Applying the Egan Principles to Repairs

The report of Sir John Egan entitled 'Rethinking Construction' has been adopted by the DETR and the Housing Corporation as the basis for best practice in the commissioning of construction and maintenance contracts.

Applying the Egan Principles to Repairs

From 2001 Bulletin

Dave Treanor M3 Housing

The report of Sir John Egan entitled ‘Rethinking Construction’ has been adopted by the DETR and the Housing Corporation as the basis for best practice in the commissioning of construction and maintenance contracts.

The principles of Egan aim to change the adversarial atmosphere of most maintenance and repair contracts for local authorities and housing associations which have led to contractor mistrust and contract mismanagement culminating in tenant dissatisfaction.

The Egan Report defines the objectives that should be the aim of both parties to a Maintenance contract as being:

  • To get it right first time, Tenant’s reported repairs should be completed wherever possible on the first visit by the contractor. Additional visits are often viewed by tenants as being symptomatic of the failure of the maintenance and repair service from both their landlord and the contractor
  • The need to show value for money, for all aspects of the Maintenance service.

The initial problems go back to when the repair request was first received: was sufficient information obtained to identify the works required, and to make an appointment? This may result from the lack of expertise of the member of staff recording the repair request, or inadequate procedures for gathering information from tenants.

Analysis of the Egan principles suggests the following possible partnering solutions:

  1. Allow tenants to report repairs directly to the contractor, with information passed automatically to the landlord through IT links.
  2. The contractor could employ their own qualified call centre staff and utilise industry standard interrogation and reporting formats to both gather and disseminate information on repair requests, access, appointment times etc.
  3. Compensation to tenants for missed appointments.
  4. Standardisation of materials and components across entire estates.
  5. Maintenance of adequate stocks of repair components on entire estates.
  6. Review of the variation authorisation procedures to speed up the undertaking of the works.
  7. Clear lines of communication and formal complaints procedure for tenants to follow where repairs are not carried out to their satisfaction.

The National Maintenance Housing Forum is currently examining how best to assist its members in addressing these issues. As part of this process we have looked at a number of partnerships that have been set up over the last year or two, to see if two or three “partnering models” could be developed to form the basis for negotiations between landlords and their partnering contractors on how to deliver a repairs and maintenance service that cost-effectively meets their tenant’s aspirations.

So let us look at some of the issues in more detail.

Contracts

The model contract documentation supplied with Version 4.1 of the NHF Schedule of Rates and the associated cyclical maintenance models already contains many of the provisions that need to underlie a partnering agreement. A contract is still essential in a partnership, and sets out the rights and obligations of the parties. It inevitably does this in an adversarial format. Most forms of partnership go well beyond anything that could be useful defined in a legal document.

The model contract conditions and preliminaries and general matters clauses may need modification to set the ground rules of the partnership, and to govern any divorce should things go wrong.

Selecting your partners

Housing Authorities and RSL’s must demonstrate probity in the selection of contractors, and have traditionally selected them by competitive tender. This sets a minimum standard for quality and then focuses on cost. Contractors are not invited to compete on quality.

Any partnering arrangement will need to address the probity issue, particularly in the initial selection of contractors. But in entering into longer-term arrangements the focus may shift towards benchmarking to establish value for money, and Key Performance Indicators to establish performance and quality.

Payment mechanisms

The most important factor characterising the different approaches to partnering is the way the contractor is paid for the service.

Under a measured term contract, each contractor tenders a percentage adjustment to the standard prices in the published schedule, and gets paid on a job-by-job basis for the work undertaken. There are a whole host of partnering arrangements that can be developed without changing this fundamental point.

One of the simplest ways of reducing the contractor’s overhead expenditure at no cost to the landlord is to rationalise the payment process. Reducing the number of invoices helps both parties. With regular payments for an ongoing service, it should be possible to make immediate payment against an invoice and recover any overpayments, contra-charges etc by adjustment against the next payment due. Yorkshire Metropolitan have saved themselves a great deal of administrative time and cost, and made themselves very popular with their contractors by doing no more than that.

Many landlord’s who have entered into partnership pay a monthly or quarterly management fee derived as a percentage of the anticipated annual budget. They then pay a more economical percentage adjustment on the standard rates for each job. This can go some way to meeting a contractor’s overheads in providing the service. It makes the budgets of both client and contractor that much more predictable, as the volume of work has a reduced impact on payments.

Other Landlord’s, such as Broomleigh and Rosebery, have taken this much further, with a fixed sum paid for each dwelling covered by the repairs service in exchange for any work necessary to meet a defined benchmark maintenance standard. Under this type of arrangement, the partner’s may agree percentage adjustments to schedule prices for additional works that fall outside the agreed standard, including improvement works on voids.

Part of the thinking here is to reduce the need for pre and post inspection by the client, and let the contractor decide the most cost-effective way of satisfying the tenant’s request for a repair. It is no longer in the contractor’s interests to do more work than is necessary, and very much in their interest to deal with anything that might otherwise result in a repeat visit to that property in the near future. The tenant is more likely to get the job done in a single visit.

An interesting corollary to this is that the contractor may need to review their bonus arrangements to give incentives to their operatives to carry out the most cost-effective work. There is a move away from bonus based on the value of work completed, and towards salary grading and broader bonuses that also reflects overall performance of the contract. This is all part of the partnership philosophy, of working together towards agreed aims, that needs to include everyone involved in delivery of the service whether they work for the client or the contractor.

The tricky issues in sharing responsibility for what work should be done relate to premature failure and stock condition: the client does not want to see a deterioration beyond the inevitable aging, and may wish to build an element of improvements to bring the stock up to an agreed standard, particularly on voids.

Monitoring tools

To demonstrate value for money, repair costs under the partnering arrangement can be compared with previous years under a measured term contract. This may be on a simple average cost per unit basis. Or it may be on a comparative costing of work actually done this year under the old and new terms, using a schedule of rates.

Some see a need to keep an eye on the nature of work being carried out. Are savings the result of less work being done, or more work being done more efficiently? Both could be beneficial, so long as stock condition is maintained. In addition the landlord must reconcile the volume and nature of works undertaken, the number of voids undertaken, the extent of tenant abuse, and the number of emergency callouts handled.

Some payment mechanisms build in efficiency savings against previous year’s expenditure, and set targets for future savings so that the benefits of cost saving can be shared between the client and contractor. A common feature of partnering arrangements is for any savings made to be shared between client and contractor, and established on an “Open Book” basis.

For any partnership to work, relationships have to be developed upon trust, respect, and mutual understanding. The danger in any relationship develops if one or other party considers that they are not achieving their goal or expectations.

In any environment where monies are accountable to regulators and auditors, value for money has to be clearly demonstrated, and not just in an enhanced and more effective service to tenants.

This can only be achieved by comparing what has been or should be reimbursed to the contractor against what the works undertaken would have cost under a more traditional method of procurement.

Communication

Removing duplication in the administrative processes will reduce real cost to the benefit of both parties. One look at the procedural flowcharts for raising and monitoring repairs orders of any organisation should be enough to highlight the scope for streamlining administration by monitoring outcomes instead of processes.

Direct computer links on a full two-way basis can open up a world of opportunity for communicating repair requests, variations, completions, and appointments in real time.

Most partnership negotiations question whether it would be better for the contractor to receive repair requests directly from the tenant. They examine the reasons why the client might want to control the flow of work, and whether they could replace this by monitoring work done against a set of agreed guidelines.

Contractors can manage their workflow more efficiently if they take the order and set up an appointment to deal with it. Using a schedule of rates database with default priorities for every job, you can still monitor costs and response times against targets. You can also identify which jobs might be rechargeable.

Where the client raises the orders, a similar problem arises over variations. The most efficient solution is for the operative to use their best judgement to decide on the most cost-effective solution to the tenant’s problem, and deal with it in one visit. Traditional contracts often raised incentives for contractors to increase the volume and value of work, and these were passed on to operatives through their bonus arrangements. The client is then inevitably wary of giving too much discretion to the operative in raising variations.

Performance Indicators

Monthly performance reviews can be used to examine service delivery to the customer, looking together at how each side in the partnership is working, and seeking out scope for improvements.

These reviews can examine each aspect of service delivery to seek out better ways of doing things to reduce cost and improve services. Most partnerships keep track of key performance indicators, such as tenant satisfaction, response times, and costs against budget, and set targets for improvements. Others include the effectiveness of appointments and incidences of “no access”, the number of recalls, and percentage of jobs completed in one visit. There will need to be checks on the quality of workmanship and the extent and nature of complaints from tenants. Measurement of outcomes is an essential tool in managing a partnership, and will require constant refinement.

It may be possible to tap into the potential benefits from bringing tenants more closely into the process. They may have ideas on how to improve the service and reduce costs. Improvement of service to tenants is central to the Egan agenda.

What we are doing

We will continue running seminars on Partnering Repairs, to draw out best practice and give you an opportunity to learn from those that have pioneered different approaches. This is still very much a learning process for us all.

We are working with HAMMAR South West to develop documentation aimed at helping you to set up partnerships with your contractors, covering a range of payment methods, and options for re-allocation of some traditionally client activities, such as taking repair requests, to the contractor.

We are reviewing our standard contract conditions to adapt them to suit partnering arrangements.

Dave Treanor

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