New research has revealed that an additional £1.8bn could be saved by social landlords by outsourcing housing service and maintenance.
The research, carried out by Credo for repairs and maintenance provider Morrison, found that despite the potential for savings only 60% of councils, arm's-length management organisation (ALMOs) and housing associations currently outsource their housing maintenance and service management.
As a result, of the £13bn which will be spent this year on these services by the 2,141 housing providers that manage the approximately 5m homes in the UK, only around £8bn is currently outsourced. The savings to be made by outsourcing are estimated to be £1.1bn.
However, the research also found that if outsourcing was increased to 95% and was coupled with the uptake of bolder methods - which included the transfer of risk and longer contracts - a further £1.8bn could be saved, bringing total potential savings to £2.9bn. This is without doubt a significant sum for a sector currently balancing funding cuts with an increase in demand for homes.
The largest part of the £1.8bn of savings would come from an increased uptake of collaborative and transformational models of outsourcing. Currently only 18% of contracts are collaborative with little evidence existing of transformational models.
Three models for outsourcing
Morrison has identified three types of outsourcing models: traditional, which it estimates typically delivers savings of up top 15%; collaborative, where a landlord works in partnership with a contractor to deliver the service, which delivers a greater level of savings typically between 15% and 25%; and transformational, where a bundle of services are contracted out together, which offers even further savings up to 35%.
By increasing the use of collaborative models £1.2bn in savings could be generated. The good news is that there are signs that collaborative contracts are on the increase. Our analysis found that this type of model accounts for 40% of new contract due to start in 2011. This suggests that social landlords, having negotiated lower prices with their service providers, are now looking for more collaborative methods to drive further cost savings.
Shorter contracts
The research also found there had been a sharp fall in contract sizes in both the large (£50m plus) and mid-sized (£10m to £50m) categories in 2011. There are two reasons for this: landlords are restrained by a lack of confidence in the economy, and they are also are keen to spread risk following the collapse of two major suppliers, Connaught and Roks, in 2010.
There also been an increase in the number of contracts which included contract extensions, which may reflect landlord's reluctance to be tied into a long term deal but an appreciation that good performance can driven by the promise of an extension of the contract.
Clearing the hurdles
The research also reveals the hurdles that must be overcome.There has been very little change in the last two years in the numbers of housing providers outsourcing their services. If the sector is to realise this potential extra £1.8bn it must open itself up to the idea of working with private sector providers.
Trust and minimising risk are also major factors holding back the growth of outsourcing. The collapse of two big beasts in the outsourcing game shook landlords' confidence last year.
The best way to offset these concerns is to mitigate as much risk: ask to see solid evidence demonstrating financial stability as part of the tender process, and consider whether you use more providers to limit exposure. Collaborative and transformational approaches allow sustainable prices to be bid for contracts, which landlords are able to accept because they will get further savings through the outsourced approach.
Skills will not be lost
There are also concerns about the loss of skills within housing providers to commission and manage service delivery if outsourcing continues over a long period. This does not need to be the reality; transformational and collaborative models are about partnership, not domination. Partnerships with the private sector can actually help improve the skills and knowledge of staff within landlords, as it will open them up to new systems, operational approaches and working methods.
Outsourcing isn't the only option and it may not be suitable for all housing providers but it should be considered and investigated as part of any review of housing maintenance and service management being undertaken - and the savings could be significant.
Gordon Brockington is executive director of the repairs and maintenance provider Morrison
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