Repairs and maintenance have high costs for social landlords, so evaluating how to deliver the best service efficiently is a constant consideration. Inside Housing reports. Picture by Getty
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For many social landlords, the decision to manage repairs and maintenance internally by having a direct labour organisation (DLO), rather than outsourcing it to external contractors, has become increasingly popular in the past five to eight years.
The idea has come full circle – for many years, councils and housing associations had been outsourcing to specialist professional services, as it was thought they would offer a better standard of work.
Inside Housing and the Northern Ireland Housing Executive (NIHE) hosted a breakfast briefing at Housing 2019 in Manchester to discuss this. The motivation came from an independent review of the NIHE’s maintenance services, initiated following the collapse of various contractors, including Carillion, and a need to assess the options.
Business Consultancy Services (BCS), part of the Department of Finance in Northern Ireland, undertook the review to assess the full menu of maintenance services available.
Peter Roberts, chair of the NIHE, says: “NIHE’s maintenance budget each year is £186m and supports 85,000 homes. Currently, 12% of this is undertaken by a DLO, while the remainder is executed by a selection of private contractors.
“In general, our contracts run well, our residents are happy and we get value for money. However, the circumstance of Carillion stimulated the debate.”
Martin Carey, deputy principal of BSC, says he used an evidence-based review to look at how the service of the DLO compared to an outsourced provision.
He explains: “We took a four-phased approach, starting by going out with middle-level management to see how both the DLO and private contractor work and to make a comparison.
“There was an open question of whether there was a need for change. The existing service is tenant-focused and responsive. We were evaluating the commercial viability and robustness to provide more certainty and control of the service, appropriate management of risk, collaboration, and value for money.”
In his view, to run a DLO, an organisation needs to have a picture of what it is hoping to provide and to get the foundation and structure right, to scale, and to change or adapt. BSC evaluated this across three pillars: costs, benefits and risks. Research concluded that a mixed provision was best. Mr Carey observes, “There is a continuing need for the private contractor provision as they provide innovation, flexibility and agility.”
The DLO reality
“Many social landlords think about discontinuing a private contract and bringing repairs in-house to save on VAT,” says Shaun Aldis, chief executive of Wolverhampton Homes. “Getting maintenance decisions right is tough. Get it wrong and it can severely cost a landlord – more than your VAT bill.
“I decided to build a DLO team to be intuitive to the environment we work in,” Mr Aldis explains. “That’s more complicated than it sounds. People think it’s all about understanding the financial aspects of your business, but it’s more than that – it’s about defining the areas you want to grow.”
Mr Aldis offers the analogy of repairs and maintenance being like waves on the sea, rolling in day after day, then occasionally there being a tsunami.
“At Wolverhampton Homes, we undertake 80% of repairs ourselves and call on contractors for the remaining 20% to bolster performance, particularly when the tsunami comes in – then it might go up to 40%, and you’ve got to have the capacity in your supply chain to do that,” he says.
He suggests that means developing a great relationship with your supply chain. “The most important part of your spreadsheet is understanding your budget and how you arrived at it, not just spending it because you’ve got it.”
It is also important to evaluate the scope of your crew and have good management in place. Wolverhampton Homes “previously recruited 400 trades, but now we’ve got 250 doing the same work”, says Mr Aldis.
“Monitor and measure it all. We don’t have any inspectors. Instead, we use our DLO team and it’s built around trust. Set targets and keep on trying to drive up performance.”
In contrast, Waltham Forest Council has recently signed a contract with a maintenance company to service its 12,000 homes. Darren Welsh, its housing director, explains: “Waltham Forest’s social housing stock needs some major works and there’s a backlog of homes to bring up to standard.
“We spend about £15m to £20m a year on maintenance. When we started our re-procurement process, we did an options appraisal and gained some resident insight to consider setting up a DLO.
“The key issues that emerged were the ability to deliver at scale, poor-quality work, wrong use of materials and co-ordination as jobs had overrun or we’d had to re-timetable as tasks hadn’t happened as quickly as we’d liked.”
Waltham Forest was also lacking a strong council clienting function to represent the views of residents, he adds.
The council decided it couldn’t set up a DLO because it didn’t have the skills and the capacity to deliver what it wanted. Instead, it has continued with an externalised model and has chosen a price per property model due to the appeal of some of the more proactive elements, such as ‘property MOTs’.
Mr Welsh continues: “We chose a new provider and extended our contract with an existing provider. Our aims are to be more cost-efficient rather than to make savings; to gain cost certainty, which is important when managing some of the fluctuations around budgets; and [a focus on] resident satisfaction.
“We want to maximise social value as we’re a borough of young families and we’re deprived with one in three children living in poverty. The early feedback has been very good and residents have been complimentary about our new contractors. One resident said that the maintenance staff fixed problems that they hadn’t reported. I’m happy with this proactive approach – although I recognise a landlord has to choose the model that best suits them and their residents.”
Chief executive, Wolverhampton Homes
Chair, Northern Ireland Housing Executive
Deputy principal, Business Consultancy Services
Housing director, Waltham Forest Council