor Mears. ‘It’s not always about scale though. It’s often down to the complexity of it.’
More and more contracts are being offered by joint venture companies, set up between local authorities and housing associations. These contracts tend to be procured on a competitive dialogue basis, which involves several stages of negotiation with different bidders, offering multiple solutions to meet the landlord’s requirements. This can be costly, time consuming and, ultimately, fruitless for some of those involved. One contractor estimates that it can cost them as much as £500,000 to go through the competitive dialogue process, while it is not unusual for these dialogues to continue for six months or more.
In the teeth of a continuing recession, the process is only likely to embitter those that come away empty handed.
Furthermore, it isn’t only suicide bidding that is seen as a reason to call in the lawyers. One contractor tells Inside Housing of a case where it was denied a deal because the procurer - a local authority in this case - believed its bid was undeliverable at the price it offered. A challenge was launched but ultimately dropped by the contractor despite it maintaining that it had a strong case.
‘[Legal action is] not cheap and you can never be sure if you are going to win,’ explains a source familiar with the matter. ‘They questioned whether we could deliver it and we could, but we were going to do it at a low margin.
‘Ultimately, we have to think about what our relationship is going to be like with who we are challenging.’
Risking the courts
Anyone thinking about recourse to the courts faces the dilemma of whether the reputational risk inherent in launching proceedings is really worth the reward of either getting back around the negotiation table or settling out of court. Even if, in the case of Circle and Apollo, the two can happily continue to work together, there is a fear around being seen as a troublemaker.
But there are also more prosaic concerns. Up until 2009, challenging contractors had to prove that there was a case to answer before a judge would order an injunction preventing the work at the centre of the disputed contract from starting. Now, injunctions are awarded automatically. While that sounds like an open invitation to challenge, the caveat is that the firm starting proceedings could be liable to pay the cost to the client of procuring an interim contract if the case is ultimately thrown out. With interim contracts potentially being put in place for 12 months or more, an unsuccessful challenge could leave a firm on the hook for several million pounds. To return to the gambling analogy, it’s the equivalent of calling someone’s bluff.
‘That’s enough to scare potential challengers away,’ confirms Devonshire’s Mr London. ‘Some will not be prepared to take that kind of risk. Once a small or medium-sized contractor realises that they are exposed to a significant loss they will have to look very carefully at their exposure and take a considered commercial view.’
In Circle’s case, sources at the housing association and the contractors whose deals are under threat remain confident that the work will start next April as planned.
A recent judgement in a case between Asra Greater London Housing Association and Chigwell Construction could further ease any concerns that Circle’s giant contracts will be held up by costly delays. The judge ruled that, even if there was a case to be heard from the challenging contractor - and in this case, the matter was settled out of court - the social value of the repair work means that the contract should not be suspended. It could be a landmark judgement for the sector.
As Mr London explains: ‘It will give contractors pause for thought. They’ll know that if a contracting authority can demonstrate that the challenge and any delay arising from it will have an adverse impact on service provision there is a strong likelihood the court will lift the suspension.’
It was not always like this for contractors and their clients. The increasing encroachment of European law during the last decade now means that all sizeable public sector contracts must be advertised through notices in the Official Journal of the European Union. For many firms, it is seen as yet another mechanism for adding cost, complexity and time to the process of getting new work.
‘The advent of the OJEU process has seen bidding become a resource-hungry process which can last weeks and sometimes months,’ explains Peter Quinn, head of business development at house builder Lovell Partnerships. ‘It becomes all the more important therefore to secure work after committing people and finances to a bid, and, when you don’t, it is understandable that you consider the process that you went through for its fairness.’
Another contractor, who did not want to be named, puts it more bluntly: ‘The lawyers have got a lot to answer for. We are fixated by European law and have lawyers telling horror stories about how people can get prosecuted [if you don’t use OJEU], so people get scared.
‘In the old days, we didn’t have to do PINs [public information notices] or involve lawyers. A client would go out with a contract and you would bid on it.’
That old-school chumminess may be a thing of the past. But there is a growing feeling that the climate whereby firms feel every decision that goes against them is worthy of challenging - even if, as another anonymous contractor tells Inside Housing, it’s just to get a pay-off - is an unhealthy one.
‘We don’t want a marketplace where every single [procurement] result is challenged at the end of it,’ insists Mr Long. ‘It just means delays for customers and more question marks over the process.’
Fending off a challenge: Asra v Chigwell
A landmark judgement from Mr Justice Haddon-Cave last month could provide comfort to registered providers facing potential challenges over the award of repairs and maintenance contracts.
The case involved ASRA Greater London Housing Association and one of its incumbent contractors, Chigwell Construction.
Asra started a process to re-procure contracts across its 3,634 London homes, but a challenge to the process from Chigwell meant that it was not allowed to award the work to the successful bidder as an automatic suspension kicks in immediately when a challenge is launched.
However, the judge set aside the suspension, finding that the risk of disruption for ASRA’s residents and the potential for delay in bringing empty homes back into use were important public considerations.
He also ruled that, as damages were an adequate remedy for Chigwell, a suspension could not be justified.
‘This is an important case for registered providers,’ explains Devonshire’s Mark London, who acted for ASRA in the case.
‘It demonstrates that the court is prepared to look at a registered provider’s wider social purpose and to consider whether that purpose may be adversely affected [by a court-ordered suspension of work].’
Streamlining procurement: Circle’s mega-contracts
Circle’s decision to slash the number of repairs and maintenance contractors it uses sparked the most lucrative procurement process to date in the social housing sector.
The 64,500-home landlord abandoned a framework that included around 200 firms in favour of a roster of just six contracts - one each for its planned and responsive maintenance work in three geographic regions.
The contracts will be worth a staggering £1.2 billion over 10 years, saving around £120 million for Circle.
Kier and Morrison turned out to be the biggest winners in the scramble for these mega-contracts when preferred bidders were announced in May. Morrison landed two responsive contracts, worth up to £450 million in total, while Kier claimed up to £490 million of work for two planned maintenance contracts.
The remaining two contracts were claimed by Apollo, now part of Keepmoat, and United House.
However, within months of being awarded, half of the six available lots are being challenged. Apollo is claiming that Kier underbid for its two contracts, while Breyer is understood to be challenging the United House deal on
Claims from both contractors have been lodged at the High Court but no dates have been set for hearings.