In the light of recent headlines about the febrile atmosphere within the contracting sector, businesses failing and unsustainable margins, Mike Turner, chair of the National Housing Maintenance service provider forum, has six key recommendations
The National Housing Maintenance Service Provider Forum (NHMF SPF) is a group that represents service providers and contractors large and small, working together to share best practice, drive improvement and support our clients.
We recently met to look at the underlying reasons behind the administration of some high-profile and long-standing contracting businesses (service providers) in 2023. Such outcomes have a major impact on many levels including the loss of livelihood for the employees and supply chains affected, delays to projects, loss of core services and a significant effect on (already stretched) budgets.
We all recognise that we are facing unprecedented market conditions and challenges. Brexit, covid-19, labour and materials shortages, the conflict in Ukraine, the cost of living crisis and inflation are things that are affecting us all.
When procuring works and services, we believe there are opportunities for clients to create contractual models that allow us to deal with these challenges more effectively. The impact of a failure to recognise and address the above is creating an economic environment, within our sector that service providers are increasingly unable to withstand.
This is likely to result in further business failures along with a partial withdrawal of services necessary to protect the future viability of providers. Clearly this will be to the detriment of registered providers and their partners.
The NHMF SPF group would therefore ask that all clients adopt the following six recommendations and create action plans to deliver the change we are all seeking:
Early engagement: Engage the potential market before you procure. Service providers will tell you the things that create risk and which are potentially challenging. This should continue into procurement through the clarification processes and/or mid-tender briefings.
Tackle low pricing: Avoid “race to the bottom” evaluation models and processes that reward the lowest price rather than best value.
Tender validity: Think carefully about how long a price must be held by bidders (tender validity periods). Fixed-price contracts are often delayed and a significant factor in many of the recent administrations we have researched.
Cost not price transparency: Use collaborative contractual models that provide transparency of costs, and which offer mechanisms to deal with the difficult issues when they are faced.
Fair risk transfer: Avoid legal terms that transfer risk unfairly, without liability caps and with unreasonable penalties. These will be unattractive to many service providers reducing interest in your opportunity. Those that do bid will often inflate tender prices to try and manage the perceived risk. This may mean you will pay more.
Monitor the market: Work with your contractors and service providers (after appointment) to understand the current market conditions they are facing. This open understanding will help you to find solutions that are fair and which work for all.
By adopting the above actions, the likelihood of dispute, poor service and service providers suffering financial difficulties will reduce. The cost of a failed contractual arrangement is typically much, much more than you save through traditional approaches to procurement, tender evaluation and contract administration.
Mike Turner is chair of the NHMF Service Provider Forum