Value for money
Value for money
Andrew Millross, Partner
NHF Asset Management and Maintenance conference – 6th July 2012
Coverage Context, importance and definition of Value for Money EU procurement rules Procurement options
“In-house” options DLO “Shared services/works arrangements
Joint venture organisation External contract Packaging Payment options Buying clubs
Contract management
Context and importance of Value for Money Regulatory Code
part of the Governance standard covers “financial, social and environmental returns”
Financial context
pressure on budgets 20% VAT rate
Contracting context
very competitive tendering environment insolvency risk
Regulatory Code Para 4.23 A provider’s ability to drive value for money … is a “key indicator of the quality of governance ”
What is “Value for Money” – some definitions Achieving economy, efficiency and effectiveness
Audit Commission The optimal use of resources to achieve the intended outcomes Right outcomes at the right cost both from National Audit Office Obtaining the maximum benefit over time with the resources available DfID
What are you buying – the “value” bit? Works, services or supplies
do they need different approaches?
Make or buy
DLOs shared services/works arrangements JVs
Social and environmental returns
core or additional elements – “subject matter of the contract” reference in Regulatory Code
Contract management, long term relationships and the benefits of a “quiet life”
What does it cost? Cost includes:
Scoping and procurement costs scoping & approvals - staff, residents, Board Internal costs – reviewing PQQs, evaluating tenders advisers’ fees buying club fees
Payments to supplier NB variations
Contract administration costs including: contract administration monitoring and reporting cost of disputes, termination and reprocurement
Ensure you have included all aspects of cost
How do you demonstrate value for money? Benchmarking
comparing “apples and pears” ensuring each benchmarking organisation: includes the same costs, and receives the same service levels
Market testing
“be careful what you wish for” not a substitute for an “OJEU process”
Effective benchmarki ng has to be on a “like for like” basis
Requirements of the EU procurement rules Tendering thresholds
works: £4,338,350 services & supplies £ 173,934 net of VAT next update 1 January 2014
Valuation and aggregation rules
contract life value, not annual value 4 year rule for services services & supplies – “single requirement” or “similar services/supplies contracts” over 12 months works – “same work” or “single requirement for works”
Significant change = new contract
Below threshold contracts – EU requirements EU rules:
Regulation 4(3) PCR 2006 – obligations to: treat contractors equally and in a nondiscriminatory way act in a transparent way
EU Interpretative communication
UK case law Sidey v Clackmannshire DC Azam v LSC
Standing orders
Fairness and transparenc y obligations apply to all contracts
Procurement options In-house options
DLO - potentially with external contractor support “Shared services/works” arrangement
Joint venture organisation External contract(s)
individual procurement – sole or joint buying club
DLO Procurement
DLO itself – either no contract or “Teckal” full EU compliance required for: external support (eg from contractor) “subcontractors” and materials
Issues
in-house or subsidiary working for others TUPE and pensions full delivery responsibility including health and safety compliance
“Shared services” organisation structure HOUSING PROVIDER
Payment for maintenance
Control (either sole or joint) Maintenance contract
HOUSING PROVIDER
Control (either sole or joint) Maintenance contract
SHARED SERVICES ORGANISATION
Payment for maintenance
“Shared services” organisation EU rules
Teckal – control by single organisation Tragsa & Carbotermo - joint control
VAT
VAT grouping VAT Cost Sharing Group Summary http://www.hmrc.gov.uk/tiin/tiin762.htm Guidance http://www.housing.org.uk/publications/find_a_publication/finan ce/draft_guidance_on_vat_cse.aspx Reimbursement of expenses only no profit element possible - but can include recovery of overheads
Taksatorringen case – no independent customers Implementation “July 2012”
Joint venture organisation – typical structure HOUSING PROVIDER
Maintenance contract
CONTRACTOR
Profit (usually shared equally) Control 51% voting rights
Payment for maintenance
49% voting rights
JV ORGANISATION (employs workforce)
Management services
Payment for management services
Joint venture organisation Key features
Housing provider must have “control” to form VAT group Contractor will require “minority protection” provisions Workforce generally employed by JV – TUPE and pensions are major considerations
Procurement
Invariably by OJEU competitive dialogue process Procurement process covers all governance and contract documentation Significant procurement and running costs – requires scale
External contract issues – “packaging” Responsive, planned, servicing
together or separate
Contract or framework agreement
ability to define and commit to specified work duration of frameworks
Number of contractors
risk spreading & encouraging SMEs contract management implications economies of scale/incentive to partner
Length of contract & break clauses
External contracts - payment Price based – consider:
variations inflation price change mechanisms
Fixed price per property (PFI approach) Cost based (with target) – consider:
target setting analysis of actual costs information ability to control costs
Performance incentives/deductions
EU procurement – current issues Procedure & transparency Prequalification and selection
“minimum standards” (pass/fail) selection (scored) permitted questions
Tender evaluation and feedback
disclosure of criteria, weightings, scoring system “characteristics and relative advantages”
Proposed Directive
“self - declaration availability of contract documents
Current levels of challenges
Buying club frameworks (1) Preconditions
“named” in the OJEU notice set up by a contracting authority must “establish the terms, in particular the terms as to price” Regulation 2(1) PCR 2006
“leaseholder service charge issue”
Types
single supplier multiple supplier minimum of 3 suppliers – if 3 prequalify
Buying club frameworks (2) Call-offs
Single supplier call off “within the limits of the terms established by the FA” “supplemented as necessary” by the supplier
Multiple supplier direct award – by application of the terms laid down in the FA mini-competition
on the basis of the same, more precisely formulated, and, where appropriate, other terms referred to in the FA
must invite all framework suppliers who wish to participate
Buying clubs & frameworks - implications & issues Administration costs
often recovered from suppliers so “invisible” to client typically 3% of spend
How far does the framework “establish the terms” for the call-offs
if not, it is not a valid framework under the EU rules
Uncertainty over timing of any breach – risk assessment TUPE costs and pricing
Procurement Lawyers Association Guidance guidancehttp://www.procurementlawyers.org/projects/complete d_projects/frameworks_working_group.aspx
Contract management The importance of good relationships
Does your contract promote them?
The importance of accurate monitoring information
Do you get this?
Problem anticipation and avoidance
Are you doing this? Are there effective contractual remedies for problems
Costs of:
enforcing contractual rights termination and reprocurement continuing with a contract that is “not working”
Commercial break Contract Management
AMF12 – 13.45
Key messages (1) Value for money
involves assessing both value and cost includes social and environmental value
DLOs
do not require EU procurement bring all responsibility and risk “in-house” save Providers 20% VAT on labour
VAT cost sharing groups
are limited to cost reimbursement, without profit can be set up without an OJEU process
JVs
involve balancing “control” by the provider and “minority protection” for the contractor are complicated and require scale
Key messages (2) External contracts
must be scoped properly have a variety of payment options
Procurement processes
must be transparent require proper feedback to tenderers are increasingly subject to challenge
Buying clubs
must be checked thoroughly before use do create issues over leaseholder recovery must be used in accordance with the Regulations
Contract management
is crucial to value for money
Questions Free e-briefings:
www.anthonycollings.com/newsand-events/briefings.aspx Advice: [email protected] m 0121 212 7473
NHF Asset Management & Maintenance Conference July 2012
Value for Money - A Practical Overview
Steve Drew Managing Director Alliance Ventures
Concept • Landlord designed PV framework • Scale to affordable price • Support team • All Due Diligence
• Separate installation contracts
Should/can Landlords be commercial and deliver VfM? • Alliances Homes objective - recover costs of full Due Diligence and other fees
• Open and transparent rebate • Framework tendered • Take care with impact upon RP brand
OJEU Tender • 67 expressions of interest • Selection on behalf of partners you currently do not know
• Technical specification very time sensitive • Pass on the OJEU compliance to other Landlords and Contractors
Product Selection • Seek very best Product for sector use • Panels • Management • Logistics • Warranties
• Separate Installation • Really
understand local relationships and SME’s role
Lead/Deliver/Evidence • Sector has traditional track record • Evidence of success in PV very limited • Risk appetite perhaps limited • Competing with Consultants • Professional services one way or the other
• Develop capacity to support framework
Menu of Services • Product • Due Diligence • VAT • Installation • Registration • Management • Repairs • Technical Updates
Expansion of Natural Resources • Partnerships, not sales
• Build value through joint working, not income to the bank • VfM can be a natural outcome
How the Framework was structured • SPV for delivery Low Carbon Exchange Bosche TIGO
• Smart Tax advice Gift Aid VAT treatment 5% not 20%
• Completing “buying” solutions for other landlords
What were the true costs of setting up the framework • To Alliance - circa £400K • specialist support • For joining Landlords • fixed costs based on number of systems bought
VfM Key Areas • Share knowledge, remove duplication (knowledge costs!!)
• Access market at pace - FiT • Pay as you go - Rate • Costs fixed - Product price list - No Joining fee • Reduction of Risk
Outcomes • 13 Landlords to date accessed framework • 500 tenants benefited • Landlord ongoing relationship • 2Giga watts of energy generated • Largest PV framework social housing
• Employed over 150 • £40-m work value • Capacity for another £400-m ….
Price Changes - VfM • 3 price reductions since award – July 2011 • Flexibility to keep chasing VfM targets
• Choose your partners well, shared objectives
If we did it again • Open framework • Best Product • Full Due Diligence pack • SPV Contracts (complicated?)
• Technical support (resource?) • Market framework (could be done better?)
Can we measure the saving? • If Landlords acted independently • Legal £250K • Taxation £30K • Procurement £55K • How to technical models £75K • Tenancy variation £30K Total £440K Shared between 13 Landlords plus limited individual staff costs, likely to have saved sector well over £2m
Any questions....
Thanks for listening
Steve Drew Managing Director Alliance Ventures
T:01275 398 020 M:0770 318 8284 E:[email protected]
Andrew Millross, Partner
NHF Asset Management and Maintenance conference – 6th July 2012
Coverage Context, importance and definition of Value for Money EU procurement rules Procurement options
“In-house” options DLO “Shared services/works arrangements
Joint venture organisation External contract Packaging Payment options Buying clubs
Contract management
Context and importance of Value for Money Regulatory Code
part of the Governance standard covers “financial, social and environmental returns”
Financial context
pressure on budgets 20% VAT rate
Contracting context
very competitive tendering environment insolvency risk
Regulatory Code Para 4.23 A provider’s ability to drive value for money … is a “key indicator of the quality of governance ”
What is “Value for Money” – some definitions Achieving economy, efficiency and effectiveness
Audit Commission The optimal use of resources to achieve the intended outcomes Right outcomes at the right cost both from National Audit Office Obtaining the maximum benefit over time with the resources available DfID
What are you buying – the “value” bit? Works, services or supplies
do they need different approaches?
Make or buy
DLOs shared services/works arrangements JVs
Social and environmental returns
core or additional elements – “subject matter of the contract” reference in Regulatory Code
Contract management, long term relationships and the benefits of a “quiet life”
What does it cost? Cost includes:
Scoping and procurement costs scoping & approvals - staff, residents, Board Internal costs – reviewing PQQs, evaluating tenders advisers’ fees buying club fees
Payments to supplier NB variations
Contract administration costs including: contract administration monitoring and reporting cost of disputes, termination and reprocurement
Ensure you have included all aspects of cost
How do you demonstrate value for money? Benchmarking
comparing “apples and pears” ensuring each benchmarking organisation: includes the same costs, and receives the same service levels
Market testing
“be careful what you wish for” not a substitute for an “OJEU process”
Effective benchmarki ng has to be on a “like for like” basis
Requirements of the EU procurement rules Tendering thresholds
works: £4,338,350 services & supplies £ 173,934 net of VAT next update 1 January 2014
Valuation and aggregation rules
contract life value, not annual value 4 year rule for services services & supplies – “single requirement” or “similar services/supplies contracts” over 12 months works – “same work” or “single requirement for works”
Significant change = new contract
Below threshold contracts – EU requirements EU rules:
Regulation 4(3) PCR 2006 – obligations to: treat contractors equally and in a nondiscriminatory way act in a transparent way
EU Interpretative communication
UK case law Sidey v Clackmannshire DC Azam v LSC
Standing orders
Fairness and transparenc y obligations apply to all contracts
Procurement options In-house options
DLO - potentially with external contractor support “Shared services/works” arrangement
Joint venture organisation External contract(s)
individual procurement – sole or joint buying club
DLO Procurement
DLO itself – either no contract or “Teckal” full EU compliance required for: external support (eg from contractor) “subcontractors” and materials
Issues
in-house or subsidiary working for others TUPE and pensions full delivery responsibility including health and safety compliance
“Shared services” organisation structure HOUSING PROVIDER
Payment for maintenance
Control (either sole or joint) Maintenance contract
HOUSING PROVIDER
Control (either sole or joint) Maintenance contract
SHARED SERVICES ORGANISATION
Payment for maintenance
“Shared services” organisation EU rules
Teckal – control by single organisation Tragsa & Carbotermo - joint control
VAT
VAT grouping VAT Cost Sharing Group Summary http://www.hmrc.gov.uk/tiin/tiin762.htm Guidance http://www.housing.org.uk/publications/find_a_publication/finan ce/draft_guidance_on_vat_cse.aspx Reimbursement of expenses only no profit element possible - but can include recovery of overheads
Taksatorringen case – no independent customers Implementation “July 2012”
Joint venture organisation – typical structure HOUSING PROVIDER
Maintenance contract
CONTRACTOR
Profit (usually shared equally) Control 51% voting rights
Payment for maintenance
49% voting rights
JV ORGANISATION (employs workforce)
Management services
Payment for management services
Joint venture organisation Key features
Housing provider must have “control” to form VAT group Contractor will require “minority protection” provisions Workforce generally employed by JV – TUPE and pensions are major considerations
Procurement
Invariably by OJEU competitive dialogue process Procurement process covers all governance and contract documentation Significant procurement and running costs – requires scale
External contract issues – “packaging” Responsive, planned, servicing
together or separate
Contract or framework agreement
ability to define and commit to specified work duration of frameworks
Number of contractors
risk spreading & encouraging SMEs contract management implications economies of scale/incentive to partner
Length of contract & break clauses
External contracts - payment Price based – consider:
variations inflation price change mechanisms
Fixed price per property (PFI approach) Cost based (with target) – consider:
target setting analysis of actual costs information ability to control costs
Performance incentives/deductions
EU procurement – current issues Procedure & transparency Prequalification and selection
“minimum standards” (pass/fail) selection (scored) permitted questions
Tender evaluation and feedback
disclosure of criteria, weightings, scoring system “characteristics and relative advantages”
Proposed Directive
“self - declaration availability of contract documents
Current levels of challenges
Buying club frameworks (1) Preconditions
“named” in the OJEU notice set up by a contracting authority must “establish the terms, in particular the terms as to price” Regulation 2(1) PCR 2006
“leaseholder service charge issue”
Types
single supplier multiple supplier minimum of 3 suppliers – if 3 prequalify
Buying club frameworks (2) Call-offs
Single supplier call off “within the limits of the terms established by the FA” “supplemented as necessary” by the supplier
Multiple supplier direct award – by application of the terms laid down in the FA mini-competition
on the basis of the same, more precisely formulated, and, where appropriate, other terms referred to in the FA
must invite all framework suppliers who wish to participate
Buying clubs & frameworks - implications & issues Administration costs
often recovered from suppliers so “invisible” to client typically 3% of spend
How far does the framework “establish the terms” for the call-offs
if not, it is not a valid framework under the EU rules
Uncertainty over timing of any breach – risk assessment TUPE costs and pricing
Procurement Lawyers Association Guidance guidancehttp://www.procurementlawyers.org/projects/complete d_projects/frameworks_working_group.aspx
Contract management The importance of good relationships
Does your contract promote them?
The importance of accurate monitoring information
Do you get this?
Problem anticipation and avoidance
Are you doing this? Are there effective contractual remedies for problems
Costs of:
enforcing contractual rights termination and reprocurement continuing with a contract that is “not working”
Commercial break Contract Management
AMF12 – 13.45
Key messages (1) Value for money
involves assessing both value and cost includes social and environmental value
DLOs
do not require EU procurement bring all responsibility and risk “in-house” save Providers 20% VAT on labour
VAT cost sharing groups
are limited to cost reimbursement, without profit can be set up without an OJEU process
JVs
involve balancing “control” by the provider and “minority protection” for the contractor are complicated and require scale
Key messages (2) External contracts
must be scoped properly have a variety of payment options
Procurement processes
must be transparent require proper feedback to tenderers are increasingly subject to challenge
Buying clubs
must be checked thoroughly before use do create issues over leaseholder recovery must be used in accordance with the Regulations
Contract management
is crucial to value for money
Questions Free e-briefings:
www.anthonycollings.com/newsand-events/briefings.aspx Advice: [email protected] m 0121 212 7473
NHF Asset Management & Maintenance Conference July 2012
Value for Money - A Practical Overview
Steve Drew Managing Director Alliance Ventures
Concept • Landlord designed PV framework • Scale to affordable price • Support team • All Due Diligence
• Separate installation contracts
Should/can Landlords be commercial and deliver VfM? • Alliances Homes objective - recover costs of full Due Diligence and other fees
• Open and transparent rebate • Framework tendered • Take care with impact upon RP brand
OJEU Tender • 67 expressions of interest • Selection on behalf of partners you currently do not know
• Technical specification very time sensitive • Pass on the OJEU compliance to other Landlords and Contractors
Product Selection • Seek very best Product for sector use • Panels • Management • Logistics • Warranties
• Separate Installation • Really
understand local relationships and SME’s role
Lead/Deliver/Evidence • Sector has traditional track record • Evidence of success in PV very limited • Risk appetite perhaps limited • Competing with Consultants • Professional services one way or the other
• Develop capacity to support framework
Menu of Services • Product • Due Diligence • VAT • Installation • Registration • Management • Repairs • Technical Updates
Expansion of Natural Resources • Partnerships, not sales
• Build value through joint working, not income to the bank • VfM can be a natural outcome
How the Framework was structured • SPV for delivery Low Carbon Exchange Bosche TIGO
• Smart Tax advice Gift Aid VAT treatment 5% not 20%
• Completing “buying” solutions for other landlords
What were the true costs of setting up the framework • To Alliance - circa £400K • specialist support • For joining Landlords • fixed costs based on number of systems bought
VfM Key Areas • Share knowledge, remove duplication (knowledge costs!!)
• Access market at pace - FiT • Pay as you go - Rate • Costs fixed - Product price list - No Joining fee • Reduction of Risk
Outcomes • 13 Landlords to date accessed framework • 500 tenants benefited • Landlord ongoing relationship • 2Giga watts of energy generated • Largest PV framework social housing
• Employed over 150 • £40-m work value • Capacity for another £400-m ….
Price Changes - VfM • 3 price reductions since award – July 2011 • Flexibility to keep chasing VfM targets
• Choose your partners well, shared objectives
If we did it again • Open framework • Best Product • Full Due Diligence pack • SPV Contracts (complicated?)
• Technical support (resource?) • Market framework (could be done better?)
Can we measure the saving? • If Landlords acted independently • Legal £250K • Taxation £30K • Procurement £55K • How to technical models £75K • Tenancy variation £30K Total £440K Shared between 13 Landlords plus limited individual staff costs, likely to have saved sector well over £2m
Any questions....
Thanks for listening
Steve Drew Managing Director Alliance Ventures
T:01275 398 020 M:0770 318 8284 E:[email protected]
