Blog: Social landlords to face new procurement rules

Andrew Carlin, commercial director, PfHBy Andrew Carlin, commercial director of PfH Scotland

In recent years the Scottish Government has increasingly viewed public sector procurement as a key lever with which to deliver economic, social and environmental objectives.

With public bodies spending about £10bn on goods and services every year, it’s obvious that both collectively and individually they can exercise huge influence on a number of fronts, from engaging SMEs to supporting disadvantaged communities.

The Scottish Government is absolutely clear that contracts should not be awarded on the basis of cost alone and it’s bolstering that stance with new regulations. Last month ministers launched a consultation on plans to introduce a range of rules designed to maximise the impact of public procurement.

These rules consist of three new EU procurement directives and the Procurement Reform (Scotland) Act, all coming into force next April. On top of that, public bodies will be expected to comply with recommendations from a Review of Scottish Public Sector Procurement in Construction.

Crucially, housing associations are now deemed to be ‘public contracting authorities’ under the new Act and will be expected to comply with the new rules. They have little more than a year to digest and implement a wide range of changes that go right to the heart of their day to day business.

Let’s be honest here, it’s going to come as an almighty shock to many social landlords. While other public bodies – like local authorities – have been operating in this kind of regulatory environment for a number of years, housing associations are largely playing catch up.

Among the key changes is a sustainable procurement duty which requires landlords to show how their purchasing is improving the economic, social and environmental wellbeing of their area. In addition, if their combined contracts total £5m or more they will have to prepare a procurement strategy that’s reviewed annually and which outlines, for example, how a social landlord’s spending will contribute to the ‘achievement of its purposes’.

Lower tender thresholds mean that social landlords will be bound by strict procurement rules on all goods contracts of £50,000 and above and construction contracts of £2m or more and they will be expected to openly advertise them.

But one of the biggest challenges brought by these changes will be the increased monitoring and procurement reporting requirements. The scope and detail of these new obligations are currently under discussion as part of the government’s public procurement consultation process. If the outcome mirrors what happens with other public bodies (such as local authorities) in Scotland, then there will be a requirement for landlords to complete an annual procurement capability assessment (PCAs), benchmarking the quality of their procurement function against others within the public sector and highlighting areas for improvement.

While undeniably an effective tool for driving improvement, PCAs bring cost and resource implications at a time when many landlords are already feeling the strain due to financial challenges brought by welfare reform and other factors beyond their control.

My own organisation, PfH Scotland, has been working with housing associations to help equip them with the skills and knowledge needed to implement these new regulations. When compared with large local authorities, the gap in capacity is huge.

The social housing sector in Scotland is incredibly diverse, from large city-based housing associations to tiny, rural RSLs, many of which have less than 500 properties. But on average, we are talking about relatively small organisations managing under 2,000 homes and with a turnover of £5.5m. Their procurement spend is often broken up into small contracts across a range of local SMEs and purchasing is, in some cases, the responsibility of just one person.

Compare that with local authorities that spend an average of £185m a year, have procurement teams, are well versed in PCAs and have long been abiding by much of what the latest legislation will usher in.

However, the motivation behind these changes very much chimes with the ethos of housing associations. Once they get to grips with what is now required of them it should accelerate improvements in the efficiency of social housing procurement, something that will ultimately help landlords to create better value for the communities they serve.

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