Technical Briefing 2: Developing Effective Partnerships with the Supply Chain

They were:

• Jonathan Morris, Energy and Low Carbon Team at Essex County Council, giving the perspective of a local authority trying to collaborate with the supply chain to do retrofit.
• Carl Yale, Refurbishment Director at Lovell, giving the perspective of a contractor on trying to work on retrofit, and with local authorities and other social housing providers to do so.
• Mark Cook, Partner at Anthony Collins, giving an in-depth perspective on the procurement frameworks that hinder or help retrofit.

Jonathan Morris – Energy and Low Carbon Team at Essex County Council

Essex County Council have a number of challenges for retrofit. They don’t own their own housing stock and so they are working with their districts to deliver retrofit and to influence homeowners. They also currently do not have a well-developed relationship with the local supply chain, as much of the Local Authority Delivery funding and Green Homes Grants that have been delivered in Essex have been done through the Local Net Zero Hub.  As such, supply chain relationships are one step removed from the council. 

Nevertheless, Essex County Council are convinced of the benefits of carrying out retrofit locally. The size of the green growth economy in the County is potentially around £15billion, and could create 18,000 green jobs across retrofit, transport and low carbon heating as well as providing benefits to household incomes, health, and the environment. There are social value benefits to retrofit as well – If Essex’s 640,000 homes are retrofitted fully this could generate a social value return of £2.9bn per year if all jobs remain local to Essex. This is a further complicating challenge – as Essex is so close to London, there is a risk that some of the jobs and social value that retrofit will create will be lost to London. However, there are also considerable health benefits to retrofit – in 2009 the Chief Medical Officer reported that for every £1 spent on reducing fuel poverty, a return of 42 pence could be seen in NHS savings (although this certainly needs updating). In Germany, the KfW Energyefficient Construction and Refurbishment Programme which began in 2010 has reduced pressure on public budgets by up to €10.6bn, and between €3.8 to €5.4 went back to the government in the form of taxes and reduced welfare spending, for every €1 of public funds spent on the programme.

Essex County Council report many challenges for the supply chain in delivering retrofit, but specifically the fact that confidence in the sector is undermined by stop start funding, leading to companies either contracting in size or ceasing trading altogether. These lead to a vicious cycle, whereby households who do want to retrofit therefore cannot find installers.  As a result the sector does not invest in skills and capacity building. This is further hampered by the construction industry focus on cost rather than quality.

Essex County Council has attempted to address these challenges. In their project ‘Harlow and Tendring Retrofit Pipeline for Economic Renewal’, they are focusing on a more deprived area of Essex to deliver a £703,000 Community Renewal Fund project to upskill over 200 people to PAS 2035. They are working in partnership with the Retrofit Academy to offer Level 2 courses to start people on the journey, right up to Level 5 courses on retrofit co-ordination. The project is also funding ‘Fit for Retrofit’ training to housing providers, and research into stock condition and the demand and supply of retrofit skills in the county. This work is also being supported by £25million worth of grant funded retrofit work, the retrofit opportunities provided by the Essex County Council Estate and working with Warm Homes Essex to co-ordinate all advice to residents on how to access funds for retrofit.  Throughout all of this, Essex County Council is acting as a facilitator, by drawing down government funding, as a co-ordinator, liaising with social landlords to create a retrofit ecosystem, and as a provider, using ECC and other anchors’ stock and maintenance budgets to create a supply pipeline.

Essex County Council is now looking to commission further research into the Essex supply chain and resident attitudes to retrofit, to scope out how best to engage in future.  The Council is also looking to utilise all government funding, including ECO 4. The Council is also looking to replicate the CRF project in other districts in Essex, building on their partnership with the Retrofit Academy and drawing in further education colleges in the County.

Carl Yale, Refurbishment Director at Lovell

A critical issue for retrofit is its complexity and the idiosyncratic nature of each individual retrofit project. Each project needs to be properly surveyed, and a retrofit design tailored to that building needs to be completed, before materials and measures can then be sourced. The fact that the time taken for this mobilisation and design stage is so often underestimated by clients is a real challenge for contractors working on retrofit. Understanding this is what makes a good retrofit client.

This understanding from clients is particularly valuable as the challenge for contractors is indeed vast. PAS2035 is complicated and very open to interpretation, leading to inconsistent approaches to retrofit. It is also convoluted and burdensome for contractors to deliver. This is not helped by the intermittent nature of retrofit funding which just creates boom and bust. Social housing providers face their own challenges here; a deep retrofit can cost £30-50K, but there is no incentive to carry this out when there are rent caps and the investment cannot be recouped.

There are limited skills at all levels. Retrofit is also disruptive, and clients need to think deeply about how to overcome this; for instance, by creating all that disruption just once (retrofit in one go?) or by using trigger points, such as replacing broken boilers with hydrogen ready boilers, or integrating PV when roofs need replacing.

Retrofit is also about quality; PAS 2035 requires well designed retrofit focusing on airtightness with designed junctions, insulation continuity and minimising thermal bridges.  Installers need to understand these connectivity issues; the devil is in the detail.

Carl gave some important advice for housing providers looking to engage in retrofit;

• Get accurate stock data and retrofit assess properties. Use in-house teams to gather this knowledge.
• Be clear about the goal and stick to it. Achieving an energy standard of 90kW/m² per year is very challenging. However, abandoning such a target in favour of bringing up EPC D properties to a grade C just puts off the problem.
• Procurement – what sort of contractor is required, on what contract terms, and are the details already in place? It is unhelpful to contractors to be asked to price work when the details have yet to be agreed, and contracts only include generic measures.
• Are the measures deliverable? Many clients focus on EWI, which becomes a critical path as it is a wet trade, requiring skilled labourers in short supply. Can other measures be used instead?
• What properties? Are they traditional houses, system build or flats? Clients often pick the worst houses to insulate first, but if they are challenging to do and the funding deadline is tight then perhaps these are not the best properties to go for.
• What is the location of these properties; geographically concentrated or scattered over a wider area? The former is better for contractors as it is easier to supervise the work to ensure quality and easier to store materials.
• What specifications are you working to? It is important not to be ‘hoodwinked’ into using a particular specification or finish that locks the project into a smaller pot of approved installers and materials.
• Be aware of the programme timescales – proper time must be given to the design and mobilisation phases.
• Understand the funding conditions – are BEIS milestones based on measures or spend? The contractor needs to understand this, therefore so does the client.
• What are the implications of planning approval? Clients would do well to win approval before approaching contractors so issues around utility diversions, lean to/conservatories, bay windows do not end up slowing the contractor down.
• Are the tenants ready? Retrofit is not archetypal each solution is designed specifically for that property, meaning properties cannot just be swapped if a tenant drops out. Issues around leaseholders, refusals and party walls need to be dealt with well in advance.
• Is the client team ready? Do they have the resources in place to do this?
• Details in three key areas are critical; below the EPC; window junctions and eaves details. These can make or break the performance of the system.

The most attractive clients for contractors to work with have detailed and specific stock data, with staff that understand PAS terminology. They have a clear goal in mind and a timescale to achieve this. They settle on a suite of measures that are deliverable given the particular challenges of their properties and funding timescales. Finally, they understand and provide the time needed to do detailed design work and to mobilise, and the implications of all this for procurement.

Mark Cook – Partner at Anthony Collins

Mark designed the B4Box contract (see the blog for Technical Briefing 1) which provides retrofit services and retrofit training. The intentions of that contract are to promote social justice, tackle poverty, address inequalities and address climate change.  The contract states that this would be achieved through integrating paid employment with an immersive learning and training experience, focused on hard-to-reach groups in a way which creates lifelong careers locally. The contract further states that the paid employment will involve underlying works [housing retrofit] for the authority but beneficiaries may also be deployed to work on other contracts to ensure full employment and the best outcomes for those beneficiaries.  The contract is an agreement to provide a complete service to employ and train beneficiaries, provide work experience opportunities, deliver retrofit, measure positive social value impact and target local employment opportunities.

This contract is an exemplar of community wealth building generated through procurement and shows what could be done to not just deliver retrofit but also capacity. However, the contract does not provide services at the scale needed and housing providers need to explore working together on a contract of this nature, to provide retrofit at scale.

For future procurement contracts for retrofit, it is important to understand the subject matter of the retrofit contract and resolve a number of issues around capacity, materials, a mixed economy supply chain, funding, the pipeline and quality. However, many current frameworks and Dynamic Procurement Schemes are not fit for purpose. They are set up for maintenance works but not designed to take retrofit into account. Those housing providers who have managed to use existing frameworks to draw down retrofit funding have had to contort them significantly as a result. Such contracts need to explore incorporating packages that focus on jobs and training to enable the wider capacity of the market to grow. These contracts need to do this in such a way that retrofit scales up significantly and quickly; a Big Bang approach.  Finally, the current cost of living crisis needs to be used as an opportunity to rethink procurement altogether and prepare to ‘get it right’ in two years’ time.

We need to explore different procurement frameworks to deliver retrofit; is one framework needed, or many lots, or a single supplier framework? Collaboration between contractors and the wider supply chain is needed. There also needs to be a big conversation in society around retrofit as pre-market engagement. An interesting and important piece of context for this discussion is the new Procurement Bill that is coming in. This will lead to the simplification of the number of procurement procedures available and will include a ‘competitive flexible procedure’ which will be easier than the demands of competitive dialogue, or competitive procedure with negotiation, and other approaches. If we start planning for this procedure now, this will be helpful.

Final Thoughts

The final discussion following the presentations revolved around costs and the challenges of growing capacity in the supply chain. With regard to costs; the cost of living crisis and the rising costs in materials is making it hard for contractors and clients to do retrofit and hard for the ‘able to pay’ section of the market to do retrofit, and support the development of the supply chain. This also creates challenges for designing procurement contracts. Mark advised that contracts need to be based on current costs but contracts need to include mechanisms for the adjustment of costs as projects evolve. This would allow greater ambition to be designed into the procurement process.

Many of the challenges of growing capacity in the supply chain could be better addressed if contractors had a four or five year relationship with a client. This would allow them enough time to take on trainees who typically do two-year courses and provide them with a stable job on completion of their training. HUG 2, being a two year programme, is certainly more helpful than previous 12 month programmes but it doesn’t yet go far enough.

However, collaboration is key. Collaboration in procurement, to provide bigger and more attractive projects for contractors and collaboration to support SMEs and other organisations to get through the PAS2035 process.