UK: Contract Compliance - How Exposed Are You Maintenance Contracts To Incompetence And Fraud?

Last Updated: 5 November 2008
Article by Keith Simpson

"How exposed are your maintenance contracts to incompetence and fraud?" asks Just Housing Consultancy director, Keith Simpson.

The economic downturn evidenced by falling property prices and the credit crunch is putting the business plans of many housing associations under severe pressure. Consequently, more associations are being driven to ensure they are obtaining value for money on day-to-day responsive repairs and void contracts.

The national move towards partnering over the last decade has been fraught with problems and has not produced the results anticipated. The three major objectives of reducing costs, improving quality and providing continuous improvement simply cannot be demonstrated nationally, as indicated in the recent Audit Commission report, For better, for worse: Value for money in strategic service-delivery partnerships.

In my opinion, Sir John Egan never, in his wildest dreams, envisaged that partnering could apply to "a man in a van full of ball valves", as can be evidenced in his report, which is focused solely on major construction projects such as Heathrow's fifth terminal.

As a result of this mismatch between strategic partnering and day-to-day repairs, a plethora of consultants have been engaged to create a whole range of models for open-book partnering. Many of these are not fit for purpose, leave the client exposed and are not even fully understood by technically weak and under-qualified clients. This situation is compounded by inadequate IT systems and poor integration that does not allow effective control and monitoring of budgets. Regular overspending on responsive repairs has resulted in planned maintenance programmes frequently being raided to bail the client out, and keep poor client management below the chief executive's radar.

This process has created a serious situation, as the major contractors continue to win long-term partnering contracts where clients are encouraged to transfer more and more clientside responsibility to the contractor, purportedly as a means of cutting costs. A major contributor to this position has been the 60/40, quality/price evaluation model, which lacks credibility. As a result, contractors can employ expensive bid teams in an attempt to sway impressionable residents and clients, without having to demonstrate an agreed quality standard, corrupting the tender process.

Competitive tendering should always adopt a clear quality threshold, which all contractors must achieve in order to move forward to the Invitation to Tender process (ITT). The ITT process is then purely about price, with assurance having already been provided in relation to the quality of service. So, invite six or eight contractors to tender, making it clear that the award will be to the lowest price. It is easy; not only do you achieve the best price, but you dispense with the 'beauty parade' which corrupts so many tendering processes.

Whether the contract is open-book or schedule of rates, the only challenge is to manage the contractor successfully so that they deliver what they have promised. Accepting that many clients are technically weak and unable to confront the major contractors' professional teams with confidence, it is essential to undertake regular independent 'contract audits'. These should not be confused with forensic audits, carried out by accountants. The contract audit is undertaken by suitably qualified surveyors who are familiar with the contract. They take samples of recent work, including photographic evidence, and revalue it against invoiced costs; they then report on over/under claiming.

Our two contract audit teams are currently being overwhelmed by clients who have real concerns about their repairs and maintenance contractors – and rightly so, since we have secured up to six figure repayments for clients following our audits.

However, the story does not end there. How can we deal with the issue of technically weak clients to ensure they develop the skills and understanding to be able to manage the contract? Just Housing's contract auditors conduct workshops with the client team, where the findings of the audit are set out and discussed, enabling robust inspection and verification processes to be established and embedded to ensure further audits are unnecessary.

The current situation requires action from both clients and contractors if value for money is to be evidenced. The confidence that partnering once enjoyed in this part of the sector has evaporated and there needs to be a return to robust contract compliance and quality assurance that can give clients an evidence-based guarantee that they are receiving value for money.

Just Housing is a membership organisation and a consultancy covering all the social housing disciplines

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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