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6. CHAPTER FOUR: DEVELOPMENT CONSORTIA

Introduction

6.1 This section analyses the response in relation to chapter Four: Development Consortia. The chapter explains the role of the head of a consortium, formation of consortia, the importance of consortium agreements and the bodies which would be able to join a consortium.

Question 12

Do you agree with the proposed principles of consortia and responsibilities for consortium heads?

6.2 Approximately a third of consultees gave positive responses in relation to principles of consortia and the responsibilities for consortium heads, typically describing the principles as "appropriate" and "sound".

6.3 By far the most common area of concern was in relation to the role of Lead Developers and the perceived inequality that will result within consortia. Respondents were concerned that Lead Developers will dominate the consortia with non-developing RSLs in 'client' role, and there were calls for a "partnership of equals" to be established with shared responsibilities and potentially through a jointly owned development vehicle.

6.4 While some welcomed the flexibility that had been described in the consultation document, others felt the proposals were too prescriptive and describe a 'one type fits all' solution. Many respondents said that they support greater collaborative working by RSLs but that this should be able to develop naturally and as appropriate to local contexts. Some said that the idea of consortia headed by a Lead Developer will be appropriate in some areas, but not others, and should not be a "forced" arrangement. For example, Bridgewater Housing Association said:

"This model may work in some parts of the country (particularly where there is already a strong local developer and a number of other RSLs with no development track record) and we do not wish to argue that it is inappropriate in all circumstances. But we would contend that there are other consortium models which would be more appropriate in our circumstances." (Bridgewater Housing Association)

6.5 Some respondents did not see what incentive there would be for RSLs to become consortium heads and take on the potential financial risk. There was also a view that the competitive process for appointing a Lead Developer would hinder rather than enhance partnership working within consortia.

"It's not clear what incentive there is for RSL's with development experience to participate in a voluntary selection process for prequalification and subsequently application for Lead Developer in a competitive environment. This lack of clarity or shared agenda will hinder partnership working creating an atmosphere of distrust and self interest." (South Lanarkshire Council)

6.6 Several respondents felt that there needed to be more detail on how the consortia model would operate in practice. There were also concerns that the consultation underestimates the complexities involved in establishing consortia and the time and resources required.

6.7 Some national and specialist RSLs raised concerns about the practical (and resource) implication of engaging with multiple consortia across Scotland. For example, Key Housing Association said:

"As a nationally operating organisation, in common with the bulk of specialist RSLs, we see real difficulties with engaging with multiple consortia across regions. We also feel that the proposals do not provide any safeguard to the possibility of specialist housing skills and approaches being marginalised by consortia with little experience (or interest) in supported accommodation provision." (Key Housing Association)

Question 13

a. Do you agree with the proposals on formation of consortia, including the requirement of a formal agreement to govern relationships within consortia?

Table 6.1: Responses to Q13a by Stakeholder Group

6.8 Nearly three-quarters of respondents answered this question. The response was relatively positive with a majority of those giving an answer (57%) supporting the proposals on formation of consortia. Many of those giving positive responses said that a formal agreement would be essential for the consortia.

"Formal agreement setting out roles and responsibilities and clear dispute resolution process will be essential for the consortia to function properly." (South Lanarkshire Council)

6.9 Some respondents, while supportive of the approach, stressed that establishing consortia and putting formal arrangements in place is time consuming and resource intensive.

"The implementation of such consortia will be difficult and time consuming at a senior officer level. This, in its self, is a major element of work which may not lead to anything if that consortium is unsuccessful in its bid - this is lost time and money at a time when all Associations are looking at themselves in relation to efficiencies and cost savings." (Hjaltland Housing Association)

6.10 Respondents were clear that there should not be a 'one size fits all' approach to forming consortia although there were different views on the level of flexibility that is being suggested. Some felt that the flexibility stated in the consultation was appropriate:

"The proposals on formation of consortia do offer the appropriate amount of flexibility to allow consortia to develop their structures over the pre-qualification stage. This seems sensible given the principles in the proposal will be new for many RSLs and they may need to consider which route or consortium would best suit their needs." (Castlerock Edinvar)

6.11 A number of respondents said that there would have to be sufficient flexibility to take account of the range of sizes of consortia.

"In principle we agree with the proposals on formation of consortia but this would depend on how many members there would be in the consortium, what the different members would be responsible for and how big the area was that it would cover." (Cairngorms National Park)

6.12 Among those disagreeing with the proposals for establishing consortia, the far most common view was that consortia should be entered into on a voluntary basis. Several respondents felt that the complexity and potential resource issues were too significant for them to support the proposals.

"We regard the consortia arrangements set out in the consultation document as unworkable. They would result in complex and expensive legal agreements having to be developed. We reiterate our view that strategic development partnerships should evolve as a "bottom up" process rather than the inflexible arrangements envisaged in the consultation document." (Milnbank Housing Association)

b. What guidance would be helpful to support the sector in setting up consortia and Lead Developer arrangements?

6.13 There was a relatively consistent response in relation to guidance to help establish consortia and Lead Developer arrangements. Most respondents sought guidance in relation to governance issues. In particular, respondents would like to see model / template agreements for setting up consortia.

"It may be useful to develop template legal agreements that could be used by consortia members." (West Lothian Council)

"Seeking legal and contractual advice on standard templates for consortia would ensure there was not a duplication of costs and efforts by different partners." (Hanover (Scotland) Housing Association)

6.14 Several respondents said that they would like guidance on agreements in relation to consortia membership, managing development risk and the transference of completed housing.

"It would be useful to develop a model agreement for a consortium. Programme agreements and grant offers will require to be revised. It would also be useful to develop a model legal agreement for the transfer of completed homes from the lead developer to the RSL that will own and manage the homes." (City of Edinburgh Council)

"Membership - including provisions relating to introduction of a new member / members, expulsion of a member in breach, member voluntarily withdrawing from membership: decision-making and implications in each case." (Turner and Townsend)

"The key matters are managing development risk, resolving funding shortfalls at the point of the sale of completed homes to consortia members and increasing the level of lending to meet the working capital necessary to finance the lead developer." (Geddes Consulting)

6.15 While respondents wanted to see clear guidance in relation to governance many stated that this should not be 'over-prescriptive'.

"Guidance must not be overly prescriptive in terms of mechanisms and working relationships." ( SFHA)

6.16 Many respondents felt that good practice guidance should be developed based on the experiences of development consortia already operating in Scotland and experiences from England. Shetland Islands Council also felt that experience from the private sector should be drawn on in guidance.

6.17 Respondents also sought guidance in relation to tax issues, charitable law implications and other relevant statutes. Link Group was concerned about charitable status and EU regulations:

"We also must establish if, as a Scottish Charity we are permitted to be a lead developer as it's described. We would have assumed this to be a trading activity and therefore would have to be delivered through a non-charitable subsidiary. The current proposals would not allow this. We also believe that any proposals will have to dovetail with European Procurement regulations (for example, length of programmes, timescales for advertising, selection, etc.)." (Link Group)

6.18 I-Flair listed the following as areas for clarification through guidance:

• The ability of charitable RSLs to provide development services to non-charitable RSLs, including the view of HM Revenue and Customs.
• Compliance with EU procurement directives
• VAT and other taxation issues
• The application of TUPE to the transfer of staff between organisations.

c. What guidance would be helpful to ensure tenant and community engagement in decision-making?

6.19 Generally, consultees found it difficult to answer this question in relation to the provision of guidance with many raising concerns about the overall impact the proposals could have on tenant and community engagement (for example, in relation to more 'centralised' development activity). Many respondents commented on tenant participation more generally and stated that this would be hampered by the Lead Developer proposals.

6.20 Many respondents (particularly local authorities and RSLs) felt that the question of providing "guidance" was inappropriate. There was a strong view that there is sufficient guidance and legislation and that the issue is making sure this is adhered to rather than developing new guidance for the development process.

"Inverclyde Council takes the view that existing guidance and existing legislation are sufficient and that the key to meaningful engagement in decision-making lies in putting the existing guidance and legislation into action rather than creating yet more guidance. The Scottish Government could make it a requirement that lead developers and consortiums must demonstrate that consultation has taken place... before work can begin." (Inverclyde Council)

6.21 Several respondents emphasised the key importance of the LHS and SHIPs in setting priorities and that this was the stage where tenant and community engagement should take place.

"While the RSL partners may be able to bring additional local knowledge to the process ( e.g. in relation to proposed housing mix etc.) and clearly have a role in consulting tenants and residents on issues of design and layout etc, the development consortia should not be re-assessing need in consultation with local communities." (Renfrewshire Council)

6.22 Some respondents stated more strongly that tenants should be involved in consortium structures. This included tenant membership of the consortium Board / management team and / or tenant involvement in the appointment of Lead Developers for the consortium. It was stated that guidance would be useful in relation to setting up tenant working groups and appointing tenants to the management team in an advisory capacity. One consultee said that guidance would be beneficial in relation to training tenant representatives on the development process, using targets / indicators and working with developers to deliver new build programmes.

6.23 A number of respondents suggested that guidance would be most useful in relation to engaging tenant in the design and delivery of new housing. Raploch URC said that there should be guidance on, "How best to work with community groups to discuss design issues, quality, housing management and maintenance".

Question 14

a. Do you consider that there may be circumstances in which consortium membership should include local authorities and other non- RSL bodies?
b. In what circumstances would you see this as appropriate?

Table 6.2: Responses to Q14a by stakeholder group

*this table includes some overlaps to reflect the nature of the responses

6.24 Around three-quarters of respondents supported for this proposal. However around one quarter felt that there were no circumstances in which local authorities and other non- RSL bodies should be able to join consortia. The main issue raised was in relation to local authorities and potential conflicts of interest if they become members of consortia. Respondents, including some local authorities, pointed out that councils have a strategic function (where they agree investment priorities with central government) and would be assessing bids from consortia that they are part of. There were also concerns about conflict resulting from local authorities' role as major land owners, disposing of much of this land for development.

"With its duties in relation to strategic planning, land assembly and disposal, and funding, the local authority already undertakes a number of important (and sometimes conflicting) roles. Consortium membership would produce a further potential conflict of interest." ( GWSFHA)

"We disagree strongly with the proposal that local authorities may be members of a consortium. There is an inherent conflict of interest between their production of SHIPs and their input into regional prospectuses on the one hand, and being a delivery agent as part of a consortium on the other hand. This conflict of interest would increase if local authorities are building new affordable housing themselves." ( SFHA)

6.25 A few respondents were concerned that the potentials involvement of elected members would politicise and further complicate the approach to housing procurement. Concerns about the involvement of other non- RSL bodies related to the regulation of subsidiary RSL organisations and potential conflicts of interest in relation to private sector organisations.

"Private developers should probably be excluded from a consortium as they will ultimately be the group being commissioned by a consortium to build the new homes. Again the need to separate the commissioner role and contractor role is important." ( CIH Scotland)

6.26 A majority (nearly three-quarters of those responding to the question) felt that there were circumstances in which consortium members should include local authorities and other non- RSL bodies. For all stakeholder groups a majority took this view with the exception of small urban / stock transfer RSLs (less than 1000 units) and organisations providing support to RSLs. And there was notable support for non- RSL membership among local authorities, larger urban / stock transfer RSLs (greater than 1000 units) and RTOs. Since those supporting non- RSL membership gave their reasons under both 14a and 14b we treat the two parts of the question together here.

6.27 There was broad support for non- RSL bodies joining consortia on grounds that this could broaden efficiencies in the provision of affordable housing, increase skills and expertise in consortia. There was stronger support for the involvement of local authorities than other non- RSL bodies. Council membership was supported on grounds that they could share risk, help ensure that strategic targets are met and potentially attract wider sources of funding into the consortium.

"There are potential advantages in non- RSL bodies being members of consortia, particularly where they can facilitate pooling of resources and sharing of expertise and services, across a collective working group. It is especially appropriate that if a local authority is to acquire new stock, this should be delivered using existing RSL expertise." (Williamsburgh Housing Association)

6.28 A majority of respondents felt that the most appropriate circumstance for local authority membership was when the council is intending to directly deliver affordable housing.

"If a local authority is looking to deliver a substantial programme of new house-building in its area, combining this with the programme of an RSL consortium may offer additional economies of scale." (Angus Council)

6.29 However, many consultees recognised that there were potential conflicts of interest to be resolved.

"There are potentially significant benefits to be gained through a Local Authority being part of an RSL led Consortium; however there are public procurement constraints for local authorities which must be resolved. There may also be issues related to any potential conflict with the Local Authority's strategic role related to investment decisions, however this could be addressed through the partnering arrangements between the Local Authority and the Lead Developing Housing Association." (Fife Housing Association)

6.30 Several respondents argued that non-regulated partnerships (including existing development consortia) should be involved:

"The proposals exclude this option on the grounds that such a body would not be regulated or receive subsidy. However we see no reason why subsidy should not continue to be directed to individual registered association partners within the partnership." ( EVH)

Question 15

Are there circumstances in which bodies other than RSLs might be eligible to become heads of consortia and Lead Developers?

Table 6.3: Responses to Q15 by Stakeholder Group

6.31 Just under three-fifths of those answering this question felt that there were circumstances where bodies other than RSLs might become heads of consortia and Lead Developers. For most stakeholder groups a majority took this view with the exception of: organisations providing service to RSLs; specialist RSLs, RTOs and private individuals. The strongest support for non- RSL Lead Developers came from local authorities and from a sizeable proportion of RSLs.

6.32 The most common response was in support of allowing non- RSL delivery vehicles (including existing development consortia) to act as Lead Developer. Respondents with this view felt that the regulatory issues raised in the consultation paper could be addressed and cited practice in England and Northern Ireland.

"It should be possible for a non- RSL delivery vehicle, set up on a not-for-profit basis and owned by RSLs, to act as the head of a consortium, providing clear arrangements were in place to transfer completed houses to the RSL members. In England, it is possible to allocate subsidy to such bodies; we do not therefore see the regulatory issue as an insuperable problem." (Forth Valley Housing Network - excluding Link Group)

"We support the idea that a non RSL delivery vehicle jointly owned by registered RSLs should be eligible to act as a consortium head. We believe that the regulatory framework currently in place for RSLs could be applied to minimise the regulatory concerns which appear to be the key stumbling block." (Ochil View Housing Association)

6.33 Consultees supported a lead role for delivery partnerships on grounds of existing expertise and community links, greater potential for equality within a consortium (compared with a single Lead Developer) and the scope for sharing development risk.

"A jointly owned development company or special purpose vehicle may be the best way of giving expression to our preference for a 'Partnership of Equals'. Such an organisation would employ the staff, procure contracts, raise development finance, and handle all the development administration on behalf of the member associations. It would spread the risk across the member RSLs rather than concentrating it in one RSL. It would be controlled by its members, and thus retain its focus on communities." (I-Flair)

6.34 Several respondents (primarily local authorities) felt that where a Council is developing new affordable housing they should be able to lead a consortium. COSLA felt that councils should be able to become Lead Developers since some councils are now developing social housing at costs below that of RSLs:

"Councils should have the opportunity to be lead developers as well as consortia members." ( COSLA)

6.35 However, some respondents argued that there would be practical issues if the proposal for multi-authority regions is adopted - and that this might make the option unattractive for local authorities.

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