Looking after your supply chain
It's more important than ever for housing providers to engage with all tiers of their main contractors' supply chains. Here are some key issues for housing providers to consider.
Traditionally, housing providers haven't engaged with their supply chains, preferring to rely on their contractors to manage and pay sub-contractors.
A number of recent legislative changes now require housing providers to ensure their supply chains are being paid on time and complying with various regulatory laws. The pressures of cost cutting within the public sector, and the anticipated impact of Brexit on the cost and availability of labour and materials, places a further onus on housing providers to engage with their supply chains and explore opportunities for cost savings and improved delivery.
Legislation affecting supply chains
Some of the legislation affecting treatment of the supply chain includes:
- Public Contracts Regulations 2015 – These requirements have been around since early 2015 but still aren't widely known or adhered to. Contracting authorities are required to ensure all "public contracts" procured in line with the Regulations contain terms to pay contractors within 30 days of an undisputed invoice. In addition, contracting authorities must also ensure that their main contractors pay their sub- contractors within 30 days, and that the sub-contractors have equivalent terms in their contracts with sub-sub-contractors.
- Modern Slavery Act 2015 – This Act imposes obligations on housing providers as employers to ensure that their supply chain is compliant with Section 54. This is the requirement to publish a statement which documents the steps the organisation has taken to ensure that slavery and human trafficking is not taking place within any of its supply chains.
- General Data Protection Regulations – These regulations come into force on 25 May 2018, and impose greater restrictions on processing data in the EU. Housing providers must now ensure that any Personal Data held by their contractors and their supply chains is protected and not unnecessarily disclosed.
To comply with these rules, housing providers must now take greater steps to ensure that their main contractor and supply chain contracts are compliant. Standard form contracts (JCT, PPC/TAC, NEC) contain terms covering prompt payment of the main contractor, but further drafting will be required to cover payment to the supply chain, and the modern slavery and data protection amendments.
Housing providers should ensure that all forms of contract used, whether bespoke or standard forms, contain these terms. Alternatively, housing providers should be asking to review and approve forms of sub- contract, to ensure that these obligations are covered. For existing contracts and frameworks, housing providers should be looking to vary the contract terms with their contractors and service providers.
Using procurement to understand your supply chain
As well as legal compliance, there are a number of commercial benefits that can be generated from engaging with the supply chain. Understanding where your supply chain sources their labour and materials from will be increasingly important in a post-Brexit economy, which is already experiencing increases in material costs and a shortage in skilled labour. Housing providers can engage with their supply chains or indirectly via their main contractors, and agree volume supply agreements to ensure a consistent supply of labour and materials for long-term projects. Providing the supply chain with some assurances as to workflow can also be useful in negotiating extended and improved warranties and guarantees on materials and service delivery.
Engaging with the supply chain often holds the key to achieving social value objectives. Many contractors do not engage labour directly and are less able to provide apprenticeships and work experience opportunities. Engaging with your existing supply chain, or requiring contractors to pass social value obligations down to the supply chain, can be a more effective means of achieving these objectives.
Housing providers who opt to engage directly with the supply chain have the advantage of being able to negotiate directly, and exercise more control over selection. However, this will usually require housing providers to run a procurement process under the Public Contracts Regulations. For this reason, many housing providers prefer to engage with their supply chain via their main contractors. While this does not give as much control over selection, housing providers can benefit from the management experience of the main contractor.
Housing providers can use the procurement process as a due diligence exercise, to ensure that their contractors and supply chains are suitably qualified and compliant. The Crown Commercial Service's Standard Selection Questionnaire includes a number of questions focusing on supply chains. Question 6.2 can be utilised to obtain evidence of bidders' experience of maintaining healthy supply chains. Similarly, Question 8.2(c) can be used to demonstrate that the bidders support skills development and apprenticeships in their supply chains. Housing providers can also supplement these questions as required.
Procurement exercises can also be used to gather information about how bidders will utilise their supply chain to deliver the contract, and their willingness to offer volume supply deals and offer social value opportunities. The HACT Toolkit on Social Value and Procurement can be used to set suitable correct criteria to evaluate social value and embody any social value objectives in the delivery contract.
Regardless of the procurement model used, there are a number of operational benefits to engaging with the supply chain. Disputes and differences, especially around timescales and complaints around service delivery, can be resolved more easily when you have direct communication with the supply chain. Inviting the supply chain to attend key strategy meetings and participate in cost review exercises will also benefit from the supply chain's operational understanding of the contract. Having a direct link with the supply chain also provides an in-built safety mechanism for clients in the event of main contractor insolvency.