The Decarbonisation Series: Procurement Challenges

Net zero and retrofitting – procurement challenges for Housing Associations

In its election manifesto, the Government set out renewed support for a target of net zero carbon by 2050, by pledging to invest £6.3bn to improve the efficiency of 2.2 million social homes.

It is becoming increasingly apparent that Housing Associations are going to need to undertake a massive programme of retrofitting of their housing stock if the Government’s target of net zero carbon by 2050 is to be met. Focusing solely on improving the energy efficiency of new build housing will not be sufficient given the length of time it takes to replace the stock.

‘Retro-fit’ is a term that covers a wide variety of home energy improvements, involving the design, supply and installation of a range of energy efficiency and renewable energy technologies. Works can include (amongst other things):

  • Installation of photo-voltaic heaters built into a thermally-insulated roof that also generate electricity
  • Air source or ground source heating
  • A new thermally efficient wall “wrapper” created with prefabricated panels manufactured offsite
  • Removal of gas to create an electricity-only property.

Current high costs are a barrier to large-scale retrofitting of the existing housing stock, and there is a lack of a construction and supply chain with the technical capability and capacity to deliver the works in the volume and at the speed required.

A further barrier for Housing Associations is that they are required to competitively tender the works in accordance with the Public Contracts Regulations 2015 (the “Regulations”), assuming they have a value in excess of the relevant financial threshold, which is likely to be the case for large scale retrofitting programmes.

Historically, Housing Associations have been able to alleviate the burden of having to comply with the protracted tender procedures prescribed by the Regulations by utilising existing framework agreements to procure works and services needed to their housing stock.

However, given the specialist nature of the retrofitting works that are needed to meet the Government’s target, it is doubtful whether many of the existing framework agreements in the market will truly be fit for this purpose. For example, the technical specifications and range of works covered by the framework may not adequately cover the retrofit works required. Similarly, the standard form “call off” contracts that the framework prescribes may not be overly suitable for works of this nature, and the complexities involved in delivery. Indeed, contract terms may need to be attractive to any funders and investors involved in the project, as well as to the construction sector and supply chain. In certain instances this may require a highly bespoke form of contract, or a contractual model that is not catered for by the framework.

On a more general level, it may be that existing frameworks simply do not have a sufficient number of contractors on them with the experience and expertise needed to carry out the works.

If Housing Associations are unable to utilise existing frameworks for these works then they may face the prospect of having to procure them through a lengthy and time-consuming tender process under the Regulations, in order to ensure compliance with their legal obligations. This at a time when procurement teams in HAs are already stretched in dealing with procurement for building and fire safety works arising out of the Grenfell tragedy.

It is, of course, worth noting that the administrative burden associated with compliance with the Regulations may well be reduced if the Government makes good on its declared intention to simplify the Regulations post-Brexit (something we are keeping close tabs on and will be the subject of separate articles in the future). But that won’t happen until January 2021 at the earliest, and the extent of any reform will very much depend on the outcome of trade negotiations between the UK and EU over the coming months.

In light of the above, it could well be an opportune time for Housing Associations to think seriously about collaborating with each other and Local Authorities too in procuring their retrofit works programmes.   By collaborating on projects there will be scope for reducing procurement costs, and for sharing valuable expertise and resources. Such joint procurement could take the form of bespoke “fit for purpose” framework agreements or dynamic purchasing systems, or perhaps more innovative contractual models.

This article is the first published in Decarbonisation Series and was written by Kris Kelliher, partner in our Real Estates & Projects team. For further information on retro-fitting and the challenges faced by Housing Associations, please get in touch. 

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