Procurement Efficiencies: Monitoring and Evaluation of Devanha Phase 2

1 Executive Summary

Background

1.1 This research project is a monitoring and evaluation study of the Devanha Phase 2 procurement initiative established in 2006 by five RSLs in North East Scotland: Aberdeenshire Housing Partnership, Castlehill Housing Association, Grampian Housing Association and Langstane Housing Association. Devanha sought to develop 1563 homes (later reduced to 1,383) while demonstrating quality improvements and efficiency savings.

1.2 Devanha Phase 2 was a groundbreaking approach in Scotland, putting in place new structures and new methods of working.

1.3 The Devanha programme consisted of 51 projects with a mix of rental and shared equity units including projects which were delivered through a framework agreement with three contractors: Bancon, Chap, and Robertsons and through section 75 agreements with a variety of other developers. The programme took place in three local authority areas: Aberdeen City, Aberdeenshire and Moray.

The Research

1.4 The research involved a four year monitoring exercise during which data was collected annually. In addition to monitoring Devanha's performance, the research aimed to analyse transferable lessons which could be learned from Devanha's experience.

Key Findings

1.5 The Devanha programme failed to meet the works cost target as set out in the Offer of Grant. On this measure value for money has not been achieved. However, the basis of the original target is not clear and therefore it cannot be concluded how realistic it actually is.

1.6 Although incentivisation mechanisms for performance improvement were included in the procurement process, these did not relate to the Offer of Grant works cost targets. As such, the most important target was not used to drive performance improvement and procurement efficiency. This served to undermine the importance and awareness of the Offer of Grant target.

1.7 The Devanha programme met its HAG target as set out in the Offer of Grant. This is due to numerous and complex rent setting and HAG administration factors and is not attributable to the Devanha procurement process

1.8 The long term nature of the Devanha framework had the advantage of bringing price stability and predictability at a time of rising market conditions when the agreement was signed. However as market conditions transformed at the later stages, traditional tendering was seen to provide more competitive pricing and better value for money. These conditions could not have been reasonably foreseen at the time of signing the agreement.

1.9 There was no experience of the NEC form of contract used by Devanha within the project team at the outset. This contributed to many of the operational and implementation difficulties throughout most of the duration of the programme and served to undermine progress toward achieving value for money. The use of a procurement consultant was largely ineffective in mentoring Devanha on NEC.

1.10 Devanha introduced a new procurement approach not previously experienced in the region. Innovative practices including greater collaboration, communication, open book costing and sharing of constructability experience were introduced into the procurement process. Devanha has developed procurement skills and experience that were previously absent in the region.

1.11 Devanha lacked leadership; partly because it did not appoint a managing director and partly because of tensions between the Devanha Board and the individual RSLs. Devanha members recognised that these problems would have to be addressed in any future collaboration.

1.12 Monitoring information was inadequate and the Board and the Programme Director therefore had to work very hard to put together data to manage the programme effectively.

1.13 Although RSLs considered risk issues prior to involvement in Devanha, it has become clear that not all potential risks relating to financial liabilities were fully considered.

1.14 Devanha suffered from a weak external profile and was a confusing organisation for local authorities to work with. Local authorities often felt that they were dealing with individual RSLs rather than Devanha.

1.15 Devanha achieved success in building to a high quality but did not achieve significant savings through bulk procurement.

1.16 Devanha was able to make a contribution to employment and training despite challenging economic circumstances.

Conclusion

1.17 Devanha did not meet its works cost targets as set out in the Offer of Grant. It had greater success as a vehicle for building to a high quality, although success was limited by the lack of full implementation of a standard specification. The considerable change in the economic climate adversely affected Devanha's ability to achieve its targets and highlighted the importance of independent inflation monitoring in future programmes.

1.18 Through trialling an innovative approach Devanha shed light on a variety of key lessons for the efficient delivery of an affordable housing programme. Perhaps the most important of these relate to the key role of leadership and governance structure for a collaborative organisation. The readiness of project teams to implement novel forms of contract needs to be considered if the benefits of these approaches are to be realised. Effective and timely data collection and monitoring systems for management and incentivisation were shown to be important. Devanha also highlighted the need for fuller implementation of a standard specification at an early stage to improve quality and take advantage of any bulk procurement opportunities.