Building services

Direct labour organisations have spent years trying to shed their image as the poor relations of lean, efficient private contractors. After fighting to prove their worth, are they now capable of competing with the best? Andy Jowett reports

For many years, direct labour organisations (DLOs) suffered, like much of the public sector, from something of an image problem. Compared to private contractors good enough to beat the competition to contracts yet lean enough to turn a healthy profit, they could seem complacent, inefficient and even wasteful of rent-payers’ money.

Graham Gowland, head of Building Services, the DLO of County Durham-based Derwentside Homes, says back in the 1980s, a “job-forlife” mentality meant a lot of councils’ in-house contractors “didn’t deliver good services”.

“When I started, tenants’ choice was take it or leave it, black or white,” he says.

Gary Williams, who spent 10 years with DLOs in Bolsover and Doncaster before becoming manager of Barnsley’s council-run in-house contractor in 2005, believes that while staff were conscientious and had generally good relationships with tenants, residents were not seen as customers.

“My view is that, operationally, they carried out the job just as well as anybody else on the frontline,” he says. “I think it was the back office stuff and the overall management that needed changing.”

There were also “cultural issues”. The overarching perception that DLOs were underperforming meant staff were not given “the right messages so they’re able to move forward”.

“I remember when I was interviewed for this job, over six years ago, I said the big thing will be changing the culture and they said ‘how long will it take?’. I said five years. You’ll not change overnight; it’s a slowly developing process but you have to build it into everyday life,” Williams explains.

After taking the helm at Construction Services, his first act was to transfer the DLO to Barnsley’s ALMO , Berneslai Homes. Its management structure was reshaped and, to improve efficiency, depots were rationalised from 13 then to one now.

This was all done to support the development of a more “customerfocused” service.

Gowland says “putting tenants to the fore” was also a cornerstone of the best value drive of the 1990s and 2000s, which he believes was crucial in helping to knock DLOs into shape.

“We have a customer panel, so in that sense [tenants] scrutinise everything we do, they set our KPI targets for us and it wasn’t always like that,” he says.

This benchmarking, along with an “open door approach” that encourages tenants to tell a DLO where it is doing well and where it needs to pull its socks up, means in-house contractors are, according to Gowland, “constantly trying to prove our worth” and deliver “market-competitive” value for money.

Derwentside’s Building Services recently underlined its credentials as an efficient maintenance provider when it became only the sixth in-house contractor in the country – and the first in the North East – to achieve the Housing Quality Network’s HQN Accredit: DLO standard.

To land the accreditation, a DLO must submit to a full, independent inspection that measures performance across seven modules: governance, leadership and management; customer service; work planning and organisation; performance management and continuous improvement;
workforce development and training; health and safety; and financial management and value for money.

“It’s not something that they just give away,” Gowland notes. “It’s quite a difficult process to go through and to pass.”

Achieving the standard, he adds, has been like a “final tick in the box” confirming that it can compete with both the public and private sector in delivering cost-effective services and customer satisfaction. In a similar vein, 2009 saw Berneslai Homes become the first Yorkshire based ALMO to achieve a maximum three-star rating with excellent prospects for improvement from the Audit Commission.

The spending watchdog was particularly impressed with Construction Services, noting that improvements in its management since the 2005 transfer from the council had generated “many efficiencies” in its repair work. It also praised the rationalisation of depots and stores, the introduction of home working for support staff and the adoption of handheld and tablet PCs, which have allowed operatives to receive and record work orders in the field.

Furthermore, the commission’s report said Berneslai Homes had “maximised” value for money in its repair service.

On the surface, planned repairs accounted for only 40 per cent of work funded through the revenue budget. However, it noted, Construction Services carried out many jobs that would typically be included in preventative maintenance schemes, like replacing gutters, as part of its residual capital improvement programme. Once this work was taken into account, the planned repairs figure rose to 74 per cent.

As a result, emergency and urgent repairs, which can be expensive because they have to be done at short notice, were kept to a minimum and in the first three quarters of 2008-09, accounted for just 10 per cent of maintenance work.

These successes are down in no small part to the adoption of the “customer-focused” approach commonplace among the best private contractors – but the modernisation of DLOs has not just been about cherry-picking best practice from commercial firms. In-house contractors have always offered some important benefits, both direct and indirect, back to the private sector.

Derwentside, for example, works with a core of trusted local subcontractors and specialists in areas like asbestos removal, which provides businesses in a fairly deprived area with much-needed work.

“I think we’re a real benefit to local contractors,” says Gowland. “They know there’s a fairly steady stream of work and we’re not asking for blood; we’ll pay a fair rate for a fair job.”

With worries about skills shortages never far away, local contractors can also benefit from apprenticeship programmes run by DLOs.

Both Derwentside and Berneslai have long-established training schemes and Gowland says apprenticeships are first and foremost “massively important” for the DLO itself. Trainees account for 10 per cent of Derwentside’s workforce and it has even picked up the training for budding builders who, through no fault of their own, lost apprenticeship places elsewhere because of the economic downturn.

“I think there’s nothing better our tenants like to see than the local lads coming and knocking on their door [when] they’ve had an opportunity to come and learn a trade,” he says.

Berneslai Homes, meanwhile, has a contractual agreement with its maintenance partner Kier that guarantees one apprenticeship place for every £1 million of turnover. B erneslai has 14 trainees at any one time, while Kier has seven.

In an ideal world, DLOs would be able to guarantee a job for their trainees, but with decent homes programmes winding down and budgets under pressure, that is not always possible. Nevertheless, many in-house contractors try to ensure they deliver quality training that will give youngsters the best possible chance of landing a post elsewhere.

“We work with our other partners, our sub-contractors and the council in trying to find appointments for the apprentices that we may not be able to take on,” says Williams.

“I’ve always looked at it as what we’re doing is feeding the industry and in local authorities, I think we always have done. I think it’s good that we do because if we didn’t, it wouldn’t happen.”

Private sector partners can also get direct benefits from working with DLOs. Derwentside offers shared training and assistance with getting gas maintenance accreditation to local sub-contractors, which helps to control costs.

But the public-private relationship was not always so good. “When I first arrived, there was a definite [feeling of] ‘we don’t like the private sector and they don’t like us’,” Williams recalls. It took a lot of hard work to break down these attitudes but he believes it has been worthwhile.

Berneslai Homes and Kier now compare each other’s progress against KPIs, which Williams says has created some “healthy competition”. “We started to improve, which meant they started to improve as well, so it lifted the bar,” he adds.

Ultimately, Williams says, the aim is to create a service where, although tradesmen may have different uniforms or drive different vans, they treat tenants the same way and deliver the same high standard of work. Of course, it’s not a bed of roses for DLOs. Some have seen repair services contracted out to private firms and, like everyone else, they face an extremely tough economic outlook.

In order to maintain their workloads and generate additional revenue, many are now looking at branching out. There have been some notable successes – Chester & District Housing Trust’s DLO Trustworks has won work for other housing associations and even took on the refurbishment of a restaurant.

Berneslai Homes has also committed to competing for external work and Williams says it has been “very successful” in getting shortlisted for projects through the strength of its pre-qualification questionnaires.

He is satisfied that in terms of quality of work alone, the DLO can compete in the open market, but in the current ultra-competitive tendering environment, it can only go so far in cutting its prices to win work.

This may not be such a bad thing, given that a number of private contractors have landed contracts with razor-thin margins only to find they could not deliver or, worse still, sustain their business at the rates quoted.

So where do DLOs go from here? Williams says that while they need to keep working on their competitiveness, efficiency and management, in-house contractors have proved their value and have done much to dispel the old myths. “I think – and this last winter really brought it home to us – an in house provider can bring so many benefits,” he says.

When severe weather resulted in burst pipes and other problems, Berneslai was able to call in operatives and management on Christmas Day and Boxing Day to respond.

“If we hadn’t had an in-house provider, we’d have struggled,” Williams says.

Gowland also thinks DLOs are in a “far better position” now after being knocked into shape over the past couple of decades and many tenants value them highly – in Derwentside, retaining the DLO was one of the key promises made to residents prior to the housing stock transfer in 2006.

Some in-house contractors are now taking on the private sector at their own game, bidding for – and winning – tenders on the open market; others stick to their own repair and capital works. Others still, like Berneslai Homes, split maintenance with a private partner and Williams believes this could be the “best mix” for the future.

“You’ve got to get it right for whatever area you’re working in. The two-thirds, one-third we have in B arnsley might not work in Sheffield, for example, but I do think it is a top model. I f you can get that right, you can go from strength to strength.”