Procurement Efficiencies: Monitoring and Evaluation of Devanha Phase 2

5 Governance

Devanha's governance structure

5.1 Devanha is managed and controlled by a Board of 10 Directors; each member association may nominate two directors and over the course of the four years the convention has been that these are the Chief Executives from each RSL and one of their RSL board members. Throughout most of the four year period Devanha had one employee, the Programme Director, who reported to the Board and attended its meetings. Other frequent attendees to Board meetings included representatives of the procurement consultants, CWC. Apart from the Programme Director and latterly a part time Partnership Director, Devanha had a support structure drawing on a range of existing RSL staff, and Devanha's framework contractors and consultants. There were six sub-groups:

• Strategic Client Group - consisted of the Development Directors, Devanha Programme Director, one Finance Officer and one Chief Executive providing a link to the Board. Its overall role was to push forward on the operationalisation of collaborative working.
• Core Group - comprising RSL and Devanha development staff and framework consultants and contractors.
• Performance Improvement Group - This had a similar membership to Strategic Client Group. Its role was as a 'think tank' to consider issues of housing quality and innovation.
• Development Officers Group - consisting of RSL Development Directors, its purpose was to develop policies and support the Board.
• Housing Officers Group - members were CEOs from all RSLs, it rarely met but did discuss rent harmonisation in the early years of Devanha.
• Finance Officers Group - included finance officers from all RSLs and a Board representative. It provided financial support to the Board.

5.2 In the first year's evaluation, there was some criticism that the 'concentration on structural change' and slow set-up of the Board's support structure. It was concluded that this may have held up implementation of collaborative working and served as a distraction to delivery during Devanha's first year. This was also the first pointer to the lack of dedicated, senior leadership, a theme which recurred throughout the four years of the programme (discussed further below).

5.3 The Strategic Client Group actively pushed forward collaborative working in a number of areas e.g. the framework agreement, contracts and open book cost management where progress had previously been slow. Board members felt that the Strategic Client Group and the Core Group were key to Devanha - the Strategic Client Group as 'client' and the Core Group with a partner operational focus providing a communication route for partners. However, CWC and the Programme Director considered that the Core Group could have been more proactive in achieving shared learning.

5.4 The Performance Improvement Group, Development Officer Group, Housing Officers Group and Finance Officer Group were in effect forums for ongoing (but sometimes overlapping) discussions between the RSLs and referral to the Board. This led to duplication and made some decision making protracted and cumbersome. The need for these forums reflects one of the defining aspects of Devanha - the fact that all the RSLs wanted to stay heavily involved in the management and governance of Devanha from the start. The Board workshops over the four years suggest that this anxiety has waned over time as members have developed their knowledge and understanding of collaborative working, and trust with each other. As reflected in the evaluation's final Board workshop, February 2012:

"I came onto the Board half way through. What struck me immediately was that meetings resembled more like senior management team meetings because many of the issues were managerial, different from the governing body of an RSL."

"It was very cumbersome and time consuming. (We had) interminable meetings and some of the negotiation was very difficult."

5.5 This desire for the RSLs' continuing hands-on control (as represented through Board members and the sub structure) was also reflected in the Board's decisions regarding leadership. The Programme Director had no role in leading and championing issues with external partners. The weakness in Devanha's executive leadership was discussed in Round 1 of the evaluation, and in late 2008 the Board acted by making the internal appointment of a part time Partnership Director. This enabled a more efficient validation process but did not address the leadership issue. Others, including CWC and Scottish Government continued to reflect on the weakness in client leadership.

5.6 Lack of unanimity in the Board meant that Devanha never satisfactorily resolved this issue although Board acknowledge this gap in Devanha's structure, agreeing that there should have been a managing director in place from day one. The critical role for this person would be to champion relationships internally (between the RSLs, and with the framework partners) but also with the local authorities. However, Board members also reflected that they had not been ready to make the crucial decision on appointment until it was too late, for the reasons of trust and learning curves described above:

"We needed a managing director as we kept coming across areas where people didn't have delegated powers. They needed powers to make decisions but at the time we were not willing to let go. If we were starting from square one we would have an MD now."
(Board member, Board workshop, February 2012)

5.7 In summary, Devanha created a bureaucratic structure based on the partners' desire in the early days for hands-on involvement in the company. It failed to make the critical appointment of a managing director at the right time.

Devanha's strategic role

5.8 The Devanha model is based on the company acting as agent of the individual RSLs in delivery of the development programme. It must therefore have sufficient control over the development programme to manage it and to make important decisions at both a project and a strategic level. When projects are on-site, project management lies with the individual RSLs although communication with Devanha must be ongoing for monitoring purposes.

5.9 In Devanha model there is an inter-linked relationship between the RSLs and Devanha in setting development strategy. In theory, development strategy is a matter for the RSLs, whilst programme management and strategic decisions about execution of the programme and its future rests with the Devanha Board. Board members have a variety of views over whether strategic decision making is the responsibility of the RSLs or the Devanha Board. Most agree that programme management is the reserve of the Devanha Board and only a minority consider that individual project management is the responsibility of individual RSLs.

5.10 The range of responses in relation to strategic responsibility and programme management demonstrate the joint venture relationship between Devanha and the RSLs. On the one hand this type of relationship can bring partners together where there are areas of common interest and shared learning but splits may also occur where there are differences in opinion and interest. Board minutes and discussions with the Board members show that tensions have built up progressively over the last few years over financial risk and specifically reconciliation of HAG between projects. Despite the difficult issues that it has had to consider, the Board has developed over the last four years to a stage where it has been able to address these challenges in an open and honest way.

"We have had serious challenges over the last 18 months and the way we have tried to address those has felt more open. It does not always feel comfortable if we have made a particular statement, or taken a particular stance, but I have found that over the last year there has been much greater focus on finding a way forward."
(Board member, Board workshop, February 2012)

5.11 The Devanha Board clearly has the necessary skills and expertise to consider and debate complex policy and business issues and to make strategic decisions. This was due to the composition of the Board which comprises the RSL CEOs and members from existing RSL boards and so all had professional and governance skills and experience. By necessity, the Board agenda and style was very managerial in the early years (in order to get the programme up and running), but over time this proved to be no substitute for having the necessary organisational infrastructure to make processes and decision making more efficient, i.e. one senior executive leader who could drive action and broker issues between the partners in between Board meetings.

5.12 One key example of the weaknesses that the Board considered was the inadequacy of monitoring data. The Board was hampered in its decision-making by the inadequacy of information on project costs, a problem which was never satisfactorily resolved during the life of Devanha's programme. Board members explained this issue as the lack of understanding and the 'learning curve' on the part of consultants, project managers and contractors over collaborative working, but ultimately that this was caused by inadequate training. However, as argued by one of the Board members in 2012, in the absence of a Managing Director, it was for the Board to put in time and commitment to ensure that these new processes were embedded and being practiced.

5.13 In summary, Devanha did not meet its full potential in relation to its strategic role. Its ability to make efficient and effective decisions was hampered by the weaknesses in its executive structure, specifically lack of a managing director.

5.14 During 2010 and 2011 a working party of the Devanha Board spent a considerable amount of time considering the options for the future of Devanha. A number of options were considered: the status quo ante, reverting to individual RSLs developing; lead developer, with one of the five RSLs undertaking development and procurement work on behalf of other RSLs (and perhaps other parties) in an agent-client relationship; a super developer, where a new entity would undertake the full range of strategic and business development in addition to project development, management and procurement roles, with individual RSLs having only a housekeeping role; and Devanha 3, otherwise known as the 'Preferred Intermediate Model' (PIM) which was recommended to the Devanha Board.

5.15 PIM would be similar to current Devanha in that it would provide participating RSLs with a jointly controlled agency for managing a joint development programme, joint projects and procurement; but it would have business development and strategy under the direction of a reconstituted Board. The corporate structure would comprise a Managing Director (MD) and majority of non-executive directors (not CEOs but those representing Boards or Committees of Management), intended to ensure separation of non-executive and executive governance powers. There would also be a CEO Advisory Group.

5.16 The Working Party's recommendations were considered in March 2011, alongside a counter proposal from Grampian Housing Association, suggesting an alternative of Sirius Group (the proposed Group of Langstane and Grampian Housing Associations) acting as lead developer. The constituent members of Devanha were then asked to consider their positions, and in June 2011 three RSLs confirmed their preference to go with Sirius (when and if constituted), whilst the remaining two stated they were undecided. This lack of consensus for the future of Devanha remains, as confirmed by the governance questionnaires (completed in late 2011) and the Board workshop in 2012.

Monitoring performance and managing risk

5.17 Devanha's role in monitoring performance involves: establishing suitable monitoring frameworks; ensuring the availability of information to enable proper decision-making; and having appropriate control over programme and project performance. Throughout Devanha's four years, the role of Programme Director has been to monitor and report to the Board on programme and project progress and performance. The role of CWC as Procurement Consultant has been to undertake a range of procurement support, training and performance management activities.

5.18 Scottish Government and the Board understood from the early stages of the programme that CWC would supply a web-based data recording and data sharing scheme. The tool would produce actual cash expended against Scottish Government targets month by month and the tool could report scheme by scheme as well as at programme level. However, throughout the four year programme Devanha has been dissatisfied with the end product which was said not to be fit for purpose. The Programme Director had to continually make his own fixes and had concluded by 2009 that a simple spreadsheet template, circulated to all project managers would achieve the same task. Nevertheless, evidence between 2008 and 2012 shows that the Board demonstrated a good level of scrutiny, instructing corrective action where necessary.

5.19 While the monitoring framework was an important tool to enable efficient reporting to the Board, a much more critical issue for the Board was the accuracy of the data being produced by the consultants and contractors. Through the course of Devanha's programme it became clear that it was difficult to obtain accurate and timeous information in relation to actual and predicted costs for projects. There is evidence from minutes that the Board continuously pressed project managers and contractors to provide the correct information. However, as time went on it was clear that this was not only to do with delays in provision of information but more critically the project managers' and contractors' understanding of the open book costing methodology, and their inability to provide accurate information. The Board convened a working party in March 2010 to consider the issue and concluded that the problem was caused by inadequate training, although some suggested it was to do with training not being embedded.

5.20 The greatest problem which the Board has had to tackle over the last 18 months to 2 years has been related to the impact of inadequate cost information i.e. confusion over each of the RSLs' exposure to cost risk. This problem has become more evident over the latter years of the programme as the actual costs have gradually been appearing from the contactors as projects completed. By March 2012 Scottish Government estimated that the overall grant shortfall including that for shared equity was around £1.78 million. There are a number of ongoing discussions which will have a bearing on whether and to what extent there is a grant shortfall including relating to the final tenure balance and funding of Stage II costs for some schemes.

5.21 The Board and the Finance Officers Group have considered at length through difficult debates a method through which any shortfall in grant should be reconciled and redistributed over the member organisations. RSL members had not anticipated this situation occurring; most felt the formula for any grant redistribution was clear in the Formation Agreement (albeit regarding grant surpluses rather than shortfall), based around the principle of equitable distribution. Considerations included redistribution based on the principle that final grant distribution and thus responsibility for any shortfall, would be shared out on the basis of the respective number of bedspaces in the programme; concern that levels in performance have varied widely, ranging from savings of 22.7% to cost overruns of 47.3% with the consequence that some RSLs would be expected to repay grant money from savings while others had substantial increases in costs and grant entitlement; and the impact that different rent setting may have of grant calculations. Consequently, the board has not (at the time of writing) resolved this issue and has employed an external consultant to give advice.

5.22 In considering this issue a Scottish Government representative stated:

"The sharing of risk is an important issue for Devanha to deal with. It needs to be clear how (or whether) individual RSL finance can contribute to Devanha, e.g. to tackle common issues or to cross subsidise schemes. This may also be an area of interest for the Scottish Housing Regulator. Individual RSLs may also have to consider whether the risk of being involved in a collaborative venture outweighs the benefits for them as an organisation."
(Scottish Government, March 2012)

5.23 Lessons can be learned from Devanha's experience in clarifying potential risks at the outset. More effective action from the Board may have ensured greater buy-in from the project managers and contractors in provision of suitable cost data at an earlier stage, which would have helped project the cost risk sooner. Furthermore, the early consideration of the rent harmonization considered by Housing Officers Group in April 2008 seems to have been left unresolved by the Board, and this is an area which may prove crucial in reconciling the shortfall in grant across the RSLs.

Relationships between Devanha and the RSLs

5.24 Reviewing Devanha's experience over the four years, it may be concluded that the relationship has been characterised by the unwillingness of the RSLs to cede control to Devanha, particularly in the first half of the programme. One significant area of conflict has been the discussion over the HAG redistribution (as discussed above), and in terms of strategy development there was lack of a common voice and plan from Devanha.

5.25 While there have continued to be tensions and difficult issues to resolve, the Board has learned to work more positively together for the collective benefit. Devanha moved from being "seen as a pest" by many of the RSLs to being seen as beneficial. But there is a sense that Devanha took too long to develop and realise these benefits, with the result being lack of effectiveness.

5.26 The Board continued to argue that the shared learning and benefits of collaborative working were worthwhile, but acknowledged that there were inherent conflicts built into Devanha's structure and processes. The Governance Working Group recommended that Service Level Agreements between Devanha and the constituent RSLs were revisited so that RSLs would relinquish control of management of the programme.

5.27 In 2012, Board members discussed how they managed the conflicts of interest and agreed that Devanha was "able to think for itself, was independent of the RSLs", although there could not be 100% separation between the Devanha Board members, and their roles as CEO/Board members of the RSLs as they were the same people. But sharing the perspectives of the constituent members was also positive. Looking to the future, a number of the members stated that their RSL would not be happy if there was no representation on the Board (whether this was Devanha or an alternative procurement vehicle) given the importance of the issues considered.

"We consider it vital to conserve the existing RSLs' individual identities, missions and commitments to particular client groups: because it is from these commitments that we get much of our energy, many fresh ideas and much of our excellent customer service."
(Report of the Governance Working Group, January 2011)

5.28 Over the last four years RSL members struggled to cede control to Devanha to enable it to be fully effective. Over time the RSLs appreciated the key benefits of shared learning on collaborative working practices and the open book costing methodology. Looking forward, there is still a desire for the RSLs to maintain their independence in their development functions, and this will be a key criterion for any future Devanha or alternative procurement model.