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A shared economy

With efficiency the top watchword for the housing sector, are associations making the most of their opportunities to share services and save money? Alex Turner reports

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For use in Inside Housing, 19 February 2016

“We all know the government thinks housing associations are fat and inefficient,” says Sharron Webster, a partner at law firm Trowers & Hamlins. “One key thing they can do to address that is to think about mergers and partnerships - and this is an obvious place to start because it’s not that hard to put in place.”

Full-scale mergers are very much back on the housing agenda as of early 2016, with two sets of major southern players - Sovereign and Spectrum, and Genesis and Thames Valley - in discussions. Ms Webster, though, is talking about a less drastic action: groups of landlords sharing services - repairs and maintenance, for example - in order to save money.

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Spreading costs

How does this work? To recap, since the Finance Act 2012, charitable organisations have been able to band together by forming so-called cost-sharing vehicles (CSVs). Via these arms-length entities, two or more members can effectively buy in services from one another without paying the VAT associated with purchasing them from external contractors.

“We all know the government thinks housing associations are fat and inefficient.”

Sharron Webster, partner, Trowers & Hamlins

The savings don’t stop there either. CSVs also have potential (in common with other joint procurement strategies) to deliver significant economies of scale, not to mention doing away with tendering costs. With the 1% rent cut leading a pack of policies snapping at associations’ wallets, and rhetoric on the subject of bloat and waste much in evidence over these past months, we were keen to see what the take-up has been like.

Ms Webster has helped set up 10 CSVs so far announced, with others in the pipeline. She describes the sector’s response as a “slow burn”.

That’s borne out by a quick, unscientific survey of associations we carry out. Around 30 replied, with about half saying they haven’t considered sharing services and many of the rest ‘unable to help’ - though a couple concede privately that this is because they are in the early stages of exploring the possibilities.

Others, though, as indicated by Ms Webster, are far further down the path. In the North East and Cumbria, for example, 17,000-home Isos has been supplying heating services to neighbour Two Castles (which has a stock of around 3,500) via a CSV, Isos Complete Support (ICS), since April 2015.

The initial courtship came from the smaller landlord. What sparked the attraction?

“Prior to our shared service agreement with Isos, we used a commercial contractor procured from a consortium framework,” says Rob Brittain, property services director at Two Castles, who sits on ICS’s board along with colleagues from Isos. “We found this relationship required intensive management to ensure we achieved our performance targets.”

Isos, which has its own well-established direct labour organisation (DLO), provided an “excellent cultural fit”, according to Mr Brittain. While Two Castles is saving significantly on VAT, he says the venture was equally driven by a desire to better manage what’s a risky area for landlords, while delivering a better service. He points to positive customer feedback as vindicating the decision.

For Isos, on the other hand, it’s all about “spreading our management costs, the costs of the depot that we have, and other overheads we have to carry”, says Michael Farr, the Newcastle-based landlord’s executive director of development and property. Isos is not, he reminds Inside Housing, allowed to make a profit under CSV rules - services must be supplied at cost to Two Castles.

“Prior to our shared service agreement with Isos, we used a commercial contractor procured from a consortium framework.”

Rob Brittain, property services director, Two Castles

With ICS set-up costs running no higher than a few tens of thousands on an initiative with an annual £600,000 turnover, Mr Farr says that the main headache was getting the two associations’ IT systems to talk.

“We’re fortunate in that both of us had similar Capita systems, but we had get our internal IT experts to put a lot of work in, with the external provider’s support, to make sure interfacing was timely and robust,” he explains.

Joint benefits

Meanwhile in Yorkshire, 31,000-home Wakefield and District Housing (WDH) formed Northern Shared Services (NSS) in partnership with 35,000-home Together Housing Group (THG) in March 2013 to deliver a multi-trade repair and maintenance service, including gas, mechanical and electrical-related works, as well as the upgrade of THG’s void properties.

“The big barriers to service-sharing have always been organisations being prepared to give up some autonomy.”

Steve Douglas, partner, Altair

In a joint statement about the benefits of the arrangement, the two associations make repeated references to the economies of scale achieved by NSS, which now covers 11,200 properties and turns over more than £6m a year. “Linking differing ICT systems” is again cited as a challenge.

In the West Midlands, 15,000-home Fortis has also established a CSV with its 6,500-home neighbour Rooftop Housing Group, in order to share its in-house maintenance contractor Fortis Property Care. Fortis predicts the scheme will save £7.56m for its partners, via financial efficiencies, over 10 years.

So with all this fat-burning potential on offer, why have relatively few associations been sharing their services in this way so far? Steve Douglas, a partner at consultancy Altair, has been involved in scoping various kinds of service-sharing models (see box) and is unsurprised by our respondents’ relative reticence.

“The big barriers to service-sharing have always been organisations being prepared to give up some autonomy,” he says. “There’s also the relationship, the mutual trust, between the organisation providing the services and those receiving them.”

A pan-London plan to share services has been stymied because large landlords are reluctant to sacrifice “some element of control”, Mr Douglas adds.

Radical options

On a similar note, Craig Moule, chief financial officer at 98,000-home Sanctuary, observes that smaller organisations may be wary of approaches from giants such as his employer.

“While we’ve had discussions with other associations about providing services, there appears to be a general reluctance - possibly because they incorrectly perceive it as a predatory overture,” he says.

Such wariness is understandable. Yet the service-sharing model is continuing to grow, with Ms Webster pointing to “second-gen CSVs” - in other words, organisations expanding to take on more partners - in the offing. Isos’ ICS, for example, is in discussions to deliver repairs and maintenance services to 1,800 homes belonging to another as-yet-unnamed landlord.

“While we’ve had discussions with other associations about providing services, there appears to be a general reluctance - possibly because they incorrectly perceive it as a predatory overture.”

Craig Moule, chief financial officer, Sanctuary

Where things go next is largely down to the imagination of associations, and what they decide they feel comfortable with. For instance, there’s nothing to stop organisations sharing functions such as HR or finance, or, in a far more dramatic-sounding scenario, an executive team.

Will we see such radical options being pursued? It’s hard to say right now. But as housing associations are unlikely to return to lives of comfort any time soon, the ‘slow burn’ of efficiency will undoubtedly continue.

Sizing up

VAT-saving, cost-sharing vehicles may be in vogue, but they’re far from being the only service-sharing game in town.

In London, a group of 12 smaller housing associations catering for black and minority ethnic (BME) residents are working on a three-pronged project to flexibly pool resources around procurement, employment and training.

The associations range in size from a few hundred to just over 1,000 homes, but between them have 4,800 properties with an estimated £1bn market value.

“They can see real opportunities in retaining distinctive identities, but also getting the benefits of economies of scale through greater buying power,” says Altair’s Steve Douglas, who’s involved in managing the project.

As well as joint procurement around such things as repairs or gas contracts, the initiative is aiming to share staff training between members, buying in packages that will benefit all the organisations and taking turns to host them.

Possibilities around sharing recruitment are being explored too - so, for instance, if two member associations both needed to fill similar posts, they could share the load. The PATH (Positive Action for Training in Housing) initiative, which was set up in the 1980s to enable people from BME backgrounds to fulfil careers in housing, will also be rejuvenated, with the aim of providing a joint structure of opportunity within the group.

“[The aim is], you can dip in and out,” says Jackie Adusei, chief executive of Brixton-based Ekaya Housing. “Although all 12 assocations have put money into kick-starting this, you needn’t participate in everything.”

“It’s about sharing expertise,” she adds “There may come a point when you need to become part of a club or you won’t survive - especially small organisations, we have to wise up.”

 

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