Supply Chain Management : Highly Commended Award for Innovation in Partnering 2014 Under PPC2000

Transcription

1 Case Study 2014 Supply Chain Management : Highly Commended Award for Innovation in Partnering 2014 Under PPC2000 Introduction Hackney Homes and Homes for Haringey as members of the Supply Chain Management Group (SCMG) have used Two Stage Open Book to demonstrate a breakthrough that will enable public sector clients to deal directly with Tier 2/3 subcontractors and manufacturers, working with Tier 1 contractors, to build up fully integrated working relationships. SCMG has created a multi-client, multi-contractor team engaged on housing refurbishment that has worked with a wide range of SME subcontractors and manufacturers under a standardised system of costing and long-term engagement that has created major savings and significant qualitative benefits. The SCMG relationships and structures are sustained by training and support to embed a collaborative culture. Both Hackney Homes and Homes for Haringey re-procured their Tier 1 contractors during the Trial Project Case Study period, and demonstrated significant savings in the procurement process itself and in the outturn costs / rates. Supply Chain Management Group - Integration & Collaborative Working Early Contractor Involvement The Tier 2 collaboration process, embraces the early contractor and Supply Chain involvement. The process requires a transparent approach to costs, innovation in delivery, negotiation of long-term Asset Management benefits and the full engagement of all partners in delivering effective solutions. PPC/TPC Case Study Page 1

2 Traditionally this has not been area where the Client had any involvement. Selection by value The conventional supply chain procurement process can lead to hidden profit increasing distrust between partners and a failure or lack of opportunity to address longer term maintenance issues. The open procurement carried out by through Tier 2 collaboration seeks to arrive at a balance between quality and cost and is not a search for the lowest price. Main Contractor discounts are not allowed and retentions are not required. Common processes and tools across organisations Tier 2 collaboration is a process. It is not another form of procurement, nor does it conflict with the contractual obligations within the Tier 1 appointment. It is essential that there is a thorough and consistent approach to operational implementation. A detailed handbook has therefore been produced, together with a suite of documents which form our training and on-going support for delivery teams. Long-term relationships Many of the 100 plus Supply Chain members and nine major contractors have operated the process since It is vitally important for the Supply chain that work continues to flow year on year through these framework contracts and that site delivery teams are sustained and developed. Modern commercial arrangements In order to introduce the ability for the Client to gain the range of benefits available through engagement at Tier 2, a modern form of contract is essential. We have operated with PPC, TPC and NEC contract frameworks. Fair payment practices Suppliers are engaged on a common form of Supply Chain Framework Agreement (SCFA) for each element of work. All contractors and all suppliers, sign up to the SCFA which includes commonly agreed payment terms. No contractor may introduce payment or other terms which are less favourable to the supplier than those stated in the SCFA. SCMG monitor this process with the Supply Chain and take up issues with Clients and contractors. Less adversarial approach By using transparently costed, comprehensive Basket Rates for each element of work, the likelihood of disputes is significantly reduced. There have been no significant contractual disputes relating to the SCMG process. A common reason for lack of trust is the sometimes opaque way in which costs are derived. The SCMG process deals with that issue on day one and a range of operational and behavioural benefits have been found to flow from that clarity. Delivery against client performance measures Clients will measure performance against Main Contractor KPIs. SCMG measures KPI performance of the supply chain directly and makes data available to Clients and Contractors. Workforce integration The co-location of Client Contractor and Supply Chain teams has demonstrated significant behavioural benefits. The use of savings to increase workflows has also enabled teams to be retained, rather than disbanded. This bid is part of SCMG s ongoing intention to introduce tier 2 collaboration into the mainstream of procurement thinking. It is not intended as a marketing tool for SCMG membership. As part of this intention we have been engaged for 3 years with the Cabinet Office in PPC/TPC Case Study Page 2

3 developing new procurement models as part of the Government Construction Strategy The Cabinet Office in 2012 produced a report, The Construction strategy one year on An existing example of collaboration at tier 2 between appointed contractors, Supply Chain members and the Client was considered. This mature model, developed by the Supply Chain management group (Hackney Homes, Homes for Haringey and LB Newham) has been proved to deliver very significant savings, improved quality, long-term asset management benefits, and a reduction in the Client and contractor resources required to deliver projects. Since then the Government has published the final report on the SCMG Trial Project publications/government-constructionstrategy-trial-projects This submission relates to the introduction of a process which follows the appointment of a Tier 1 contractor. The Client will as part of their review of Tier 1 bids and operational activities, monitor all activities on site to ensure that H&S is embedded in the culture and operations of all on site. The SCMG model cannot of itself claim to have a direct impact upon H&S, it being essential that the lines of responsibility for managing these obligations are clear and unambiguous. Economic The economic benefits of direct engagement between the Client, Contractor and Supply chain have been well demonstrated. Constructing excellence in 2006 awarded Hackney Homes Demonstration Status for their Decent Homes Phase 2 programme, which employed this process. The appended report from MACE also provides detail on savings. It is important however to recognise that savings which are re-invested in the stock provides a sound base for engaging with suppliers, installers and contractors, to increase demand for their services over a longer period. Social A significant advantage of appointment of the Supply Chain through the appointed Tier 1 contractor is that there is greater flexibility for that contractor in the choice of supplier than there is at Tier 1 for clients. This means that access to local businesses and their introduction to projects create a local legacy from the investment. Providing local training and employment opportunities through our innovative partner contractors, such as Building Lives, an initiative created and developed by Lakehouse contracts ( offers the opportunity for our Supply Chain and Contractor members, as well as local people to have sustainable careers in construction. Environmental The refurbishment of existing stock creates significant waste. Our processes include basket rates for managing waste and minimizing waste to landfill. At present our KPI monitoring progress reveals that in excess of 90% of waste does not go to landfill. Attached (B) is a report from our waste Supply Chain provider McGrath, demonstrating this commitment, developed as a result of Tier 2 engagement with the Client. Cost Savings The cost savings achieved include 16.5% by Hackney on its 2010 framework/alliance procurement, plus further savings averaging 14% achieved by Homes for Haringey and Hackney Homes through the application of the SCMG processes from 2010 to Overall savings equate to an average of 31%, achieved through reduced contractor costs (reflected in the alliance/framework procurement), reduced Tier 2/Tier 3 costs offered in return for clarification of work throughput, improved client briefs and simplification of pricing under basket rates, greater visibility of the forward pipeline of work and establishment of common Supply Chain Agreements securing prompt payment and an open forum for resolution of problems. The detail of these savings are are described more fully in the Trial Project report. Non-Cashable and non construction cost Benefits Client, contractor and Suppliers The benefits of the process include both cashable and non-cashable benefits, including reduction in resourcing costs (staff & Consultancies). The non-cashable benefits are very considerable and are established and valued as far as possible in the Davis Langdon reports appended (C). PPC/TPC Case Study Page 3

4 Analysis of the Homes for Haringey and Hackney Homes tender processes revealed that consultant costs incurred by both clients during the course of their procurements were substantially reduced by reason of the preexisting SCMG data and documentation. Independent confirmation was also provided by a sample Tier 1 contractor, Keepmoat, to explain how their own bid costs on a procurement supported by Two Stage Open Book under SCMG were far lower than the bid costs they incurred under a comparable single stage procurement, specifically 719 per 1 million of turnover (under SCMG) as against 4,808 per 1 million of turnover (under the comparable traditional bid). Contractors are not required to operate a procurement process for creation and management of the Supply Chain and Supply Chain members, using the common ;elemental Basket Rates are not required to undertake further tendering activity until the annual review is carried out by SCMG. DCLG and HCA, we are committed to ensuring that the impact of the process we have developed for Housing projects is brought into the mainstream of procurement and contract management thinking. We have put considerable effort into widening knowledge of the benefits of adopting the process through our existing members, other consortia, local authorities/amos, Central Government and the Industry generally. The cultural changes required are very significant. The cornerstone to sustainable change is TRUST. We believe that our open transparent and fair processes, alongside leadership and sustained commitment from our members, has allowed trust to develop and performance and quality to improve. This allows the Supplier to commit resources to building AMPs on behalf of the Tier 1 Contractor, in the knowledge that they will appoint them for those works. Their risk is therefore significantly reduced. The contribution which the Supply chain makes to the success of the project has often been masked by the inflexibility of historic contract relationships. Direct engagement with the Supply Chain unlocks their potential, experience and expertise for the benefit of the project. This is demonstrated in design, cost, and on-going Asset Management maintenance opportunities, such as extended guarantees and training of local maintenance teams. External reviews and annual lessons learned and cost reviews are an established route to refining the process for the team. We also carry out audits of completed sections of work to ensure compliance and learn from that experience. The results of these reviews are contained in the annual review of each building work element. As a not for profit organisation funded by local authorities and set up with support from PPC/TPC Case Study Page 4

5 HACKNEY HOMES PROCURE 2010 SUPPLY CHAIN MANAGEMENT VALUE FOR MONEY ANALYSIS REPORT Supply Chain & Efficiency savings Rev1.DOC

6 Contents Page: 1.0 Introduction 2.0 Methodology to Harmonise 3.0 Efficiency Savings Achieved 4.0 Conclusion 5.0 Next Steps Appendices Appendix 1 Appendix 2 Appendix 3 Methodology to Harmonise Phase 3 Harmonised rates vs Phase 2 Rates (External Works) Phase 3 Harmonised rates vs Phase 2 Rates (Internal Works) Supply Chain & Efficiency savings Rev1.DOC 2

7 1.0 Introduction 1.01 Purpose of the Report To outline the methodology/steps taken to undertaken the harmonisation of a number of Supply Chain rates for 20 trade packages including the evaluation of such To highlight the efficiencies savings and added value achieved via the harmonisation process subsequent to the Procure 2010 ISFP submission. Conclusion and Next Steps 2.0 Methodology to Harmonise The strategic process of harmonising the Price Framework was drafted by Mace Ltd in conjunction with a number of Hackney Homes (HH) individuals. The strategy objective was outlined to the Lead Constructor and other Framework Constructors which resulted in all parties adopting the process. It was agreed that the documentation to be used for procuring the harmonised supply chains priced frameworks should be the same as used for the Procurement of the Constructor Framework (i.e. the Price (60) / Quality (40) matrix) to maintain consistency and avoid any potential procurement challenges about the process. The methodology was a five (5) step process as noted below: 1. Lesson Learnt / Update Project Brief (s) & SORs 2. Enquiry Document 3. Commercial 4. Tender Analysis 5. Recommendation and Supply Chain Agreement Supply Chain & Efficiency savings Rev1.DOC 3

8 3.0 Efficiency Savings Achieved The Supply Chain harmonisation post Contract Award has been able to achieve 16.53% (refer to Table 1) saving (in addition to savings highlighted in the Mace Tender Analysis Report dated 13 th April 2010) which is significant with a programme spend of circa 10-15m ( equivalent to 1.65m m) in Decent Homes Works per year. When Phase 2 is compared to Phase 3 based on the above a phenomenal saving of circa 28.07% is achieved (refer to Table 1). This equates to 2.8m saving on a 10m and 4.2m on a 15m programme of works. For comparison purposes the methodology used to demonstrate the savings was carried out by populating the harmonised rates into the Decent Homes Procure 2010 Cost Model and comparing such against the ISFP submission. When compared to Phase 2 the savings are in addition to the cost efficiencies gain, a set of non-cashable benefits were also achieved including: A more effective and efficient process for carrying some of the work packages (external works generally) Extended Defects Liability Period Sustainability targets with respect to employment of local labour, apprenticeship and use of Hackney s Job Centres etc included within each Supply Chain Agreement which has been signed and executed by all Supply Chain members Warranties and Guarantees Table 1 below highlights the savings achieved: Supply Chain & Efficiency savings Rev1.DOC 4

9 Supply Chain & Efficiency savings Rev1.DOC 5

10 4.0 Internal and External Works Programme Savings Based on the evidence noted above we undertook a further detailed analysis to identify the manifestation of savings already achieved during 2010/11 financial year for kitchen and bathroom refurbishment works (Internal Works) and potential savings for roof, windows, brick and concrete repairs (External Works) for 2011/12 based on historical AMPs. When the Phase 3 internal refurbishment works were compared against Phase 2 (using Mansell and Mulalley Final Accounts) a saving of 20% (excluding Prelims& OH&P) was realised whilst for the External Works the following potential savings are: Blocks 1-3 Storey Blocks 22.5% excluding Preliminaries & OH&P 4-6 Storey Blocks 16.2% excluding Preliminaries & OH&P 7-9 Storey Blocks 35.6% excluding Preliminaries & OH&P Street Properties Grd or Mid-Floor St.Property 33.9% excluding Preliminaries & OH&P Top Floor Flat 16% excluding Preliminaries & OH&P 3 Storey 6.3% excluding Preliminaries & OH&P The above reflect an average saving of 21.7% saving (excluding Preliminaries, OH&P) on a programme of External Works. Supply Chain & Efficiency savings Rev1.DOC 6

11 5.0 Conclusion & Next Steps The Procure 2010 Tender followed by the Supply Chain Harmonisation Process has been successful as significant cashable and non-cashable efficiencies has been realised to date. Based on the findings in this report cashable savings of circa 2m and 2.17m on a 10m Internal and/or External programme of works can be realised. The manifestation of such savings can be delivered within the 2 year period for the External Works programme as the prices are fixed until 31 st March 2013 whilst the Internal works prices are until 31 st March The next steps to clearly demonstrate the future benefits of the 4 year programme are: Reconciliation of 2011/12 Externals Works Budget using the Supply Chain Harmonised Rates Comparison of External Works Phase 2 and Phase 3 Final Account Benchmark against other consortiums providing same Annual Analysis of the supply chain rates Supply Chain & Efficiency savings Rev1.DOC

12 APPENDIX 1 Methodology to Harmonise Supply Chain & Efficiency savings Rev1.DOC

13 Methodology to Harmonise Step 1- Lesson Learnt / Update Project Brief (s) & SORs 1. HH Team (Asset and Planned Maintenance) to identify the elements of work to be prioritize this financial year and focus on them. 2. A brief lesson learnt exercise should be facilitated for each of the elements so the pros and cons can be captured. This should include procurement, Contract Managers and other Planned Maintenance personnel associated with the relevant element 3. HH Team to review current Project Brief (.i.e. specification) and Pre-Priced SORs where applicable and provide update/comment on any discrepancies and/or in-adequacies. This information should be captured in a systematic manner. 4. The above should be used to prepare and create new Project Brief (s) and update the SORs ready for issue to the Lead Constructor and other Framework Contractors. 5. The above will be included as part of the Enquiry document to be issued by the Lead Constructor Step 2- Enquiry Document 1. HH Team, Lead Constructor and other Constructors to agree on the content of the Enquiry document over and above Step 1 item 4 above including o Price /Quality Matrix detailed breakdown of such 60/40 or other. Presentations and interviews and % for such etc o Supply Chain Agreement o Sustainability Protocol (if applicable) o Projected Budgets for each element over the next two years (if possible) o Volume discount to apply or not o Added Value (Non-cashable benefits) o Agreement on the number of Supply Chain Members to the enquiry should go to for each element/package o Framework Constructors and HH Team to nominate a number of supply chain members that each element should be tendered too. o Enquiry document to be reviewed and sign-off by HH Team prior to issue by Lead Constructor Step 3- Commercial 1. HH Team to review the Pre-Priced SORs and set the HH harmonised rate for each element excluding the manufacture cost (i.e. materials) and OH&P (where possible) 2. Harmonised rate to be included within the Pricing section of the Enquiry document and a request for the Supply Chain to offer % add or deduct Supply Chain & Efficiency savings Rev1.DOC

14 3. HH Team and Lead Constructor to engage manufacturers and/or material suppliers. Discussions with such should include better rates/prices, volume discount and improved warranties and guarantees 4. It would be great if each Supply Chain member for each element can provide % increase on the SORs but also price a previous project based on a Final Account. 5. Obtain Preliminaries and OH&P breakdown from Framework Constructors for each element if not already highlighted in Contract Documents. Step 4 Tender Analysis 1. Tenders to be returned both in electronic and hard copy format 2. All tenders should be returned to a nominated HH individual within HH Planned Maintenance team who should record such 3. Qualitative sections of tender documents should be distributed to the relevant HH Team members, Residents (if applicable) and Framework Constructors for scoring. All scores will be collated by the Lead Constructor 4. The analysis of the pricing to be carried out by both HH Team and the Lead Constructor with a view on agreeing the outcome. The price scoring to be done in accordance with the Price /Quality Matrix 5. Presentation and interviews to be undertaken in a structured manner based on a number of key questions to be agreed between HH and the Framework Constructors. HH to confirm the extent of Resident involvement in this part of this process. 6. Based on the Price /Quality matrix the overall scores for each Supply Chain member for each element will be collated and then ranked accordingly. Step 5 Recommendation and Supply Chain Agreement 1. The recommendation would be based on the ranking of each Supply Chain member for each element and review of the magnitude of the respective programme of works to ensure that the list of Supply Chain members required is adequate for such 2. The recommendation will be afforded by the Lead Constructor representative to the Directors of the Framework Constructors for comment (if any) and authorisation to proceed with recommendation 3. Lead Constructor to co-ordinate the Supply Chain Agreements and organise for such to be executed subject to HH Team and Trowers & Hamlins review and comments. Supply Chain & Efficiency savings Rev1.DOC 10

15 APPENDIX 2 Phase 3 Harmonised rates vs Phase 2 Rates (External Works) Supply Chain & Efficiency savings Rev1.DOC

16 APPENDIX 3 Phase 3 Harmonised rates vs Phase 2 Rates (Internal Works Works) Supply Chain & Efficiency savings Rev1.DOC

17 SCMG NON-CASHABLE BENEFITS REPORT by Dermot Taylor, Davis Langdon. Introduction: Hackney Homes commissioned Davis Langdon to carry out an investigation into additional non-cashable benefits included in the Supply Chain members contracts but which were not necessarily apparent from their tender bids. A meeting was held at Hackney Homes CAH on 25 th February between Hackney Homes and Davis Langdon to determine the method of analysing and reporting noncashable benefits. To this end representatives from Veka windows were interviewed at the meeting to establish those items included within their bid which were of benefit to Hackney Homes but which had not formed any additional monies within Veka s tender. The list of items generated at the meeting formed the basis for the matrix of questions used at interview with other members of the Supply Chain. Procedure: The following sample of Supply Chain members were interviewed over a period of several weeks by Davis Langdon: Veka Windows; Scaffolding Access; Trad Scaffolding; Bauder Roofing; Moores Kitchens; Premiere Kitchens; Baxi Heating; Glow Worm Heating; Twyfords Bathrooms; PTS. Their responses are included in a matrix which evaluates the benefits established at interview. Non-cashable Benefits Matrix: The matrix comprised a list of items -on average 27nr. ranging across a broad spectrum from matters of extended warranty, liaisons with planners, surveys, and risk, to those concerning, duty of care, KPI s and responsive maintenance. The interviewees confirmed which items were relevant to them. They were then asked to assess each items importance (on a score of 1-10) with reference to: - 1:Process Benefit 2:Client Benefit 3: Tenant/Leaseholder Benefit. The scoring was discussed in depth with Davis Langdon prior to agreement by both parties. A range of H(igh), M(edium) or L(ow) was used to indicate likely costs where Hackney Homes would need to provide an item not included in the Supply Chain members bid and where the cost has been absorbed by Supply Chain members in supplying the benefit. In certain cases, e.g. scaffolding, some of the items were not scored as they did not apply. All those interviewed were asked to suggest additional items which they considered a benefit. Where relevant, these were included for review.

18 Analysis of Matrix: The completed matrices were discussed by Alan Turner and Dermot Taylor (Davis Langdon) on 29 th. March and issued to Hackney Homes on 31 st. March by Davis Langdon. The matrices were then reviewed by Hackney Homes and Davis Langdon at a meeting on 14 th April. It was decided to exclude Scaffolding Access, Premiere Kitchens, IPS and Glow Worm from the final detailed examination as it was felt that these companies were better represented by others in the same field, namely Trad Scaffolding, Moores Kitchens and Baxi Heating. Of the remaining companies being reviewed certain scorings were adjusted to take into account Hackney Homes' expert knowledge of what they were already providing. To enable a total numerical score to be attained for each company the costs for Client and Supplier (which had been designated as High, Medium or Low) were given a rating out of a possible total of 70. This added to the total possible scoring of 10 for Process Benefit, Client Benefit and Tenant/Leasehold Benefit gave a maximum of 100 for each item on the matrix. Those items which would cost Hackney Homes the most to provide independently were given the highest assessment, as shown below: KEY COST CLIENT COST SUPPLIER TOTAL (out of 70) H L 70 H M 62 H H 54 M L 46 M M 38 M H 30 L L 22 L M 14 L H 6 Conclusion: The analysis of non-cashable benefits established by an examination of a representative group of companies from the Supply Chain Group indicated that Hackney Homes are the beneficiaries of a broad spectrum of benefits which, should they have had to pay for them independently, would result in considerable extra cost. The importance, therefore, of ensuring that the maximum amount of non-cashable benefits are included within every Supply Chain Members agreement is self evident and is something which needs to be addressed should other Boroughs be brought on board.

19 Indicated below are the final matrix totals for the companies interviewed. As certain items were not always applicable and additional items were added in some cases the overall possible scoring for each company differs. The full matrix results are given on a separate schedule. COMPANY OVERALL TOTALS Possible Actual VEKA WINDOWS TRAD SCAFFOLDING BAUDER ROOFING MOORES KITCHENS BAXI HEATING TWYFORDS

20 Case study: Achieving good practice waste recovery McGrath works in partnership with Hackney Homes Hackney Homes is using a partnering approach across the whole supply chain, to deliver the Decent Homes Programme in Hackney. A framework of five construction contractors works in partnership with McGrath to deliver the Local Authority s target waste recovery rates. Project code: WAS ISBN: [Add reference] Research date: November 2008 to November 2009 Date: 16 December 2009

21 WRAP helps individuals, businesses and local authorities to reduce waste and recycle more, making better use of resources and helping to tackle climate change. Document reference: WRAP, 2009, Case Study: McGrath works in partnership with Hackney Homes (WRAP Project WAS ). Report prepared by Hill, A R and Pearson, G A, Scott Wilson Ltd Written by: Dr Annette Hill and Gillian Pearson (Scott Wilson) Front cover photography: Hackney Homes Decent Homes Programme, courtesy of Hackney Homes WRAP and Scott Wilson Ltd believe the content of this report to be correct as at the date of writing. However, factors such as prices, levels of recycled content and regulatory requirements are subject to change and users of the report should check with their suppliers to confirm the current situation. In addition, care should be taken in using any of the cost information provided as it is based upon numerous project-specific assumptions (such as scale, location, tender context, etc.). The report does not claim to be exhaustive, nor does it claim to cover all relevant products and specifications available on the market. While steps have been taken to ensure accuracy, WRAP cannot accept responsibility or be held liable to any person for any loss or damage arising out of or in connection with this information being inaccurate, incomplete or misleading. It is the responsibility of the potential user of a material or product to consult with the supplier or manufacturer and ascertain whether a particular product will satisfy their specific requirements. The listing or featuring of a particular product or company does not constitute an endorsement by WRAP and WRAP cannot guarantee the performance of individual products or materials. This material is copyrighted. It may be reproduced free of charge subject to the material being accurate and not used in a misleading context. The source of the material must be identified and the copyright status acknowledged. This material must not be used to endorse or used to suggest WRAP s endorsement of a commercial product or service. For more detail, please refer to WRAP s Terms & Conditions on its web site:

22 Executive summary In the London Borough of Hackney, upgrading the Local Authority s housing stock to meet the requirements of the Government s Decent Homes Standard and the Local Authority s own Hackney Standard is the largest refurbishment project ever undertaken by the Borough. Hackney Homes is delivering its Decent Homes Programme through a strategic partnership arrangement with five construction contractors. Hackney Homes and the construction contractors have also appointed a common supply chain through a supply chain agreement, which includes the provision of all waste management services. McGrath was appointed as the waste management company for the project through a multi-stage process that involved all parties coming together in a series of workshops to scope the service delivery. Under the supply chain agreement, McGrath delivers all waste management services to the five construction contractors working on the Decent Homes Programme in Hackney. The Company undertakes a range of waste management and recycling activities for the project and provides bespoke monthly reports to Hackney Homes and the construction contractors. Waste recovery rates of 70 to 85% are being achieved. McGrath works in partnership with Hackney Homes 1

23 Contents 1.0 Introduction Key facts The project Client: Hackney Homes Waste Management Company: McGrath Group...4 Background Key drivers Procurement process The Process...6 Contract arrangements Contract conditions and requirements Contract management Service delivery... 7 Data collection, collation and reporting Use of the Site Waste Management Plan Auditing Outcomes Key learning points...11 Next steps Further information Acknowledgements WRAP and Scott Wilson would like to thank McGrath Group and Hackney Homes. McGrath works in partnership with Hackney Homes 2

24 1.0 Introduction Hackney Homes is using a partnering approach across the whole supply chain, to deliver the Decent Homes Programme in Hackney. A framework of five construction contractors works in partnership with McGrath to deliver the Local Authority s target waste recovery rates. 1.1 Key facts Client: Hackney Homes Construction Contractor: strategic partnering agreement of five construction contractors Waste Management Company: McGrath Group Hackney Homes procured the delivery of its Decent Homes Programme through a strategic partnership arrangement with five construction contractors that involves a common supply chain appointed through a supply chain agreement. The supply chain waste management partner McGrath, was appointed through a multi-stage process that involved all parties coming together in a series of workshops. Under the supply chain agreement, McGrath delivers all waste management services to the five construction contractors working on the Decent Homes Programme in Hackney. McGrath undertakes a range of waste management and recycling activities for the project and provides bespoke monthly reports to Hackney Homes and the construction contractors. Waste recovery rates of 70 to 85% are being achieved. 1.2 The project The Government s Decent Homes Standard requires all social housing properties that are owned by Local Authorities to be warm, weatherproof and have reasonably modern facilities, such as kitchens, bathrooms and wiring. The Decent Homes Standard was expected to be achieved through programmes of refurbishment and/or new build. The London Borough of Hackney, in partnership with Hackney Homes, is undertaking a 380 million Decent Homes Programme to upgrade their stock of 32,000 dwellings to meet the Decent Homes Standard by An extensive programme of roof and window replacement has been undertaken and work is ongoing in this area and in the refitting of kitchens and bathrooms that are over 30 years old. In addition to meeting the Decent Homes Standard, London Borough of Hackney has also targeted additional improvements through the Hackney Standard which was developed in consultation with residents. The Hackney Standard includes a range of improvements such as: new entry phones and CCTV; environmental improvements; garden / ground level access; play areas; refuse disposal areas; access for those using wheelchairs; and improving communal areas. The delivery of the Decent Homes and Hackney Standards is the largest refurbishment programme ever undertaken by the Borough. In order to deliver this major programme of work, Hackney is working with five main construction contractors in a strategic partnership arrangement. McGrath works in partnership with Hackney Homes 3

25 1.3 Client: Hackney Homes Hackney Homes is an Arms Length Management Organisation (ALMO) set up by London Borough of Hackney in April 2006 to manage and improve its housing stock. Hackney Homes is a not-for-profit organisation with a management board comprising six elected resident representatives, five appointed independent board members and five councillors nominated by London Borough of Hackney. Hackney Homes is responsible for managing social housing, collecting housing rental, and repairing and maintaining Local Authority owned homes across Hackney. Hackney Homes key business objectives are: providing excellent, accessible services; delivering modern homes; running Hackney Homes well; and improving neighbourhoods. 1.4 Waste Management Company: McGrath Group McGrath Group (McGrath) is a waste management, recycling and demolition company based in Hackney and supplying services across south east England. The Company began as a small plant hire business in 1972 and has since expanded to offer a wide range of waste and recycling services. The McGrath Group also includes Demo One - a demolition contractor. The services offered by McGrath include: skip hire; waste collection; waste recycling; plant hire; tyre recycling; and supplying recycled aggregates and ready mixed concrete. The Company operates from an eight acre depot in Hackney, which includes a modern waste segregation plant, and has recently invested in a new waste transfer station in Barking. To support the growth of the business, McGrath has made significant investment in plant, people and systems and constantly refines the services offered in order to adapt to customer requirements. McGrath puts customer satisfaction and a responsibility to protect the environment at the forefront of its operations. The Company has established policies on the environment, quality and heath and safety and is in the process of seeking recognised third party accreditation of its management systems. McGrath has also signed up to WRAP s Construction Commitments: Halving Waste to Landfill, thereby making a public commitment to reduce the amount of waste it will send to landfill. McGrath s Environmental Policy Statement states: As a specialist waste management and recycling company, we are committed more than most to conducting our business in a manner which protects the environment. We are currently in the process of seeking ISO14001 and Green Mark recognition for outstanding environmental management systems. We are committed to: Using and improving operations and technology to reduce waste and prevent pollution at all levels, including nuisance noise and dust emissions; Striving to improve our rate of recycling; Using natural resources wisely coupled with monitoring of energy use to improve efficiency. McGrath works in partnership with Hackney Homes 4

26 2.0 Background To deliver the major programme of works required to achieve the Decent Homes and Hackney Standards, Hackney procured a Design and Build Contract across five council areas using the PPC2000 Contracting Arrangements that promote partnership working. Tenders were reviewed by joint Officer and Residents Panels for each contract area and five main construction contractors were appointed to the framework, as follows: Connaught; Kier; Lovell; Mansell; and Mullalley. Each construction contractor signed a PPC2000 Partnering Contract with the Council as well as jointly signing up to a Strategic Alliance with Hackney Homes. The partnership approach was designed to deliver efficiency savings across the programme through cost savings, the quick resolution of common issues, fewer disputes and improved resident satisfaction. The Partnering Agreement requires all five construction contractors to work together with Hackney Homes to deliver the requirements of the programme. It establishes a single procurement forum and a common supply chain, which is controlled by Hackney Homes. The supply chain is managed through a supply chain agreement that includes Hackney Homes, the five construction contractors and all supply chain members and promotes partnership working throughout the supply chain. The works undertaken on the Decent Homes Programme can vary greatly in scale and duration and can include everything from the refitting of all the kitchens and bathrooms in an entire block of flats to installing new windows in a single home. 2.1 Key drivers The key drivers for the delivery of the project include: Client - Hackney Homes delivering cost savings across the Decent Homes Programme; improving resident satisfaction and make Hackney a better place to live and work; working closely with the whole supply chain to resolve issues quickly, resulting in fewer disputes; and delivering Hackney Council waste recycling targets. Construction Contractor - strategic partnering framework of five construction contractors delivering Client objectives; delivering framework Key Performance Indicators (KPIs); delivering Corporate objectives; and securing a significant work stream on a long-term project. Waste Management Company McGrath delivering Client objectives and project KPIs; continuing to secure a long-term contract to ensure business stability; engaging with significant local and national customers; driving continuous improvement in performance; and delivering Corporate objectives and targets. McGrath works in partnership with Hackney Homes 5

27 3.0 Procurement process The construction contractors and Hackney Homes procured a common supply chain for the delivery of all services including waste management. A key part of the partnership working approach required the construction contractors and Hackney Homes to procure a common supply chain for use across all projects within the Decent Home Programme regardless of which construction contractor was undertaking the works. Appointment of suppliers is a collective decision but the management of the supply chain remains the responsibility of Hackney Homes to ensure the most effective delivery of services. The process used for selecting the suppliers, including the waste management company, is described below. At this time waste management companies were rarely seen as a partner in projects and construction contractors were not getting the service they required. At the same time, Hackney Council wanted to ensure a complete and transparent audit trail for the management of waste leaving its sites. 3.1 The Process Initially Hackney Homes and the construction contractors engaged in a series of workshops in order to identify and agree on the specifications for a range of suppliers that would be required to deliver the Decent Homes Programme. Initially the specification for waste management was to supply a range of skips to the sites and to achieve a minimum recycling rate of 70% - a target established by Hackney Council. Once an initial specification was agreed, Hackney Homes asked each construction contractor to propose two or three waste management companies that it believed could deliver the service. The waste management companies were then asked to submit a proposal to supply the services. The waste management companies were invited to give a presentation to the construction contractors and Hackney Homes at a series of workshops. The workshops were also used to explore a range of approaches to delivering waste management services on the project and for all parties to gain an understanding of the scope of services that waste management companies could provide. The workshops were used to formulate the detailed scope of works to ensure that realistic, usable and beneficial waste processes were put in place for all parties and Key Performance Indicators (KPIs) were also developed. Following the workshops, the construction contractors were required to reach agreement on the preferred supplier for the waste management services, which was McGrath. McGrath was appointed as the supplier of waste management services because the company: is local to Hackney; employs local people; is achieving recycling rates of over 70%; and is able to provide bespoke data reports on waste management. McGrath joined the supply chain and signed up to the supply chain agreement with Hackney Homes and the construction contractors. McGrath has been working with the London Borough of Hackney since McGrath works in partnership with Hackney Homes 6

28 4.0 Contract arrangements Hackney Homes manages the supply chain agreement with McGrath through monthly project meetings and an annual review process. Individual orders for services are placed directly by the construction contractors with McGrath. 4.1 Contract conditions and requirements Once a supplier is appointed to the supply chain, the construction contractors are required to use that supplier for all their work on the Programme. The supply chain agreement means that a construction contractor cannot simply choose to use a different supplier. For each piece of work, the construction contractor appoints McGrath directly and agrees the detailed arrangements for the particular project within the framework established under the supply chain agreement. The appointment is usually under McGrath s Standard Terms and Conditions, which include details of payment arrangements and liabilities. The construction contractors pay McGrath directly, at the rates agreed in the supply chain agreement. The construction contractors and McGrath are required to deliver recycling rates of at least 70% - as required by London Borough of Hackney and to undertake on site segregation of the most significant waste streams, where feasible. Reporting against KPIs and waste data reporting are both requirements of the Agreement (see Section 6) and McGrath report on a monthly basis directly to Hackney Homes as well as to the individual construction contractors to enable the collation of their respective reporting. 4.2 Contract management The delivery of services is managed through monthly supply chain meetings between McGrath and Hackney Homes. The meetings review service delivery performance against the programme KPIs, discuss the reported waste data, raise any issues with works and discuss current and future schemes. The construction contractors also provide feedback to Hackney Homes on McGrath s performance via regular construction contractor s progress meetings. This process ensures that any issues are dealt with promptly and resolved effectively for all parties. Hackney Homes also review performance with McGrath on an annual basis where performance and pricing are revised as necessary and opportunities for additional added value are explored. 5.0 Service delivery McGrath supply a range of waste management services to the Decent Homes project sites that are focused on achieving the recovery of waste. The works undertaken under the Decent Homes Programme vary significantly in both size and scope. As such, the services offered by McGrath are adapted to fit the particular situation. The nature of the works means that the majority of the construction sites are located within densely populated areas and as such, space for storing waste is often limited. To enable efficient waste collection, McGrath has established four waste management depots across the borough. These hubs are generally located adjacent to larger schemes and also act as a waste drop off area for some smaller projects. When setting up a new project site, McGrath visit the site with Hackney Homes and the construction contractor to identify the most appropriate location for the waste management area and to discuss this with local residents. In many cases this can be a sensitive issue since the location of the waste depot is often within residents parking areas or communal spaces. By discussing waste management before the project commences onsite, all parties know what is expected. McGrath supplies a range of skips and containers to each project to enable the collection of mixed and source segregated waste streams. Waste is segregated on site where possible. Enclosed skips are usually used to McGrath works in partnership with Hackney Homes 7

29 improve safety and security, with 14 and 20 cubic yard containers being the most common, although it is dependent on the waste streams being generated and the space available. Typically, containers are provided for the following waste streams: mixed waste; dirty timber; scrap metal; cardboard; and inert materials. For health and safety reasons windows are taken back to McGrath s recycling facility to separate the glass. McGrath assist in developing the segregation strategy for a site and all parties work with the supply chain to identify possible markets for recyclates and opportunities to introduce take-back schemes. McGrath provides a waste container collection or exchange when requested by the construction contractor. The Waste Transfer Note includes a simple tick list which is used to identify the waste types within the consignment. McGrath collects the waste from the sites in the skips and containers and takes them to the material segregation facility in Hackney, where mixed wastes undergo sorting. The waste streams that McGrath sort from collected mixed waste include: timber; cardboard; paper; soils; inert materials; glass; plastics (U-PVC and mixed); and metal. Materials are either processed into products on site or bulked and sent on to a specialist material processor. Recycling rates of 70 to 85% are typically achieved by McGrath. McGrath meets with site managers on a monthly basis and also carries out regular site visits. The site visits help to ensure that the implemented systems are working at the site level and can include elements of training for site staff. For some of the larger waste management hubs McGrath provides staff to manage the site. McGrath works in partnership with Hackney Homes 8

30 Figure 1 McGrath s materials recycling facility in Hackney McGrath works in partnership with Hackney Homes 9

31 6.0 Data collection, collation and reporting McGrath report waste arising and recycling data to Hackney Homes and the construction contractors on a monthly basis. McGrath provides bespoke data reports to Hackney Homes and the construction contractors on a monthly basis to enable reporting against the project KPIs. When a waste container is full, the construction contractor contacts McGrath to arrange for the collection or exchange of the container. At this point the construction contractor will give a brief description of the wastes in the container for inclusion on the Waste Transfer Note. This description is checked when the container is collected from site and again when it arrives at McGrath s waste management facility. All waste entering and leaving McGrath s waste management facilities are weighed over the calibrated weighbridge and the tonnage of the waste is recorded automatically on the Company s computer system. McGrath uses the weighbridge data to calculate monthly average recycling rates for the facility and for the main waste streams. On a monthly basis McGrath issues waste data reports to the construction contractors and to Hackney Homes to enable performance against KPIs to be determined. The reports show the following data for each waste consignment: Waste Transfer Note / weighbridge ticket number; customer name; construction site name and address; waste type description and List of Wastes Code; McGrath waste management facility accepting the waste; date; container type and reference; waste tonnage; average recycling rate (for that material that month); and cost. The report collates the data to show waste arising and waste recycled in the given time period. Data can be shown by customer, site or other variables. Hackney Homes and the construction contractors use the data to track their performance against the project KPIs and to identify areas for improvement. McGrath uses the data to monitor waste facility recycling rates in order to identify areas where further improvement can be made. 7.0 Use of the Site Waste Management Plan McGrath assists Hackney Homes and the construction contractors in ensuring the Site Waste Management Plan can be delivered. Site Waste Management Plans (SWMPs) have been used throughout the Decent Homes Programme in Hackney to define waste arisings, how waste will be managed and to report waste data. The construction contractors generally prepare the SWMP for a project and McGrath assists by providing the data during the site operational phase. In some instances McGrath is involved in the preparation of the plan. 8.0 Auditing Hackney Homes and the construction contractors undertake regular audits of McGrath s waste management facilities. In the early stages of the supply chain agreement, Hackney Homes regularly visited McGrath s waste management facility and the construction sites to audit the waste management arrangements. The construction McGrath works in partnership with Hackney Homes 10

32 contractors also undertake regular audits of McGrath, which include a review of documents and processes and questioning about site operations and systems. McGrath also undertakes internal audits to support its environmental and quality management systems and their forthcoming third party accreditations. McGrath undertakes its operations in accordance with defined procedures; for example, the manufacturing of recycled aggregates is undertaken in accordance with the WRAP s quality protocol for the production of aggregates from inert waste Outcomes Working in partnership across the supply chain has reduced costs, diverted waste from landfill and achieved Client objectives. Waste recovery rates for the whole programme of 70 to 85% - achieving the Council s requirements. Consistent waste management pricing structure which is competitive due to quantity of work. Innovative recyclate markets identified by the supply chain. Approach to waste management agreed early in the construction process with the Client and construction contractors, ensuring that the service offerings are tailored to the requirements of the project and are understood by all parties. Significant cost savings achieved on the project through partnering across the whole supply chain, which has enabled Hackney Homes to make further improvements in the Borough. 9.1 Key learning points Hackney Homes identified key learning points as: involving suppliers, including waste management companies, early in the process ensures that service offerings are optimised and understood by all parties; applying the partnering approach has delivered cost savings across the programme; and the whole supply chain can contribute to identifying innovative approaches to waste management. McGrath identified key learning points as: partnering is beneficial to all parties involved and encourages continuous improvement; being involved in the construction process at an early phase, enables all parties to understand the services that can be offered and to agree a common approach; and providing a track record that delivers competitive advantage when offering services to other customers Next steps Hackney Homes, the construction contractors and McGrath continue to work in partnership on the Decent Homes Programme and look at ways to improve their performance. The supply chain continues to explore waste minimisation and recovery options. Examples include, extending the likely serviceable life of new windows by standardising window fittings and handles, ensuring a supply of replacements is readily available and staff are trained to install them, and ensuring the future closed loop recycling of U-PVC windows. McGrath are looking at installing weighing systems on the conveyor belts within the materials recycling facility to aid detailed reporting on waste processing. The supply chain approach used in Hackney has been adopted by other Local Authorities. 1 For more information refer to McGrath works in partnership with Hackney Homes 11

33 11.0 Further information WRAP has prepared a range of resources to assist construction contractors and waste management companies in achieving good practice waste recovery in construction. They are available at McGrath works in partnership with Hackney Homes 12

34 Printed on xx% recycled content paper

35 Trial project: Supply Chain Management Group (SCMG) New delivery model / procurement route: Two Stage Open Book under PPC2000 Cost savings achieved: 14% (in addition to 16.5% achieved through procurement) Other key benefits achieved: Time and cost control, end user satisfaction, reduced defects, reduced waste to landfill and carbon emissions, improved employment and skills outputs Trial report sequence: Kick off meeting Brief / Team Engagement Decision to Build Build and Occupy Cost saving basis: Outline saving aspiration Challenging cost target Award Cost Outturn Cost Trial project details Project title Clients Project value Form of project Main contractors Lead designer Key suppliers Executive summary: Supply Chain Management Group (SCMG) Hackney Homes and Homes for Haringey Hackney Homes 110.6m and Homes for Haringey 91.5m Capital housing refurbishment programmes Mulalley, Keepmoat, Mansell, Lakehouse, Lovell, Wates Main contractors as above Mace Veka Bauder Sovereign Grotargetedup Birchcroft Hackney Homes and Homes for Haringey as members of the Supply Chain Management Group (SCMG) have used Two Stage Open Book to demonstrate a breakthrough that will enable public sector clients to deal directly with Tier 2/3 subcontractors and manufacturers, working with Tier 1 contractors, to build up fully integrated working relationships. SCMG has created a multi-client, multi-contractor team engaged on housing refurbishment that has worked with a wide range of SME subcontractors and manufacturers under a standardised system of costing and long-term engagement that has created major savings and significant qualitative benefits. The SCMG relationships and structures are sustained by training and support to embed a collaborative culture. Both Hackney Homes and Homes for Haringey re-procured their Tier 1 contractors during the Trial Project Case Study period, and demonstrated significant savings in the procurement process itself and in the outturn costs / rates. 1

36 Project summary Hackney Homes and Homes for Haringey, working through the Supply Chain Management Group (SCMG), procured a range of Tier 1 contractors on a Two Stage Open Book basis, with whom they then worked jointly to select and support a team of Tier 2 and Tier 3 supply chain members for the delivery of a long-term programme of housing improvement and refurbishment works. Through the SCMG systems, new lines of client contact are established with Tier 2 and Tier 3 supply chain members at an early stage in the preconstruction process so that they can make maximum contributions to design, resident consultation, surveying and programming and can work in conjunction with the client and Tier 1 contractors. Joint working has been established across the boroughs of Hackney and Haringey, together with a shared employment and skills resource at the Building Lives Training Academy, plus shared Tier 2 and Tier 3 supply chain members serving both boroughs. Project time line Selection of Tier 1 contractors under Two Stage Open Book through framework/alliance procurement and PPC2000 standard form of contract, 2009 (Haringey) and 2010 (Hackney) Joint working through SCMG by Hackney and Haringey and their group of Tier 1 contractors, to build up integrated teams and joint supply chains Establishment of Tier 2 and Tier 3 supply chains under Two Stage Open Book Supply Chain Agreements in accordance with SCMG processes, Annual programmes of work agreed with Tier 1 contractors and Tier 2/3 subcontractors/suppliers and ordered on a Two Stage Open Book basis under PPC2000 Sectional Commencement Agreements ( ) Homes for Haringey re-procurement completed December 2013 SCMG annual review completed March 2014 Hackney Homes re-procurement completed June 2014 Key project features Early appointment of Tier 1 contractors under PPC2000 Early joint appointment of comprehensive range of SME Tier 2 and Tier 3 supply chain members Substantial savings achieved firstly at main contractor procurement, and secondly through joint working with Tier 1 and Tier 2/Tier 3 supply chain members Reduced waste through lean programming, value engineering and rationalisation of specifications Substantial time savings through new pricing and mobilisation systems New opportunities for SME subcontractors and suppliers, and substantial employment and skills improvements Improved quality control and increased resident satisfaction Client objectives and vision SCMG is a consortium of clients formed pursuant to the HCA's National Change Agent initiative that sought new savings and efficiencies in housing procurement. Hackney Homes and Homes for Haringey developed their expertise in Two Stage Open Book Involvement through their use of the two stage PPC2000 form of contract under previous frameworks. They had gained the confidence needed to work more closely with Tier 1 main contractors and obtain direct access to Tier 2 and Tier 3 subcontractors and suppliers, so as to understand their needs and drivers and to create the integrated teams that would enable substantial savings and efficiencies. Hackney Homes and Homes for Haringey as members of SCMG shared a vision of how to deliver their strategic housing programmes, developing the SCMG systems to be available to other public sector clients. SCMG have a strategic plan to make their Two Stage Open Book approach easily accessible both on new build and refurbishment works. Client objectives on their own programmes are to combine cost savings with reduced risk, clear programming and improved quality. They also focus on ways to benefit the local economy, including through improved employment and skills commitments, while meeting the demands 2

37 and deadlines of a substantial capital programme. New procurement techniques and processes The SCMG Two Stage Open Book processes comprise: Identification of work packages, meeting with all Tier 1 contractors to secure names of likely Tier 2/3 suppliers/subcontractors plus agreement of a lead Tier 1 contractor for each package Meeting with all identified suppliers/subcontractors and gleaning experience/testing robustness of previously priced schedules of rates/identification of improvements to specifications Open-book tendering by lead Tier 1 contractor on behalf of other contractors (facilitated by SCMG) among identified suppliers/subcontractors to establish costs against simple pricing matrix by reference to optimum number of suppliers/subcontractors required Assessment of tender returns to eliminate higher priced tenders, then averaging of the remaining tender prices to agree a stable basis for long-term Tier 2/3 appointments Further reviews by selected subcontractors/suppliers with clients and Tier 1 contractors to identify quality improvements achievable within agreed prices The agreed procurement route combines Two Stage Open Book with programmed systems of Supply Chain Management. Tier 1 contractors were selected by Hackney Homes and Homes for Haringey using alliance/framework agreements and the standard form PPC2000 Partnering Contract which incorporate contractual processes for joint working with suppliers and subcontractors. Through these systems the SCMG clients, Tier 1 contractors and a wide range of predominantly SME Tier 2/3 subcontractors and suppliers and manufacturers have worked collaboratively as integrated teams to deliver cost savings, improved employment and skills outputs, extended warranties and more sustainable solutions. The full range of Tier 2/Tier 3 subcontractors and suppliers brought into the SCMG system covers 30 disciplines, namely asbestos removal/surveys, brickwork, central heating manufacture and installation, concrete manufacture and installation, decoration, electrical works, fire doors, general building works, hoists, insulation manufacture and installation, kitchen and bathroom manufacture and installation, lateral mains, metalwork, multidisciplinary design, PV panels, roofing manufacture and installation, roofing pipework, scaffolding, surveys, waste disposal, windows manufacture and installation and window repairs. Other interventions include effective frameworks, development of intelligent client capacity and lean working under a combination of alliances/frameworks and SCMG Supply Chain Agreements. The PPC2000 form of Project Partnering Contract describes and underpins the Two Stage Open Book approach adopted by SCMG, including the programmed design, risk management, costing and progressing activities undertaken during the early conditional appointment of an integrated team to seek additional savings and improved value. PPC2000 has been used with minimum amendments to the published form and with no liquidated damages, retentions, general liability caps or performance bonds. Early contractor involvement activities follow the timetabled processes set out in PPC2000 to obtain the best results from early engagement of the supply chain by means of Two Stage Open Book. After Tier 1 contractors are conditionally engaged, they work up project proposals in conjunction with the clients on an open-book basis and (with SCMG support) go to the market for Tier 2 and Tier 3 selecting them on fully transparent criteria. Over the course of the programme the clients gain insight and understanding as to the implications and value of client interventions, choices and decisions. This assists Hackney Homes and Homes for Haringey in becoming intelligent clients and encourages Tier 1 contractors to share knowledge through the supply chain, focusing on driving out unnecessary cost and risk rather than on any commercial "gaming" over price and the scope of works included. Cost targets and savings Hackney Homes and Homes for Haringey, through SCMG, targeted achievement of substantial cost savings benchmarked against comparable costs incurred by Hackney Homes working with a range of four contractors on its previous Phase II programme of comparable works and using 2009/2010 rates adjusted to reflect inflation. 3

38 int The cost savings achieved include 16.5% by Hackney on its 2010 framework/alliance procurement, plus further savings averaging 14% achieved by Homes for Haringey and Hackney Homes through the application of the SCMG processes from 2010 to Overall savings equate to an average of 31%, achieved through reduced contractor costs (reflected in the alliance/framework procurement), reduced Tier 2/Tier 3 costs offered in return for clarification of work throughput, improved client briefs and simplification of pricing under basket rates, greater visibility of the forward pipeline of work and establishment of common Supply Chain Agreements securing prompt payment and an open forum for resolution of problems. Percentage saving: 14% (in addition to 16.5% achieved through procurement) The outturn of the Homes for Haringey and Hackney Homes procurements during the Trial Project Case Study period showed that savings created through the SCMG processes were sustained even in a rising market. In addition, the SCMG Annual Review completed March 2014 demonstrated an average price rise in SCMG rates of 1% which is substantially below the tender price inflation forecasts provided by a range of five independent consultants. Analysis of the Homes for Haringey and Hackney Homes tender processes revealed that consultant costs incurred by both clients during the course of their procurements were substantially reduced by reason of the preexisting SCMG data and documentation. Independent confirmation was also provided by a sample Tier 1 contractor, Keepmoat, to explain how their own bid costs on a procurement supported by Two Stage Open Book under SCMG were far lower than the bid costs they incurred under a comparable single stage procurement, specifically 719 per 1 million of turnover (under SCMG) as against 4,808 per 1 million of turnover (under the comparable traditional bid). Additional benefits Other targets captured in KPIs by Hackney Homes and Homes for Haringey include: Predictability of time and cost Client/resident satisfaction Defects Waste to landfill and carbon emissions Employment and skills achievements and local spend Leasehold matters - early settlement of service charge notices - AMPs fully validated at commencement - no major variations / additional costs / remeasures Other benefits achieved include the use of Two Stage Open Book to ensure improved certainty and better value by means of the Tier 1 contractors and the Tier 2 and Tier 3 subcontractors and suppliers being appointed in sufficient time to participate in the following prebuild activities: Surveys Resident choice Design development Value engineering Improved build activities Improved build programming Improved risk management Qualitative benefits Examples of the qualitative benefits achieved as a result of early involvement of both Tier 1 and Tier 2/3 supply chain members include: Transparent and shared development of standard specifications and basket rates, leading to more efficient pricing and better value Reduced risks, cost savings and time savings through accelerated constructor/supply chain briefing process Subcontractor/supplier innovations in proposed new materials and development of specifications, such as future-proofing green roofs at no additional cost and upgrading windows from Grade C to Grade A at no additional cost Improved quality control through manufacturers attendance on site Exchange of best practice between specialist competitors Availability of extended warranties above industry standards, managed by suppliers/installers, such as windows warranted for 30 years Improved repairs and maintenance through, for example, self-cleaning glass on high-rise blocks Time savings, such as through quicker build-up of prices leading to earlier start on site and reduced client/consultant time/costs More sustainable solutions including 4

39 Local benefits external wall insulation Additional employment and skills opportunities for individuals, for example 46 new apprenticeships over the first 18 months of the Hackney programme SCMG specifically targeted the development of opportunities for local Tier 2/3 subcontractors and suppliers, building up a pipeline of work for Tier 2/3 subcontractors and suppliers across 30 different disciplines. In addition, Hackney Homes and Homes for Haringey supported establishment of the Building Lives Training Academy where apprentices who have got NVQ Level 1 are engaged by constructors/specialists according to demand of ongoing work so as to achieve NVQ Level 2 after 15/18 months. The first year results from the Building Lives Training Academy confirmed 29 apprentices graduating in May Cultural benefits SCMG joint working has resulted in an increased level of confidence in the relationship between client and supply chain. This is enabling all members of the programme to operate at higher levels of productivity and performance. Overall assessment The SCMG systems have demonstrated a breakthrough in enabling public sector clients to deal directly with key subcontractors and suppliers so as to ensure they build up fully integrated working relationships. A multi-client, multi-contractor team has engaged with a wide range of SME subcontractors and suppliers under a standardised system. The new relationships and structures are without prejudice to the Tier 1 contractors' design and build warranty, their responsibility for programme deadlines and their agreement of a maximum price prior to start on site. Working together, the team have jointly implemented preconstruction works such as surveys, value engineering, resident consultation and programming that have ensured accurate calculation of time and cost, effective risk reduction and enabling of innovation. The SCMG systems are easily replicable by any local authorities or housing associations under new procurements and also under current frameworks and long term contracts that contain processes for continuous improvement under PPC2000 or equivalent. Roll out of the SCMG approach across housing projects and other construction/engineering sectors can be implemented immediately without delays or costs of new EU procurements by the relevant public sector clients. The model trialled by SCMG can be adopted now to achieve cost savings in line with the Government Construction Strategy expectations. The systems created by SCMG provide for an annual cycle of works to be the basis for: Identifying and agreeing opportunities for savings Simplifying Tier 2 supplier and subcontractor engagement and support Ensuring prompt payment from Tier 1 Contractors to Tier 2/3 Subcontractors and Suppliers Resolving potential disputes with the benefit of full cost and time information plus the motive to retain long term relationships The assessment of the Trial Project Support Group is that the SCMG Trial Project has achieved significant savings and added value through the use of Two Stage Open Book combined with systematic supply chain management. During the year April 2013 to March 2014, the Trial Project team (with the Project Mentor and the Academic Partner) monitored and analysed the SCMG systems in practice, including through detailed consultation with individual supply chain members and through a full day event attended by Tier 1 contractors and Tier 2/3 subcontractors and suppliers supported by their independent written submissions. The feedback obtained was very helpful and identified how the SCMG systems had led to: "planned and confirmed turnover, cash flow certainty, direct communication between all parties from client to resident" (Sovereign - windows and doors). "The use of local resources and labour from the areas we are working in helps break the barriers sometimes felt between local residents and the client or 5

40 constructor" (Dendale - kitchens and bathrooms). "Everyone is more than happy to help each other out to get the works complete at the same time, keeping the tenants informed and happy" (Masher Bros - kitchens and bathrooms). "I don't know of any other London borough that has managed to carry out so much work in so short a period. "The speed of which a contract can go from AMP inspection to starting on site and completion is far quicker than normal procurement practices" (Gunite - concrete work). Benefits were identified from new co-location initiatives undertaken by particular constructors, also through the development of new waste management solutions and the development of further extended warranties. The feedback obtained during the Trial Project period was wide-ranging and supported collaborative working at all levels of the supply chain, with new opportunities for local businesses and enhanced employment and training opportunities for local individuals. Key lessons The lessons learned over the course of the SCMG case study are as follows: There remains the scope to obtain further savings through improving the regular flow of work for suppliers/ subcontractors over an annual cycle, and a 3% additional discount has been offered by subcontractors and suppliers for any work which is started and completed within the first 3 months of the financial year In view of the changes in Tier 1 contractor personnel, particularly following the Homes for Haringey and Hackney Homes re-procurements, there is a need for consistent leadership and additional training of staff in order to maintain a clear understanding of the SCMG model and to ensure the preservation and development of a collaborative culture. Centre of Construction Law as Project Mentor, working in conjunction with Rob Garvey of University of Westminster as Academic Partner Key contributors include: Hackney Homes, Homes for Haringey, Keepmoat, Mace, Mulalley, Veka, Bauder, Sovereign Group and Birchcroft Background: Trial Projects programme The Government Construction Strategy aims to change the relationship between clients and the entire supply chain within the industry. The trial projects perform a central role in delivering the Strategy's sustainable 15-20% reduction in costs and are currently testing three new procurement models (Cost-Led Procurement; Integrated Project Insurance; Two Stage Open Book) that were proposed by industry and developed by a joint task group. Case study reports are therefore an output of monitoring the progress and outcomes of the trial projects. They are produced at four stages: Kick-off Meeting; Brief/Term Engagement; Decision to Build; Build and Occupy. Other case study reports can be found at: ernment-construction-strategy-trial-projects Project contacts For further information, please contact: Alan Turner, Supply Chain Management Group; [email protected] Miscellaneous Authors: This case study has been produced by Professor David Mosey of Trowers & Hamlins LLP/ Kings' College London 6

41 SUPPLY CHAIN MANAGEMENT GROUP TWO STAGE OPEN BOOK 1 CONSORTIUM AGREEMENT HACKNEY HOMES/HOMES FOR HARINGEY/OTHER PUBLIC SECTOR CLIENTS 2 ALLIANCE AND FRAMEWORK AGREEMENTS WITH TIER 1 CONTRACTORS UNDER TWO STAGE OPEN BOOK HACKNEY HOMES, LAKEHOUSE, MANSELL, MULALLEY HOMES FOR HARINGEY, APOLLO, LOVELL, WATES 4 PROJECT CONTRACTS (PPC2000) UNDER TWO STAGE OPEN BOOK HACKNEY/HARINGEY AND EACH TIER 1 CONTRACTOR GOVERNING PRECONSTRUCTION AND CONSTRUCTION ACTIVITIES 5 CONSISTENT PROJECT ORDERS AND PPC2000 SECTIONAL COMMENCEMENT AGREEMENTS INCLUDING INVOLVEMENT IN PRECONSTRUCTION ACTIVITIES EACH CONSTRUCTOR AND EACH TIER 2/3 SUPPLY CHAIN MEMBER 3 LONG-TERM SUPPLY CHAIN AGREEMENTS WITH SAVINGS, INNOVATIONS AND EMPLOYMENT/SKILLS COMMITMENTS FACILITATED BY SCMG WITH TIER 2/3 SUPPLY CHAIN MEMBERS TIER 1 CONTRACTORS AND SUBCONTRACTORS, SUPPLIERS AND SUB- CONSULTANTS COVERING 30 DIFFERENT WORK TYPES, INCLUDING DEVELOPMENT OF NEW CLIENT AND TIER 2/3 RELATIONSHIPS 7

42 How the reported savings were achieved Strategic context Client Collaborative Supply chain Aggregation of demand Yes SCMG combining Hackney and Haringey Frameworks Significant committed spend Yes 200 million Standardised procurement / streamlined approval processes Yes Joint supply chain management Lean programming Yes Agreed time savings under PPC2000 systems Client cost data base Yes Published benchmarks Performance management Yes Framework performance initiatives Common new delivery model Client Collaborative Supply chain characteristics deployed Challenging cost target / open book Yes Savings measured under Open Book Affordable standardised output / outcome requirement Yes Creation of standard specifications and costs Early contractor involvement Yes Tier 1 contractor and Tier 2/3 supply chain members Lower tier engagement: fully integrated supply chain Yes Long-term Supply Chain Agreements Lower tier engagement: innovation encouraged / achieved Standard form of contract with minimum amendments Effectively led change in team behaviours and practices Yes Yes Yes Two Stage Open Book characteristics deployed First stage selection of integrated team on open book basis and ability to deliver savings / project objectives Joint work of integrated team (incl. Tier 1 and lower tier contractors) on design, risk management, reduced costs under early appointments Approval to construct on basis of demonstrable ability of team to achieved targeted costs and progress against project objectives Yes Yes PPC2000 SCMG training and support Numerous qualitative and community benefits Client Collaborative Supply chain Hackney and Haringey open-book frameworks SCMG relationships supported significant savings and improved value Yes Client precondition PPC2000 Sectional Commencement Agreements 8

43 Other cross cutting initiatives deployed Building Information Modelling Procurement Routemap Government Soft Landings Project Bank Accounts Client Collaborative Supply chain 9