In our last article we debated the SME agenda and how our sector might better support the government’s commitment that 33% of procurement is dedicated to small and medium enterprises.
This month, Homes England published their 2018-2023 strategic plan. We said last time that HE wanted to remove barriers for SME businesses to grow and it is clear, that this has become a material component of their manifesto, and rightly so. That’s because since 1988, there has been a decline from 40% to 12% of new homes being built by SMEs. After the financial crisis, the market was characterised by the emerging dominance of the larger housebuilders and the failure of small builders whose limited capital was tied up in unsold stock.
Home England recognise that SMEs are critical to locally delivering new homes at pace and have outlined a set of interventions set to boost access to land, funding, capacity and innovation, to help shape a more diverse and resilient market, across the spectrum.
Perhaps one agenda not typically associated with SME builders is the use of MMC, another priority for Homes England who note that take-up is being held back. There is a patchwork picture of delivery models ranging from direct to purchaser modular developers to single unit suppliers.
Here, we discuss the merits of binding SME builders together with modular manufacturers and affordable housing providers, not as a supplier / contractor / employer relationship, but through collaborative Construction Management on smaller sites.
Construction Management has been commonly employed on huge complex projects, especially where clients cannot find a contractor to fix the value of risk. CM has been the alternative model for both the client and contractor to manage the ‘risk pot’ in a transparent and flexible manner. However, more latterly, CM has been adopted on more straightforward lower value housing projects, partly because tier 1 and 2 builders have become stretched towards higher value, long visibility developments. I suspect that this has partly attributed to high cost inflation on lower value schemes, compounded by capacity risks being reflected in higher than anticipated cost provisions, for fixed price contracts.
It is our belief therefore, that CM can be a highly effective and equitable model for lower value, straightforward housing projects (with MMC) because;
- A Design and Build approach in the current climate, is likely to carry a cost premium to both margin and risk provision, somewhere between 4-8% overall.
- CM allows the client to retain that provision, in addition to any development contingency. This permits timely control over decision making.
- The client has transparency of programme reporting, because a good Construction Manager is always independent.
- For modular projects, the contractual interfaces are very simple, with as little as four trade contracts. Properly scoped, the client can benefit from a very efficient management structure.
- Stakeholders have a more direct influence over quality management – there is a contractual barrier removed with direct collaboration with suppliers.
- The flow of payments ensures that suppliers are not succumbed to extended payment terms, sometimes experienced when working under main contracting environments.
But with the larger contractors moving up the value ladder, what confidence can be taken by engaging with start-ups and SMEs, some with very little track record? Of course, the above benefits can only manifest if the CM role is expertly fulfilled and it is crucial to meet the hands-on team and understand their approach. Here at Helix for example, we adopt these guidelines;
- Early appointment of the Construction Manager will stimulate the ownership of the initial business plan, including programme delivery and cost budgets.
- Employ a CM with specialist contracting experience. They will have the processes, knowledge and reporting tools relevant for managing all site activities.
- Place an emphasis on only starting the physical works, when you are ready. New statutory service connections, for example should be procured, even at this early stage.
- Be vigilant that the project has a completed and implementable design ideally when you negotiate trade packages.
- Good scoping of trade packages is equally important. This clarity delivers the fairest arrangement between the client and supplier. It is here where an experienced CM can really add value.
We are really excited by how Homes England are growing their ambition as a genuine enabler, funder, land partner and innovator for small and medium enterprises and indeed across the whole sector. I can’t recall a more broad and extensive set of practical strategies that are designed to promote accelerated delivery in partnership with public and private sector stakeholders.
The only competition these stakeholders should fear, is the race to adapt.
Charlie Scherer – Non Executive Director
Helix are a residential contractor, developer, construction manager and project manager – helping public and private sector clients deliver on their smaller developments. For more information please do get in touch – email@example.com firstname.lastname@example.org