Partners please

Faced with the Best Value agenda, the public sector is re-evaluating its strategy relating to the purchase of services, supplies and works from the private sector. This strategic re-appraisal is also impacting upon the registered social landlord sector which, with due encouragement from Communities Scotland, is seeking to find new ways to maximise value by working in partnership with private sector suppliers.

These developments are leading to the use of innovative new partnership forms of contract, particularly in relation to the procurement of new-build projects and long term arrangements for the repair and maintenance of property. These new developments focus on a desire to secure a more integrated approach to construction in which continuous improvement and value for money can be achieved by employing an integrated team to deal with a recurring contractual requirement. Other features of the new approach are the encouragement of collaborative working arrangements; the selection of the team on a broad range of qualitative criteria and not just price; and the use of payment mechanisms which are designed to create a common interest within the team to ensure that the project is successful. 

The Partick agreement

Partick Housing Association concluded, in May 2004, a six year property maintenance contract with Mitie Property Services. This move, motivated by a desire to improve the quality and consistency of the service, sees the service company taking on responsibility for maintaining Partick’s 1,750 tenanted properties.

The cornerstone of the £2.5 million agreement is the partnership approach that sees Mitie taking on increased responsibility in return for full recovery of costs reasonably incurred (the labour element being calculated on the basis of agreed rates) and an agreed ring-fenced percentage profit. More particularly, the contract provides a flexible framework that allows the relationship between the parties to evolve over the contract period. This process of evolution starts with the provision of the services in the first year of the contract when information on the actual level of the Association’s service requirements is built up. That information is then used to establish a guaranteed maximum price (GMP) and target price (TP) which operates over the remaining period of the contract. The GMP limits the cost payable by the Association in any annual period of the contract, irrespective of actual demands in that period. Further, Mitie are encouraged to innovate to secure that the actual cost is less than the TP. If Mitie deliver on this, there are arrangements for sharing the cost savings.

The contract is not, however, simply concerned with cost. Quality of service is central to the strategy adopted. The requirement for a high quality service is underpinned by continuous evaluation against key performance indicators, and the ability of a core group to require dialogue so that proactive solutions to service delivery problems are found. Mitie and the Association both have representatives on the core group; there is also scope to involve a tenant representative as and when that should be appropriate.

In any partnership it is essential to consider how the parties can be encouraged to commit to the long term. Where the contract involves what may be regarded as a leap into the unknown, it can be difficult to secure that long term commitment without incorporating some protections which enable the contract to be brought to an end if the partnership fails to deliver. In the context of the partnering arrangements between the Association and Mitie the approach adopted has been to incorporate a break clause at certain key stages.

The big concern for the Association is that in the initial year of the contract the service is provided without the protection of a guaranteed maximum price. For that reason the Association has a right to terminate the contract after year 1 if it is concluded that the partnering arrangement is not delivering value for money. A further break option at the end of year 4 is available to both the Association and Mitie. Both parties have entered into the contract confident that the exercise of break options will not be necessary – the existence of these rights does however provide an element of comfort.

Partnering for its success depends on the commitment of the parties to make the arrangement work. However, the contract has many features which underpin the partnering ethos and has been a key tool used to create the required common interest which is essential to successful partnering.

The theory is good, but is this new relationship delivering on its objectives? Lynn Donnelly, the Association’s customer services manager, believes that it is: “It is too early in the day to measure the benefits in terms of cost. The big plus for me so far is the much more open and transparent environment in which we can work with the contractor. Problems do arise but the Association and Mitie are committed to work together to find the best solution for our tenants. This in turn has resulted in the quality of the maintenance service being much higher than hitherto has been the case. With a better quality of service our tenants are happier, as has been demonstrated by recent customer surveys.”

The signs for the future of this contract are very positive and it is anticipated that success stories such as those which Partick Housing Association are able to tell will lead to increased use of partnering routes within the public sector. The contractual approach to partnering developed for Partick focused on their particular objectives and needs. Individual public sector bodies will have differing objectives and needs, which will mean that many different contractual approaches will be used in the development of partnering. From the perspective of the legal practitioner, this could be a valuable source of new business.