We sat down with CHIC Chief Executive John Fisher to discuss why separating materials procurement from labour should be the next major shift in housing investment, helping landlords deliver more and better outcomes for residents.
The Original Vision
When we established CHIC in 2010, the intention was always to procure materials separately from labour., both to ensure consistency and quality of products but also price transparency and efficiency.
The ultimate goal was to make limited budgets go further, benefiting more residents and creating more work for contractors. In CHIC’s original procurement in 2010, we procured 30 materials and merchant supply contracts alongside contractor workstreams. These were 10-year contracts that successfully completed their term.
The Evolution of the Merchants Framework
The CHIC Merchants Framework offer has always been popular and successful, as many of our members have in house contractors and require a compliant procured merchant service. We therefore strengthened that service by bringing merchant expertise into the team to manage price catalogues, contractor relationships and supply chain performance.
The fourth generation Merchants Framework has just been launched and has developed and grown significantly over the past 16 years. It retains the same aim: delivering an efficient and effective supply service to members in house contractors, with transparent prices and processes, achieving the best service outcomes for residents and the best value for money.
Challenging the Traditional Supply and Fit Model
Getting contractors to accept the supply of ‘big ticket’ materials sourced by landlords through CHIC, rather than through the traditional supply and fit model, has been challenging. Generally, contractors are resistant to not being directly in control of supply. Partly this is because they do not fully understand the ‘split’ model, and partly because they are concerned it could erode their margins.
Where the Model Has Worked
Where we have supplied materials separately from labour the outcomes have been win/win:
- Some initial new build projects had contractor resistance when the members insisted on supplying main components (windows, doors, kitchens, bathrooms etc); but they worked with us and realised the benefits. At the end of the project not only did they acknowledge there had been cost savings (because prices were based on CHIC’s aggregated buying rather than them spot buying) but also their job had been easier. They didn’t need a surveyor continually sourcing the market for elements of the building which could just be ordered through a defined supply chain.
- A member with a significant planned programme used CHIC to procure materials separately from labour for planned works spread across various UK regions. Initial benchmarking showed significant cashable savings, which were achieved in reality and recycled into an increased programme – a win for more residents getting work done, a win for contractors delivering more work and a win for manufacturers and material suppliers having a sustained supply chain. We worked with multiple contractors and again, after initial resistance, the model was accepted and effective. Savings were secured but the member also delivered a consistent standard of new components across multiple regions with different contractor partners.
- A large local authority with a significant planned programme needed to contain budgets if it was going to be able to invest in all the homes requiring improvement. Competitive benchmarking by CHIC identified significant savings available, when compared to a more localised spot buying ‘supply and fit’ approach. Through negotiation with multiple tier 1 contractors, materials were then ordered and paid for through the CHIC supply chain. Given the success of this programme for the first few years, it was extended when the works contracts were reprocured.
Supporting Delivery Through Technology
To support a separated materials and labour delivery model CHIC created COMS – (CHIC Order Management System). Simply put, this manages an order that can be raised by the client, through the delivery process to the contractor, providing transparency and control without opportunity for leakage.
COMS has been widely used through some big volume contracts and is accepted as an effective and transparent ordering system.
Manufacturer Support and Supply Chain Benefits
What do manufacturers think about this approach? From the start the enthusiasm and support of material suppliers and manufacturers has been unquestionable. They hugely value the ability to interact directly with clients and their residents, and if securing more certainty of order book (through individual landlords and on an aggregated basis through CHIC) they can offer more certainty of supply volume and at a competitive price (no rebates to contractors are expected or paid). Order book certainty gets reflected in manufacturing efficiency and so that gets passed on.
Moreover, they can get direct feedback on product quality and this helps their investment in R&D. It also gives them the opportunity to work with landlords to consider new and often enhanced products. Some might cost a bit more but if in turn they reduce repair and replacement cycles and costs, and help deliver a better living environment for residents, then again it’s win/win.
Why is this not a more widely adopted model?
There are a number of reasons:
- From inception CHIC has been busy servicing members in all respects to meet day to day demands and therefore having time and resources to promote and grow this model has been a challenge. We’ve had to try and do it as part of general service delivery which has been successful but not perhaps at the volume it could be.
- Members (project clients) have generally adopted a supply and fit approach. They want to keep their client teams lean and their day jobs are already really busy, thus any change in the operating model is uninviting. Where we have succeeded at scale has been with more visionary and proactive senior leaders who have recognised the benefits of changing the operating model to ultimately benefit their customers. We need more of these people in the sector and we need to encourage them to work together with us at scale.
- One lesson for CHIC came from a member organisation where a change in the departmental head responsible for the planned programme led to the model being reversed, without any formal review or due diligence. It highlighted how some organisations can default to familiar approaches based on “what we’ve always done must be best” without considering how much more that would cost.
- Similarly, contractors are very used to ‘supply and fit’ and their own processes and structures reflect this. So again, it’s a bit scary to be asked to change to a new approach. There may also be commercial drivers where a contractor thinks they might lose their overhead and profit recovery on the materials and these are typically 20% of the project cost. There are also some supplier rebates – amounts paid back to contractors in addition to their normal margin.
This though can all be easily solved if the delivery model separates materials supply and labour to fit them from the beginning. The contractor can secure its OH&P at the required level based upon a contract value net of material costs. Doing it this way also reduces some procurement work for them and risk of both supply chain disruption and price creep.
A Vision for the Future
What’s my vision for the future? It is where all major planned programmes are delivered with directly sourced ‘big ticket’ materials ordered and paid for by the client but fitted through labour only contracts.
If done at scale (and sector wide this collaboration can be significant) it resets the planned housing investment equilibrium. Certainty for the supply chain, the driving up of standards and savings recycled into more work for contractors. Critically, the savings it creates mean more residents get better homes, which is where CHIC’s Golden Thread always leads. The same materials can also get supplied into new build contracts for all new homes, so landlords customers all receive a consistent standard of service.
The final part of the jigsaw is that in the follow-on repairs service it becomes easier to source parts for repairs and maintenance, and for smaller projects like void works.
The Next Big Change for the Sector
We’ve changed other things at scale for the better in the sector. Strategic asset management is now recognised as important, eradicating damp and mould is now a priority and we understand we need to deliver net zero. So now perhaps this is the next big thing.
Let’s change the model, work collaboratively at scale and make the limited funds we have as a sector go further, to deliver better outcomes for more residents.
