When it comes to asset management more and more HAs are ditching partnerships with contractors and managing their own affairs, but what are the risks?
I’ve said before that asset management is the next big thing for housing associations. Increasingly sexy. Not sexy like new build development or in a Fifty Shades of Grey way, but sexy in a “can’t help talking about it” way and “Hmm, I could fancy trying that”.
Why? Because at the moment it’s the thing that is keeping housing associations up and down the country awake at night. Or at least it should be. The recent collapse of Southdale Construction in the north has had implications for a number of housing association building programmes. The collapse of Connaught and Rok had a profound impact on associations’ thinking about their exposure on major repairs and refurbishment programmes.
Two very large housing associations in London have made the decision to part company with existing contractors
Two very large housing associations in London have made the decision to part company with existing contractors with one stating “for us there weren’t any stand out contractors out there”. The trend is to seek alternatives and to take direct control of their own procurement of repairs, major works and in some notable cases such as L&Q in London, their own new build programmes. Many council owned housing companies (Arms Length Management Companies) already have their own Direct Labour Organisations, or DLOs, as some of them are being called. They are also making them commercial operations. Solihull Community Homes for example is now undertaking late night street cleaning services for Birmingham City Council.
The intention is to manage their own affairs and to control the risks. Which makes sense. However, there are risks with taking on your own programmes and though some will get it right, some will get it wrong. The advice we give to housing clients that we work with is know what you are getting into; get expert advice, both on the technical aspects, but also on the management and governance; talk to those who have done it before; to those who have considered it and decided not to, and to those who have had DLOs in the past; and be clear on how much risk you are prepared to take.
The ideal of course is to have an experienced contractor partner alongside the association, sharing the risk and the rewards but the construction industry is being challenged to demonstrate that such partnerships are still out there. Associations aren’t convinced they are any more.
In the meantime, my advice to associations who are thinking about the latest “sexy” thing in asset management and want to use their own in-house teams, don’t forget to take precautions.
Steve Douglas is a Partner at Altair. He is chairing the Northern Housing Consortium Conference on VFM and regulation on 15 July 2015