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A year to go and the Brexit clock is ticking for procurement teams
Despite a lack of clarity from the government on many Brexit issues, its effects are already trickling down to the sector. Kate Youde asks procurement teams about their biggest concerns
Newport-based housing association Pobl came into existence just three months before the Brexit vote. On the day of the referendum, its board met to agree the first ‘Pobl Plan’, setting out the fledgling merged housing association’s ambitions for the following three years.
“Brexit has always been in our DNA and in the forefront of our minds and thinking,” says Lisa Pinney, executive director of finance and procurement at the association. “We are probably in a different place to most.”
Whatever their starting point, however, all social landlords need to consider the impact of Brexit on their business as the UK prepares to leave the EU next March.
There are, of course, still many unknowns about the implications of the divorce but what are the main areas of concern for procurement teams within councils and housing associations, and what are they doing to prepare? (scroll down)
LEGISLATION
Judging by the number of landlords that declined to speak to Inside Housing, there seems to be reluctance to engage on the issues.
Some believe it is too early to discuss the impact of Brexit on procurement, while those that did comment were unable to say much. “Until we have clear guidance from central government on how Brexit will impact on trading with the EU, we will not be in a position to talk about how our procurement function will be affected and the changes/preparations we will need to make,” says a spokesperson for Hackney Council.
Some may think there is little to say because, as far as legislation is concerned, little may change. Although awaiting clarity, the sector is not expecting imminent or significant changes to current procurement rules, the Public Contracts Regulations 2015, which adopted the latest EU procurement directives into UK law.
The current rules include requirements to publish contracts above a certain threshold, depending on whether it is goods, services or works being procured, in the Official Journal of the European Union (OJEU), meaning they are put out to tender across the EU.
“We don’t have much interest from outside of the UK for our housing procurements.” - Ashford Council
“Obviously, OJEU advertisements may not be required in the future but we don’t know yet,” says a spokesperson for Ashford Council. “However, we don’t have much interest from companies based outside of the UK for any of our housing procurements.”
Only one of the local authority’s larger housing contracts – for responsive repairs – will be procured next year and the spokesperson says the council expects this will be done before any changes happen.
Nicole Penn, head of procurement at Hanover, suggests Brexit could provide an opportunity to lobby for changes that would make the regulations more suitable for housing associations. These could include increased involvement of small and medium-sized enterprises in the tender process, and making it easier for them to be awarded contracts, and a more efficient system for eliminating poor performance, and rewarding good performance from contractors.
For now, Louise Chase, head of procurement at Consortium Procurement, an arm of the Northern Housing Consortium, says, “It is very much business as usual and keeping an eye on the legislation to see if anything does change in the interim.”
She assumes that, once the UK has left the EU, there would be a transition period for any new legislation.
SUPPLY CHAIN
“We are starting to see a lot of nervousness from some of our suppliers in terms of increasing costs, which several of them are attributing to Brexit due to materials and labour,” says Nicole Penn, head of procurement at Hanover, adding that talk of Brexit has led to price fluctuation in the market. “Some companies… have had some [people] leave their organisation as well and return to Europe, so we are starting to see a trickle of that happening.”
There is also “a little reluctance” from some suppliers about making long-term commitments. “They are asking if there’s a break clause because they are uncertain how [Brexit] impacts them,” says Ms Penn. Some suggested a five-year contract and then a rolling contract after that instead.
Hanover, which is trying to be flexible on pricing, is looking at how it can improve its service – perhaps through enhanced use of technology – to make savings in other ways to mitigate potential rises in the cost of materials and labour. It is also holding roadshows and one-to-one sessions to understand suppliers’ concerns, which has in turn helped the association define its requirements and specifications.
Paul Jameson, procurement director at Genesis, agrees that landlords’ contractors may be hit by skills shortages. “Brexit will start to create potential gaps, as we are seeing already with foreign workers and trade not coming back after Christmas,” he says. It might be a “knee-jerk reaction” from some construction workers and Mr Jameson “is not panicking”, but one of his major concerns is to ensure the supply chain from the organisation’s major contractors is “stable enough” and has the “right skills”.
Genesis has a development pipeline of up to 1,000 homes a year and is involved in two large regeneration projects at Grahame Park in Barnet and Woodberry Down in Hackney. “It’s [about] keeping the information from the construction sector and the developers flowing into the organisation and making sure we are dealing with it,” says Mr Jameson.
Pobl has experienced problems with the availability of materials as it has scaled up its development programme. It has £370m plans to build 3,000 homes by 2021.
“There have been issues in the past around the availability of materials and the pricing of them, as well as the sourcing, so that’s a key risk,” says Lisa Pinney, executive director of finance and procurement at Pobl, who notes that there is a limited pool of contractors in Wales.
SINGLE MARKET AND SPECIFICATIONS
Lisa Pinney, executive director of finance and procurement at Pobl, says most construction materials used by the association come from the UK and other countries in the single market, and there needs to be clarity as to whether the UK will leave the single market. “There are so many big decisions the government has to make that will fundamentally affect how we operate as a sector,” she says.
Brexit might open up the UK to new markets, Ms Pinney concedes, but she is concerned about the impact this may have on quality standards. “If we come out of the single market and start trading with individual countries do we bring into [being] our own quality standards or do we negotiate with countries who potentially have lower quality standards?” The latter could risk trading price for quality.
Paul Jameson, procurement director at Genesis, believes current British standards will remain in force. He is more concerned about how the association specifies services and standards to make sure it gets what it wants.
Ms Pinney agrees: “I think Brexit will focus the sector on the specifications of what it’s procuring. I think there will be less reliance on generic specifications and we need to be much more specific about the timing of contracts and the quality standards we expect from our contractors.” She adds that associations may have to “really challenge” contractors up front as to whether they have the resources to deliver a contract.
Brexit could lead to British manufacturers getting more work, suggests Mr Jameson. But he says, “I think we need to stay in the single market – even if it’s for a set period of time – to protect both European manufacturing but also British manufacturing because if big import duties start to be imposed, it’s going to be interesting as to how British manufacturing copes with rebuilding the manufacturing process in the UK and how that affects prices.”
ADDITIONAL CONCERNS
Paul Jameson, procurement director at Genesis, is concerned about the supply of gas and electricity post-Brexit, with the association already expecting average annual price rises of 5-7% based on historic data. The UK is a net importer of energy.
“We are not going to be generating enough energy to not import and I think we are probably leaving ourselves open to the whim of Europe and world energy markets so that needs to be examined,” he says.
To mitigate these risks, Genesis is looking at how it could enter into longer-term fixed pricing arrangements and link that to energy reduction schemes. It is working on low-cost renewable energy initiatives. Mr Jameson says these are measures the organisation should be taking anyway but that Brexit has “focused the mind on doing it now”.
“We are probably leaving ourselves open to the whim of Europe and world energy markets.” - Paul Jameson, Genesis
Lisa Pinney, executive director of finance and procurement at Pobl, suspects many finance directors in the sector are looking at organisations’ long-term plans and perhaps bringing forward or pushing back funding requirements because of the “general uncertainty”. “No one’s going to want to go to the market on or around that [exit] date,” she says.
According to the Robert Walters UK Jobs Index, procurement and supply chain vacancies rose 13% across all sectors in the third quarter of 2017, compared with the same period the previous year, as businesses prepare for life outside the EU. But although Genesis recently added two more people to its procurement team, bringing the total to 11, Mr Jameson says this was not because of Brexit but because procurement is “becoming more needed as pressure on costs becomes much greater”.
Preparations come down to good business sense, suggests Ms Pinney. “Brexit is just another risk that we are managing,” she says, adding that it is something on which social landlords are “equipped to deliver”.
She adds: “The sector has demonstrated it is able to manage change over a long period of time and this is another chapter of that book.”
