Hi ho, hi ho, it's out to work we go

Ten years ago, Westminster council managed its housing services itself. Today, six external contractors – including private companies, registered social landlords and a public/private joint venture – oversee the council's 22,000 homes.

Despite the ideological opposition to privatisation and the dubious image of the practice brought by disasters in outsourcing housing benefit, many other councils, too, are contracting out housing management. Management services for more than 900,000 homes across Britain are contracted out, according to the most recent figures from the Office of the Deputy Prime Minister. Political will, expertise in both public and private-sector contractors and the best value regime that replaced compulsory competitive tendering have driven the trend.

Broadly, there are three approaches: contracting to RSLs, using private contractors and public/private joint ventures. Half a dozen RSLs – including PCHA, Hyde, Circle 33, Swale and Threshold – take on outsourced housing services, as well as three major private providers: Haywards, Pinnacle and Parkman.

Contracting out the landlord function is particularly common in London, where nearly half of councils contract out at least one dwelling, compared to less than one in six in rural areas and just over a quarter in urban authorities. Hackney, Islington, Lambeth, Lewisham and Westminster councils all have contracts with external housing managers. This is because the government demands councils concentrate on strategic issues, like homelessness capacity, and the authorities facing the most demanding of these issues are in the capital. And, as Pinnacle chief operating officer John Swinney explains: "Municipalisation is a far stronger issue in the North, and there is very little history of tendering there."

As the market evolves, so does awareness of the pitfalls and positives. "Housing investment options are inextricably linked to housing management issues, even options where the local authority retains ownership of the stock, like the private finance initiative and arm's-length management organisations," says Jeff Zitron, director of consultant Hacas Chapman Hendy.

Zitron says the best-value agenda is key to reshaping housing management approaches. Ken Hackney, former deputy director of housing at Westminster City Council, adds: "In Westminster, external housing managers are no longer required to use approved subcontractors, as they were under compulsory competitive tendering." He should know: he's now managing director of WMS Haywards, a private housing management contractor composed of Westminster's former in-house team. Doing away with pre-approved subcontractor obligations means councils have more choice and can choose contractors more suited to serve local needs. With services split between private companies and RSLs, experts say there is little discernible difference between the performances of each provider.

The most obvious advantage of contracting out is that staff are freed up to work on strategic housing policies. And, as George Grime, assistant director of housing management at Lambeth council, says, private contractors can be the source of some innovative ideas. "No authority should imagine that outsourcing will provide a magic wand to solve all its problems," he says. "On the other hand, there are significant benefits to be had from the cross-fertilisation of ideas that a diverse service can offer and it offers the potential to easily benchmark service standards."

Innovations can include issues such as replacing rent payment at traditional neighbourhood offices with payment via the internet or over the phone.

Such advantages are backed up by ODPM research. Its analysis of housing investment programme data on best value, tenant participation and housing management research, published in 2000, praises the "pick-and-mix style" of action taken to reduce re-let times in authorities which had contracted out. Although there are no figures on improvements post-contract, the report states: "Typically, authorities were enhancing contract specifications, detailing targets and cycle times and insisting on continuous improvement clauses. Penalties for performance failure were being introduced and several authorities were re-tendering to dedicated contractors."

The spectre of privatisation
But that's not to say outsourcing is problem-free. "The practice does strike some people in the public sector as privatisation," says Phil Morgan of the Tenant Participatory Advisory Service, although he adds that he has come across few negative experiences of outsourcing housing management.

Gaining trust among staff and tenants through open debate is crucial to the process (see "Successful outsourcing", below). "When we took over the running of Shoreditch, 40-50 in-house staff at Hackney moved to Pinnacle under a TUPE transfer," says Pinnacle chief John Swinney. "We agreed to maintain all the staff's terms and conditions, and retain them for the duration of the contract. At first some were a little uncertain, and it takes time to win trust."

Also, as Pinnacle has warned, proposals to bring private employees' terms and conditions up to those of the public sector could result in many contractors being priced out of the market.

If a local authority does choose to outsource, George Grime of Lambeth warns against a completely hands-off approach. He says it's essential for councils to work at their side of the relationship: "Like all staff teams, external housing managers need monitoring, motivation, management and support."

Another problem with contracting out is the potential for tension between the local authority and public sector contractors. Councils are often concerned that RSLs are bidding for contracts as the first step towards stock transfer. This has already happened in Lambeth, south London (see "Oval and Stockwell", below): in 1995, Hyde Housing Association won housing management contracts in Stockwell and Oval. Four years later, residents voted to transfer to Hyde.

Of course, not all instances of contracting out housing management are long-lasting.

In 1995, Dartford became one of the first councils to outsource – again, to Hyde. But the contract was not renewed after the initial five years. The council has subsequently taken the function back in-house, as was its right under the agreement.

So, while some authorities are adopting new approaches to management, driven by the best-value agenda, there is still much scope for innovation. It remains to be seen, for example, whether PFI will be a positive addition to the housing management mix.

"Conceptually we're getting there," says Hacas Chapman Hendy's Zitron, adding that a lot of the ideas in action have been underway for decades. "There's a long way to go in terms of delivery."

Westminster
In April 2000, Westminster council put its housing management out to tender. WMS Haywards, a private contractor composed of Westminster's former in-house team, won six of the 15 contracts – the others went to PCHA, Pinnacle PSG, Parkman, Threshold Housing Association and a public-private joint venture between Pinnacle and North British Housing.

WMS Haywards was formed in April 2001, when the contracts began, with Ken Hackney – previously Westminster's deputy director of housing – at the helm. Haywards' six contracts cover 7500 properties. They are renewable without further tendering for up to 15 years, subject to five-year reviews. As well as the landlord function, they cover estate cleaning, gardening, and assessment and advice – a service that no council had previously outsourced. The management contracts include a clause stating that Westminster retains 10% of the quoted fee at the start of every year. In WMS Haywards' case, that amounts to £300,000. Depending on performance – judged quarterly – that figure will be repaid over the course of the year. "It's important for us to get as much of that back as possible," says Hackney. "That can be the difference between us turning a profit or not."

WMS Haywards has set up a number of joint-venture enterprises with private companies and contractors to provide specialist services to residents. One of the first was a repairs service. "Obviously, fast and efficient repairs are really important to residents," says Hackney. "Having our own contractor ensures quality and speed. As a private company we are able to make that sort of investment, and take that kind of risk," says Hackney. "In the public sector, you're working with taxpayers' money.

"We wouldn't have been able to do what we've done if we'd been working within the local authority."

Oval and Stockwell
In 1995, Hyde Housing Association was successful in tendering for two housing management contracts from Lambeth under compulsory competitive tendering. One covered 2700 homes around the Oval cricket ground. The other covered 2400 homes in nearby Stockwell. The two contracts have evolved differently.

After a 1999 ballot, the residents of Stockwell voted for stock transfer to Hyde Southbank Homes, a community-based housing association and subsidiary of the William Hyde Group. Residents of Oval chose instead to maintain the existing housing management contract. Now nearly eight years old, Oval's is one of the more mature housing management contracts in the country. Having signed for an initial five years, Hyde's contract for Oval was renewed for a further two in April 2001. A further review is currently under way.

George Grime, assistant director of housing management at Lambeth, says that since 2000 Lambeth is committed to spending £340 a year on each property. Based on this, the Oval contract is worth around £920,000 a year.

Grime has set weekly targets for voids and arrears, and holds monthly meetings to discuss issues relating to the contract. He often visits the estates to see if the facts correspond with what he's been told and even deals with complaints personally as a means of hearing what tenants feel about Hyde's services.

Grime is complimentary about Hyde: "They are responsive and professional. They bring good ideas, but are also receptive to ours."