Will BTR Deliver on Latham’s 1994 Report?

January 2020

Delivering BTR Through Collaborative Procurement

 

A successful BTR scheme is more than its asset or income value. As important as these business values are, they are not a complete value picture. To ensure revenue and value is optimised and sustainable what needs to be added is a strong value proposition for BTR customers. The characteristics of this offer will differentiate you from your competitors and also provide you with ‘tools’ to evolve your offer to meet changing customer needs.

 

At Geraghty Taylor we use brand as a dynamic collaboration and communication model (partly inspired by Latham) that accurately captures all the inputs that need to be part of well thought through BTR offer. As a methodology ‘brand before building’ describes the important drivers, relationships and outcomes which underpin all design, development and operational decisions for a project. In this context the brand is an ‘interactive detailed briefing document’ that moves the proposition from a business to business dynamic, to a business to customer relationship. In doing so it goes well beyond the usual parameters of a traditional development brief to include current and future operational requirements, how technology will be deployed, the customer experience evolution, design flexibility and futureproofing requirements, revenue and exit strategies, through to marketing and sales collateral.  It calls for a new approach to development, where the building is a derivative of the brand (and not the other way round) and it is created through curated collaboration between key stake holders from the onset.

 

Collaboration is not new, but it continually evolves. BTR is uniquely placed to oversee the next iteration of collaborative procurement and to harness its powerful outputs to make decisions that improve value and reduce risk.

 

What is collaborative procurement?

 

Sir Michael Latham, in his seminal 1994 report ‘Constructing the Team’[1] set out 5 key principles for collaborative procurement as follows: -

 

  1. ‘A specific duty for all parties to deal fairly with each other, and with their subcontractors,

specialists and suppliers, in an atmosphere of mutual cooperation’ [2]

 

  1. ‘Clearly defined work stages, including milestones or other forms of activity schedule’[3]

 

  1. ‘Integration of the work of designers and specialists’[4]

 

  1. ‘A ‘specific and formal partnering agreement’ that is ‘not limited to a particular project’[5]

 

  1. ‘Partnering arrangements that ‘include mutually agreed and measurable targets for

productivity improvements’ [6]

 

How is collaborative procurement relevant to BTR projects?

 

By analysing the specific characteristics of a BTR project against the criteria above it is possible to deduce whether collaborative procurement could be of benefit as follows: -

 

What are the next steps for using collaborative procurement for BTR projects?

 

  1. The delivery phase a BTR development represents a comparatively small portion of the overall expenditure by the BTR developer on the scheme over the lifetime that it holds the asset; typically 30 years. It is therefore important that the design and construction teams work closely together to avoid short-sighted cost savings which may cause the BTR developer to incur increased operational or maintenance costs throughout the life of the asset. Moreover, there is a need for the design and construction teams to work closely with the BTR operator who will manage the development on a day-to-day basis to ensure that scheme is optimized for the efficient operation of the development. Collaborative procurement could help create obligations for the design, construction and operations teams to work together for the long-term benefit of the asset. The BTR developer may also consider that they would not have realised all of their profit from the scheme by the end of the limitation period, typically 12 years after practical completion, of the designers’ and constructors’ appointments so a situation may arise where there is a defect detected in the scheme that affects profitability but the BTR developer has more limited options for recourse. Consequently, it is important that all members of the delivery team work together collaboratively in the BTR developer’s interest to avoid issues occurring.

 

  1. It is important that all stakeholders in the project review and sign-off the proposals as they progress at relevant milestones in the knowledge that rather than the asset being sold at completion it will instead be retained. It is consequently especially important that the proposals are tested that they will deliver expected returns over an extended lifespan. This review process would benefit from the input of the wider design and construction team as well as the BTR developer and their advisers so that it can occur in an atmosphere where the priorities of the overall project and business priorities of the individual contributing organisations are aligned.

 

  1. BTR developers as experienced commercial clients are likely to have specific products that they favour through their own first-hand experience in operating BTR schemes. There will be a desire that the design team works with these specialists through the design process to ensure the design meets client requirements and also to minimize re-design at a later stage. However, there will be little incentive aside from the potential promise of an order for the specialist to help the designers in a typical lump sum contracting scenario. This is particularly relevant where off-site and modern methods of construction is being contemplated where the input of the specialist at an early stage is crucially important.

 

  1. It is likely that a BTR developer will not have only one project in mind and their business model will likely involve a programme of projects. Consequently, there can be benefits of lessons learnt on one project being fed into the next with consistent design and delivery teams selected from a pool that have been determined to possess the necessary qualities and have an established working relationship.

 

  1. As BTR projects generally involve the long-term retention of an asset then how this asset performs over time with respect to maintenance and operational efficiency can be measured and fed back to the original design and construction team. A clear incentive for providing an asset that meets the BTR developers aspirations for annual operating costs for example which be the offer to contribute to future projects.

 

What are the next steps for using collaborative procurement for BTR projects?

 

The BTR developer should assess the different contract forms available and how these support the aims set out above. For example the BTR developer could set up a framework of suppliers which it uses to build up knowledge of BTR delivery and drive best practice from which individual projects are called off. There could be a case for a multi-party contract where all members of the team have obligations to each other to meet the overall project goal with governance structures to suit.

 

Create Differently

 

#BTR  #BuildtoRent #Brand  #Brandbeforebuilding

 

 

[1]Latham, M. (1994). Constructing The Team; Joint Review of Procurement and Contractual Arrangements in the United Kingdom Construction Industry; Final Report (London: Department of the Environment)

[2]Latham, M. (1994), Section 5.18.1.

[3]Latham, M. (1994), Section 5.17, 4.a.

[4]Latham, M. (1994), Section 4.3.

[5]Latham, M. (1994), Section 6.43.

[6]Latham, M. (1994), Section 6.47.

 

With thanks to Daniel Sharp, Senior Quantity Surveyor at Kier Construction, for collaborating in writing this article.