Inflation is now at a 40 year high of 11.1%, fuelled by rising energy costs and global supply chain difficulties.
This has created an extremely tough landscape for procuring construction work, threatening the prospects for new housing development.
The Autumn statement offered little by way of help for the housing sector facing rising costs and an uncertain market.
Last year The Housing Forum published the Better Procurement for Better Homes Guide. They are now publishing 2022 Better Procurement for Better Homes Supplementary Guidance to help the sector to cope with these new inflationary challenges
The key audience for the new supplementary guidance is local authorities and housing associations who are seeking to procure new homes in the current economic climate. The guide may also be of interest to developers, contractors and consultants looking to work in partnership to develop housing or tendering for work, and to policy makers and regulators who need to understand the challenges facing social housing developers bidding for funding.
Key messages in the guidance:
- It’s important to build trust – Working with contractors who share values of commitment to quality, are willing to work in an open book environment and demonstrate a collaborative approach reduces risk.
- Closely involve the finance and procurement teams – Whole-team decision making needs to be a dynamic process, with budget holders updated and alerted as soon as inflation looks to be adding cost pressures that threaten to breach contingencies.
- Manage risks equitably between commissioner and contractor – acknowledging that some sort of price fluctuation (both up and down) will have to be accommodated over long contracts.
- Engage early with the contractor’s supply chain – enabling quicker on decision making via an open book approach.
- Use flexible contracting – with an emphasis on how pre-contract agreements can be managed and that can start to lock in cost early, where possible. Single-stage, fixed-price design and build contracting in the current hyperinflationary market becomes even less workable.
The solution via a three-stage process is set out in the newly published Supplementary Guidance available here.
Matthew Goulcher, Managing Director of Levitt Bernstein and Chair of the Housing Forum Working Group which produced Better Procurement for Better Homes as well as the new supplementary guidance said: “The 40-year-high inflation rate, fuelled by rising energy costs and global supply chain difficulties, has resulted in an extremely tough landscape for procuring construction work, as contractors and their specialists become reluctant to commit to fixed prices too far in advance of work starting. This has profound implications for clients trying to plan and budget for work. Our new guidance will help steer through these obstacles.”
Shelagh Grant Chief Executive of The Housing Forum said: “Our new supplementary guide, which is based on the vast practical knowledge and experience of The Housing Forum’s extensive membership, will prove a tremendous boon to housing associations, councils and commissioners who may be considering pausing developments in these very challenging times.”
