The Housing Department's (HD) response to the questions raised by the Alliance of HD Staff Unions (the Alliance) are set out in the following paragraphs. The response was prepared with comments from the Consultant of this review.
Relationship between the Housing Authority and Housing Department
2. The consultant explains that the underlying rationale for suggesting that the Housing Authority (HA) should consider introducing a client contractor split is to introduce greater transparency into the relationship between the HA and the HD. He also recognises that there is inevitably a potential conflict in the current arrangement where the HD as one of the HA's major providers (and for some services its only provider) is also being asked to provide the HA with independent advice on both policy and management issues. Again, establishing a clear client contractor split will help to overcome these issues and provide a sound foundation for further improving the value for money provided by the HA.
3. The consultant stresses that this recommendation stands on its own. It is in his view a sensible proposal to support and underpin the subsequent proposals to increase private sector involvement but it could also be usefully pursued even if the HA did not wish to pursue increased private sector involvement (PSI) in that it would place the relationship with the HD onto a more business like footing.
Cost Competitiveness
4. The consultant has submitted a detailed explanation in the Annex about the cost effectiveness comparisons with regard to Figure 6 of the Report. It would help readers to better understand the make up of the costs.
5. The consultant explains that the reason that he has compared staff costs only is simply to facilitate a like for like comparison across a number of estates and between the public and private sectors. The issue of scope of service has been covered in the Annex. He recognises that there are some property management services which private management agencies (PMAs) do not carry out but, equally, PMAs undertake certain tenancy management services. His judgement is that the "net" impact is marginal in terms of comparisons.
6. The breakdown of the HD overheads as shown in Figure 6 can also be found in the Annex. It comprises both the non-estate based direct staff costs of providing property management services e.g. the staff costs of the Regional Management Offices and the Branch administration overheads and the costs of Headquarters supporting services. On reflection the consultant now considers that the inclusion of the non-estate based direct staff costs as overhead costs may be slightly misleading in the presentation.
7. As for Figure 7, the consultant does not suggest that the maintenance and improvement works are handled by PMAs. He just compares the staff costs and overheads incurred by HD to manage maintenance works in-house and the staff costs for projects managed by outside consultancy firms. The point made by the Alliance that there is no PMA who can provide professional maintenance services is not accurate. In fact, the HD has received letters from PMAs recently expressing their support to the consultant's recommendations as well as their interest to provide major maintenance services too.
8. The maintenance and improvement works managed in-house ($2,603M) include major improvement and those general minor maintenance works, and the majority of projects contracted out are major projects e.g. the Condition, Appraisal, Repair and Examination Programme and improvement works for commercial centres. However, there is no information to reflect that there must be a difference in the input of staff resources for these two types of projects.
9. The consultant opines that the Alliance's proposed alternative of re-engineering existing processes would certainly improve the HD's relative cost effectiveness but, given the size of the current "gap" and the fact that the private sector is continuing to rapidly increase its cost effectiveness to remain competitive he does not believe that an internal re-engineering exercise will be adequate.
The impact of Tenants Purchase Scheme
10. The consultant is of the view that the point made in paragraph 3.1 of the Alliance's submission has some validity in that it is extremely important that in devising an appropriate contracting strategy the HA ensures that appropriate service levels continue to be provided to tenants and owners. However, he considers that the comments fail to acknowledge two important points. First, the services the HD are still providing to some Home Ownership Scheme (HOS) courts are supervision services and is different from the services that it provides to Tenants Purchase Scheme (TPS) estates which are property management services. Second, the Alliance's points miss the fundamental issue that it is not clear why a public sector organisation should wish to compete with the private sector to provide services to owner occupiers (any more that it tries to compete for work in private residential estates now).
Impact on Tenants and Society
11. The consultant is of the view that the issue of the poor quality of private sector building maintenance is an entirely separate issue although it reiterates the valid point that the HA would, as part of its detailed contracting strategy, need to assure itself that appropriate quality standards are set and are delivered. The point made in 4.2 is, again, irrelevant to the specific arguments about estate management and maintenance (EMM) services but does highlight the importance of selecting the right providers who can deliver high quality services.
12. There is also the doubtful assertion that private sector companies will inevitably compromise quality. The consultant asserts that the opposite is likely to be the case, providing the HA specifies clearly its performance expectations. First, the private sector - spurred by competition - has stronger incentives to innovate and introduce new approaches and techniques which will ultimately benefit tenants/owners, either in cost or quality. Second, quality providers will clearly be looking to this area as a long term opportunity, not a one off purchase. It is therefore directly in the long term commercial interest of any of the potential providers to ensure that they meet or exceed the contractual requirements set down by the HA. The evidence to date from tenant satisfaction surveys carried out by the HD shows virtually no difference in the perceived quality of service provided by the private and the public sectors.
Implications for the Civil Service and HD Staff
13. The allegation that the Government is implementing a large scale redundancy programme and will sack 5,000 to 6,000 staff are totally unfounded. The Director of Housing has said that in the light of the impact brought about by the transformation of our tenants into owners, and if they do not choose HD as their management agents, redundancy is inevitable if we do not take suitable precautionary action now.
14. The consultancy report does not cover staffing arrangements. Staffing issues will be carefully addressed after the HA has decided on the direction forward. Affected staff will be consulted on the staffing arrangements in accordance with existing guidelines.
Annex
The key issue raised in this area concerns the validity of the cost comparisons set out in our report and, specifically, the data provided in Figure 6 of the main report (a copy of which I have reproduced below for convenience). As you are aware, this data indicated that, in terms of staff costs, the private sector is some 45% cheaper than the public sector in terms of property management services. A similar comparison was also made for the management of maintenance expenditures with almost identical results.
2. I should start by explaining in more detail our approach and methodology for undertaking this cost comparison work. First, the most robust approach to any such cost comparison exercise is to work with actual data. Ideally, we would have been able to compare actual data for the entire range of estate management and maintenance (EMM) services but this was simply not possible - given that some of these services are currently only provided in-house by the Housing Department (HD). However, we were able to obtain information on the actual audited costs of property management agencies (PMAs) providing property management services to a total of 4 public rental housing (PRH) estates. The information we obtained were total costs, from which we have extracted staff costs and converted these staff costs to an average cost per unit per month in order to facilitate comparison with the Department.
3. We then attempted to assess the HD (staff) costs for providing the same service as that undertaken by the PMAs to provide a like for like comparison. Our basic approach was to establish the total direct and indirect costs for providing services to PRH estates, split out those costs which relate to property management services and then divide these total costs by the total number of PRH units to provide an average cost per unit per month in the same way as for the PMAs.
4. In following this approach, we inevitably had to make a number of key assumptions and judgments about both the scope of existing HD services (particularly between property and tenancy management functions) and the allocation of costs to these services - particularly in terms of overhead apportionment. We must emphasise that, by definition, these assumptions and judgments may not be 100% accurate: no such assumptions or judgments could be since any such cost comparisons inevitably require judgments to be made about cost apportionment. That said, we can state clearly that we have spent a great deal of time reviewing in detail available Departmental data and discussing our assumptions with senior staff in the Department. Certainly this is the most comprehensive attempt we are aware of to undertake detailed private/public sector costs comparisons for estates management services and we are confident that our assumptions are soundly based on hard data and are consistent with the Department's approved approach to cost allocation.
5. The key assumptions we have made - and our approach to making them - are summarised below :
7. Second, some staff have questioned whether the PMA operated PRH estates are "representative". There is no simply answer to this question. It is the case that we have compared average costs for the 4 PMA managed PRH estates with the average costs of providing the same services to the entire remaining PRH stock managed by the Department. We were not informed that these PMA estates were specifically selected because they were the "easiest" estates to manage and we therefore felt comfortable in assuming that these estates as a whole would be similar to the average of the Department's stock as a whole. There are undoubtedly older and more difficult estates to manage but, conversely, there may also be estates which are more straightforward. Equally, we should acknowledge that it is quite possible that the 4/5 PMA run estates are in fact easier to manage than the "average" remaining PRH estates - we simply have no evidence available to prove this proposition (and it is difficult to see how this could be achieved without undertaking a major exercise to calibrate the degrees of difficulty of managing each and every PRH estate across the entire rental stock). However, to the extent that this is the case it would of course exaggerate the cost differential between the private and public sectors.
8. Third, a point which was raised in our report and is worth repeating again is that, under the current approach to contracting with PMAs, the Department requires PMAs to adhere to certain staffing structures. As we pointed out in our report, this constrains the private sector's ability to compete fully by submitting proposals which incorporate their own staffing structures and salary scales. If, as we have suggested, the Authority introduces an output/service based approach to contracting with private sector providers - with minimum input restrictions - we would expect to see further savings generated (and/or quality improvement). This would of course tend to widen further the cost differential, perhaps substantially.
9. Fourth, a further point raised concerns the potential savings from increasing private sector involvement (PSI) in EMM services. We have quoted a potential savings figure of $1 billion in our report. The purpose of quoting this figure was simply to illustrate the scale of potential savings that might be achieved. The figure was arrived at in the following way: we estimated (based on Figure 6 of the report) that, on average, the private sector can provide property management services (staff costs only) for some $121 per flat/month less than the public sector. Therefore, if these average savings were able to be achieved across the entire current rental stock of 661,600 units, this would generate savings of $80 million per month or approximately $961 million (rounded to $1 billion) a year.
10. The following additional points are important to note here:
12. The fact that in our view there is a substantial differential in cost effectiveness is not in any way intended to reflect personally on individual staff members, many of whom have served the department loyally and diligently for many years. Rather, the cost effectiveness "gap" inevitably flows from some important structural differences between the private and public sectors in this area:
Source : PricewaterhouseCoopers
Attachment
| Housing Department ($/unit/month) | Private Management Agency($/unit/month) | |||
| DIRECT STAFF COSTS | ||||
| Estate Based Direct Costs | ||||
| Management | 97 | ) | 91 | |
| Technical | 25 | ) | ||
| Security | 38 | 160 | 31 | |
| _______ | _____ | |||
| Non-Estate Based Direct Costs (Note) | 70 | 230 | ||
| ______ | _____ | _____ | ||
| 230 | 122 | |||
| DIRECT STAFF COSTS | ||||
| Overheads | ||||
| Branch Administration & overhead | 17 | |||
| Headquarters Supporting Services | 22 | 39 | 39 | 26 |
| _______ | ______ | _____ | _____ | |
| Total Costs | 269 | 148 | ||
|---|---|---|---|---|
| ==== | ==== | |||
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