Behind door number three...

In Islington United House is replacing kitchens, bathrooms and central heating, along with the odd window, roof or floor in 2,500 flats within converted Victorian and Georgian town houses. Despite the fact that no two properties are the same, it's a standard job day-to-day for the site managers.

Behind the scenes, however, this project is anything but straightforward. Islington was the first of the government's PFI Housing pathfinder projects to start on site. For a contractor this means taking on – and pricing – a whole load of additional risks, getting to grips with things like Availability Standards and learning how to work co-operatively with your partner organisations.

And that's after you've bashed out what a housing PFI contract looks like. "Because it was a first, everything was made up," says United House's PFI director David Hay.

It was back in 1998 that the government invited local authorities to put in bids for the first round of pathfinder housing PFI projects. There had been ad hoc PFIs before this, but these were totally privately financed, whereas this new batch allowed councils to use rental income to pay the ongoing PFI charges.

The nine successful councils were announced in 1999. Five years later, only three are under way: Islington, Manchester, which pipped Islington to the post to be the first contract to sign on the dotted line, and Reading.

So why the delay? There are a number of reasons. The immense amount of paperwork for any PFI project has been well-documented.

But with housing there is the added layer of tenants, each one with their individual rights and obligations.

Then there were difficulties in working within and around the existing legal framework. The government made some changes along the way to help with some of these hurdles but each of these had to be then accommodated.

Some councils have had problems because they initially underestimated how much money they needed to do the upgrades, so have had to find more or look again at the project.

Getting it off the ground
So how did Islington manage to get going before the others? "Both parties had the desire to see the deal done, having spent time and effort jumping through all the various hoops," says Hay. "It was very driven from the public sector side. They had a very good project manager who worked exceedingly hard to drive the project forward."

The drive to do the deal made life interesting. Negotiations with subcontractors were going on in parallel with the negotiations with the council. Since many elements of the subcontracts reflect the contract between council and contractor there was a lot of to-ing and fro-ing.

At Islington the concession company, or special purpose vehicle (SPV), is called Partners for Investment in Islington. It is made up from United House's investment arm United House Solutions, Hyde Housing and Halifax Bank of Scotland. United House's construction and maintenance arms are carrying out the refurbishment and gas services and maintenance respectively. Hyde Housing manages the housing. The SPV has employed Rydon to do ongoing maintenance.

Pre-contract negotiations aside, there are differences in the way a contractor approaches housing refurbishments under PFI. The first job for United House was to survey every property. The bid had been based on a stock condition survey carried out at the beginning of the bidding process. The contractor has given the SPV a fixed price. "The council may have done works to the property, which may not be significant or which may be substantial. That's a risk we take in the pricing," says Hay.

Second, there is understanding the Availability Standard. This sets conditions on how the dwelling performs. For example, the Availability Standard might say that bedrooms have to be at 18 degrees C, living rooms at 20 degrees C. It is then up to the contractor to decide what products it will use to achieve that, whilst fitting in with the 30-year period during which the SPV will run the properties. These decisions are verified by consultants working for the SPV and by others employed by the banks.

The SPV is paid a 'unitary charge' for each property which meets the Availability Standard, with deductions if things aren't right. Payment also depends on performance in other areas. For example, maintenance contractor Rydon must deal with jobs within a set period and paperwork must also be handled within a certain number of days.

Perils of partnering
Another responsibility which falls to the contractors is dealing with right-to-buy owners within properties. They have to be consulted before any repairs of common areas are made, since under their leasehold they have to contribute to a building's upkeep.

Perhaps the biggest challenge, and one which has not yet been completely overcome, admits Hay, is bringing five organisations together and expecting them to work as one. Some responsibilities are shared, so systems and processes have to move seamlessly between organisations. "You have to realise that a decision you make is going to effect someone else," says Hay. "And if someone asks for information, they probably really need that information." The partners are now considering job swaps or job shadowing so that people can appreciate how other parts of the team operate.

The technical aspects of communication are also developing as the job progresses. The aim is to communicate electronically as much as possible, but there are the usual difficulties of software compatibility and differences in how companies organise information. "We started with an almost complete paper system because the mobilisation period was short," says Hay. "It's the collection of the data that's difficult and time consuming. Turning it into information is relatively easy."

It's important that the firms work well together. United House's refurbishment contract runs for five-and-a-half years, but there will be other PFI contracts where the firms work together. Already the partners are negotiating with Islington for 5,000 similar properties to be upgraded over eight years which come under the government's round two pathfinder projects. They are also one of two bidders at Lewisham and in a single bid situation with Ashford, both round two projects.

The third round of successful local authorities was due to be announced in December last year. Having been put back successively, the nine successful bids were announced in early May.

United House has the advantage because it has set up systems for complex tasks such as the allocation of risk pre-contract and IT systems to handle communications once the job is up and running.

But can United House meet the government's goal of an 18-month bidding period? "I think that's probably tight," says Hay.