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5. CHAPTER THREE: LEAD DEVELOPERS

Introduction

5.1 This section analyses the response in relation to Chapter Three: Lead Developers: A More Specialist Role for Development. The chapter sets out the model for delivering affordable housing through regional Lead Developers. It explains:

• the role and responsibilities of Lead Developers;
• the proposed process for appointing Lead Developers; and
• the implications for RSLs.

Question 10

a. Is the Lead Developer role proposed here sufficient to deliver a more streamlined and effective approach to investment in and procurement of new affordable housing?

Table 5.1: Responses to Q10a by Stakeholder Group

5.2 Nearly four-fifths of respondents answered this question. Many of those that did took the opportunity to explain their opposition to (or support for) the idea of introducing Lead Developers - rather than giving a clear view on whether the proposed Lead Developer role will deliver a more streamlined and efficient approach to investment. In some cases respondents opposed the principle of Lead Developers on ground that it would have a negative impact on the delivery of affordable housing but agreed that they would streamline the approach to investment and procurement. This means that any quantitative analysis of the responses to this question should be treated with caution. Nevertheless, nearly three-fifths of all respondents (and nearly three-quarters of those answering the question) disagreed or expressed significant concerns about the potential for Lead Developers to deliver a more streamlined and effective approach.

5.3 Many of those giving 'positive' responses agreed that Lead Developer would bring the suggested efficiencies / improvements, in principle, but raised a number of concerns principally around a lack of existing evidence, potential additional work resulting from a new approach, and issues around risk management.

5.4 Respondents that were most supportive agreed with the benefits listed in the consultation paper and particularly that Lead Developers will focus expertise in relation to land assembly, procurement and project management. A number of respondents said that Lead Developers will improve partnership working enabling stronger relationships with (central and local) government, contractors and other private sector partners. Several respondents highlighted existing development consortia as positive examples of improvements in performance. Respondents in Fife stated that the proposed Lead Developer model was similar to what is (successfully) in place in Fife although they stressed that benefits were due to process rather than economies of scale:

"Having a lead developer in Fife has delivered a more streamlined and effective approach to investment and procurement of new affordable housing. The benefits are being delivered through process improvements and partnership working, rather than through volume procurement arrangements." (Fife Housing Partnership)

5.5 Respondents that felt Lead Developers would bring improvements, raised concerns about the lack of evidence in the consultation document or from elsewhere to support the listed benefits. Respondents suggested the development of pilots and further learning from existing consortia in Scotland.

5.6 There were also concerns about the potential additional work to be undertaken by Lead Developers / consortia:

"Although there will be efficiencies to be achieved by the Scottish Government by transferring a lot of the day to day bureaucratic administration to Lead Developers....The Lead Developer will spend much more of its time servicing the consortium." (Turner and Townsend)

5.7 Several respondents also raised concerns about risk management and the concentration of risk with a small number of specialist developers:

"The document fails to acknowledge risk management, ownership and transfer within the proposed arrangements and it is implied that risk will be placed with the Lead Developer. Risk management, financial accountability, and project governance need to be considered as part of the contractual set-up and, if not treated appropriately will result in increases in development costs rather than decreases." (Glasgow Housing Association)

5.8 Most responses were negative in relation to the benefits of Lead Developers. By far the most common concern, expressed by all groups of respondents, was a perceived lack of evidence to support the benefits listed in the consultation document.

"The Scottish Government anticipates that large scale competition for subsidy will secure efficiencies in the delivery of affordable housing. However, the consultation does not provide evidence that a Lead Developer approach is the most effective procurement approach for affordable housing." ( COSLA)

5.9 Several respondents said that the experience of Scottish development partnerships and evidence from England and Wales suggest that efficiencies will not result.

"We have major concerns with the lead developer model proposed. We believe that there is little or no evidence to suggest that bulk procurement leads to savings. Evidence from England suggests that while competition led to lower grant levels this was due to cross subsidy from sales, sharp rent increases and subsidy from reserves. It has become clear that this model is unsustainable, and the English system is broken." ( SFHA)

5.10 Many respondents felt that the proposed approach would lead to greater bureaucracy and costs for RSLs. For example, I-Flair said:

"We do not believe that there will be the economies of scale and efficiencies described in the consultation paper. We believe that the bureaucracy surrounding the new arrangements would negate any potential savings." (I-Flair)

5.11 Another significant concern among respondents was the increased level of risk that lead developers may be exposed to - and the lack of clear incentives for lead developers to balance these risks (since ownership of some of the assets would typically be transferred to another RSL).

"The proposed role of Lead Developer carries a much higher level of risk than under current arrangements.....The management of development is normally loss-making as a process in its own right. The incentive to develop at present despite these negative factors is that the finished housing becomes an asset of the developing RSL and generates a rental income stream. If the housing is to be transferred to another RSL on completion then the lead developer will be required to mitigate the risk and ensure that it fully covers the cost of managing development." (Bield Housing Association)

"We fear that the price of that risk will be reflected in the price of transferred completed houses to others, and this may prove prohibitive for smaller associations." (Oak Tree Housing Association)

5.12 While many saw the issue of risk as a stumbling block for the proposals, those that were more supportive of the idea felt that there was rationale for Lead Developers to have greater autonomy.

"...a review such as this is overdue and in theory acceptable. There is, however, a long-standing tradition of small-scale, local delivery mechanisms and if Lead Developers are to take the risks in changing this then greater empowerment is necessary." (Link Group)

5.13 Cunningham Housing Association agreed stating that, "the role also needs to be further developed to ensure that the risk is more controllable by the Lead Developer".

5.14 Several consultees stated that achieving a more efficient and effective approach was not just about 'economies of scale' and bulk procurement.

"Achieving optimum economic value is not just down to volume. Much depends on the skill and expertise of the developing RSL, the sites they are developing and capacity within the construction sector." (South Lanarkshire Council)

b. Does it adequately balance and recognise the needs and roles of non-developing RSL partners?

5.15 A minority of respondents (about a fifth) said that the Lead Developer role proposed adequately balances / recognises the needs and roles of non-developing RSL partners. The majority of those responding to this question felt that there were issues for non-developing RSLs that had not been considered. Several respondents, including local authorities and RSLs, raised concerns that non-developing RSLs would be marginalised in the proposed system and that this may pose a long-term threat to their viability. There were concerns that non-developing RSLs would be less able to attract resources, including staff and board members - with negative consequences both for the organisation and local residents. It was also argued that non-developing RSLs would lose development expertise making them less able to compete for development status in future rounds - further marginalising them.

5.16 Respondents were worried that the role of non-developing RSLs in providing local expertise (and facilitating community engagement) in the development process, is not sufficiently recognised in the consultation.

"The roles and responsibilities of "non developing RSL's" identified...are primarily focused on the planning, specification, contracting and procurement of development contracts. Currently there is a wealth of expertise and community engagement within the sector and this enables developments that work within those communities." (Aberdeenshire Housing Partnership)

5.17 It was also argued that there should be more recognition of the role of non-developing RSLs in the development of Strategic Development Plans, Local Housing Strategies and other strategies relevant to the development process.

5.18 Respondents repeated concerns about the lack of clarity on where risk lies. Several consultees questioned whether Lead Developers would be compelled to transfer housing if development risk remains with them. Some respondents felt that non-developing RSLs would struggle to raise the necessary finance to purchase newly developed stock - particularly with the current constraints on lending. Consultees also sought clarity on what would happen where an RSL has built up a land bank ahead of future development activity (more likely during the economic downturn) but has non-developer status under the proposed system.

Question 11

What are your views on the routes we propose for establishing Lead Developers?

5.19 There were mixed views on the proposed routes for establishing Lead Developers, with a significant number of respondents saying that the process was "reasonable" or "appropriate". This was the case for respondents that were both supportive of and opposed to the idea of Lead Developers in principle. Many of the consultees responding to this question took the opportunity to reiterate their strong opposition to the principle of Lead Developers rather than commenting on the proposed routes to establish the role.

5.20 Generally, there was a positive response to the question from local authorities, although some sought clarification that Councils would have a key role throughout the process, including at the national pre-qualification phase.

"Local Authorities must be fully engaged in this process even at the initial stage of pre-qualification." (Glasgow City Council)

5.21 COSLA felt that local authorities should be involved in selecting Lead Developers and the allocation of investment.

"It must be up to councils to agree upon the suitability of RSLs seeking Lead Developer status and the level of total investment programmed within their area." ( COSLA)

5.22 Many respondents said that there was a need for greater clarity on the process. In particular, there were calls for more detail on the pre-qualification criteria.

5.23 Consultees also wanted clarity on the identification and appointment of lead developers - and the role of the Scottish Government in this process. For example, one RSL was concerned that since the appointment of the Lead Developer will be at the discretion of the Scottish Government (in consultation with the relevant Local Authority) RSL consortium members will have a limited role to play. CIH Scotland were concerned that Government appointment of Lead Developers will have consequences for the functioning of consortia:

"The Government will appoint the Lead Developers and rightly suggest that a consortium will probably put forward the head of the consortium for lead developer status. However, this status is of course not guaranteed, as it requires the approval of the Scottish Government. This leaves some unanswered questions as to how the consortia will be able to develop a formal partnership agreement when it may be unclear who the Lead Developer is going to be." ( CIH Scotland)

5.24 Respondents also sought clarity on how subsidy competition would work at the regional level, and what the procedure would be where Lead Developer proposals are not deemed satisfactory. Some consultees raised concerns about increased bureaucracy and costs and a number of RTO respondents said that there should be a role for tenants in the process for appointing Lead Developers.

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