Do frameworks work?

In the procurement circles of social housing, you can find plenty of enthusiasts for frameworks. These structures – arcane and obscure to the rest of the world – are in fact giant buyers’ clubs, meant to help social landlords (and others in the public sector) band together and secure the best deals.

The selling points are obvious: save money, avoid a lengthy and potentially expensive tendering process, and comply worry-free with the complicated procurement rules of the EU, to which – at least for now – the sector is bound.

However, one or two dissenting voices have started to raise questions about social landlords’ love affair with consortia and frameworks. And particularly they are asking some difficult questions: do these clubs really offer value for money? Have the benefits been exaggerated? Are landlords overusing them?

Divided opinion

No reliable statistics exist on how much of the billions that social landlords spend every year, on everything from building homes to office supplies, goes through frameworks.

Figures from 10% to 40% are cited by some of the providers. Anecdotally, individual procurement managers are reluctant to even estimate for Inside Housing how much of their own spending goes through frameworks. But many see them as the preferred option.

WHG uses frameworks for much of its procurement and is one of many landlords to market its own frameworks as well – in this case to supply energy efficiency work, repairs, legal services and photocopiers through a community interest company called Buy for Good.

“If we’re going to procure something anyway, why not run it through a framework?” asks Alice Davey, who was business development bid manager at the 20,000-home Midlands landlord until January this year.

But there are still cases in which the landlord won’t use a framework. “There might not be a framework there for the product or service we’re trying to get,” explains Ms Davey.

“Frameworks are flourishing disproportionately to their benefits.”

Ian Hippach, partner, Geometra Systems

For their part, framework providers boast of making significant savings for their members. In the 2014/15 financial year, Fusion 21 reported £13m of “efficiencies” on investments of £67m. LHC reported it had saved the equivalent of £27.7m in management and admin costs on £210m of purchases in the same financial period. In 2015/16 the value of the works it undertook jumped again to £256.4m.

On the other side of the argument stands Keith Simpson. Mr Simpson has spent the past 45 years in repairs and maintenance, among other things chairing the Direct Works Forum, and until recently he was at the consultancy Just Housing Group. He’s also one of the more vocal critics, especially in the repairs world. He says frameworks have a use, but has seen first-hand how they can go wrong.

Mr Simpson has seen cases where frameworks are meant to be used to purchase a “shopping basket” of materials. But the goods supplied are unsuitable, meaning the repairs operatives have to go “outside of the shopping basket because the quality isn’t good”. Or, in other words, they’re popping to the shops or to a local contractor and buying the materials they need.

More scrutiny

“Frameworks are flourishing disproportionately to their benefits,” says Ian Hippach, a partner at Geometra Systems, which is part of Just Housing Group.

His comparison is to the car industry. If the rationale behind social housing frameworks is correct, he argues, wouldn’t competitive organisations like car makers also band together to buy-in clubs and consortia? Yet this doesn’t happen – Honda remains committed to specifying and procuring its own wheels, rather than going in with BMW for a job lot.

The argument is that buying through a consortium is cheaper because, by buying in bulk, social landlords can negotiate a better deal. But as well as being a matter of volume, the cost of a contract, according to Mr Simpson and Mr Hippach, is determined by the level of certainty for the supplier. Exactly how much of a product or service is required? In what period of time? What are the exact specifications?

If a housing association sets out its own tender, it can make the contract as specific as possible – thereby bargaining down the price of whatever it is trying to buy, they think.

Andrew Carlin is commercial director at Procurement for Housing. Although the organisation runs procurement frameworks, he sees both sides. Frameworks provide a way to procure that is “swifter” than a full tender process, he points out. But the caveat is that any benefits are dependent on the management of the framework provider and the buyer.

In unmanaged contracts, “the suppliers know there’s not much scrutiny”, Mr Carlin notes.

Some of this comes down to cultural differences between how the housing sector treats procurement, and how it is managed by red-in-tooth-and-claw commercial firms. “We don’t challenge suppliers on how the price is constructed,” one procurement professional admits to Inside Housing.

“We don’t challenge suppliers on how the price is constructed.”

Procurement professional

In contrast, in commercial operations, the process might involve delving into the supplier’s own supply chain and costs, to winnow down the real cost to them of providing a product or service, and determining a reasonable profit margin. Inevitably, more scrutiny means more savings.

Bear traps

Hilary Gillies, interim head of procurement at Viridian Housing, has worked in the sector for 30 years, and agrees that these clubs need to be used and managed appropriately.

“There are some bear traps,” she says. Avoiding these traps means viewing the pricing of a contract set out in a framework agreement merely as the starting point in a negotiation. However, she notes, this isn’t always how suppliers or buyers see things. “You should be able to negotiate,” she says. “Lots of suppliers think ‘these are my prices and I’m not moving’. There’s an argument as well that says suppliers could become complacent if they’ve got the security of a framework.”

Arguably, it is caution rather than cost-saving that is behind landlords’ use of frameworks. They see procurement in terms of compliance with the law – suppliers could theoretically take legal action if they lose out on a contract and believe the procurement was improperly carried out. That is a different motivation than the search for the best deal.

As Mr Hippach puts it: “The important discipline of procurement is still widely viewed as an activity that is in some way awkward, inefficient and unnecessary – in other words to be worked around rather than [worked] with and benefitted from.”

He adds that some frameworks work better than others.

Frameworks, now an everyday tool for social housing procurement, were invented not in response to a business need, but in response to legislation – namely, the procurement rules for public sector organisations introduced by the EU. Frameworks are designed to comply with the EU’s procurement rules, without the need for landlords – and other public sector organisations – to carry out a full tender, advertised across Europe.

From this premise, frameworks give landlords the easiest (and perhaps cheapest) way to fulfil a legal obligation.

Mr Hippach’s rule of thumb is that any contract worth more than £300,000 should be directly procured – but this is a rather different formula than that of many of the landlords Inside Housing spoke to for this story: seek first a framework, then carry out a tender only if one isn’t available.

“Procurement is still widely viewed as an activity that is in some way awkward, inefficient and unnecessary.”

Ian Hippach, partner, Geometra Systems

From a legislative point of view, the pressures that led to the framework industry springing up aren’t likely to go anywhere.

Procurement experts don’t believe Brexit will usher in the end of this legislation. As Mr Carlin points out: “The UK is probably the most rigorous EU member when it comes to adhering to the procurement regulations.”

Few believe that the government in Westminster will want to use Brexit as an opportunity to loosen rules over how the public sector goes about buying goods and services any time soon.

The aim of the regulations – getting the best deal for the public purse – chimes with Westminster’s agenda, and, importantly for social landlords, that of the Homes and Communities Agency.

The question, then, is do social landlords need to change their culture so that saving money isn’t just an added bonus, but the driver?