The Brexit deadline has been extended, so how can housing associations make smart procurement decisions to prepare for the UK’s departure from the EU? Alan Heron of Procurement Hub gives his recommendations in a Q&A with Inside Housing.
How do you think the housing sector will survive Brexit?
The sector is resilient and has faced numerous economic, political and legislative challenges. Brexit, however, may be the most significant challenge.
Housing providers should ensure they are taking precautions to relieve the pressure if contracts within their supply chain fail. If this happens to registered providers already facing economic pressures, it may forge the path for sheltering under the wings of a larger provider that has taken sensible precautions, and result in a high number of mergers.
How can housing providers mitigate the risks?
The biggest challenge associated with Brexit is uncertainty. Perhaps the best way for housing providers to deal with this is to be more innovative and flexible with procurement.
Traditional methods of procurement, such as frameworks and other standard contracts without flexibility, may become very constraining next year post-Brexit. Products, prices, tariffs, exchange rates and supply chain sources are likely to be more fluid and volatile, and simply applying the same procedures is likely to lead to poor value at best, or the failure of critical contracts at worst.
What points should be considered in contracts?
Having knowledge of contractual obligations within the supply chain is paramount for understanding how much flexibility you have. Perhaps most relevant is the exit clause. This means if the supplier fails to deliver because of Brexit complications such as customs delays, you could exit the contract without cost. Other points to look for are force majeure clauses that specifically reference detrimental and significant currency fluctuations or tariff changes to negate the risk of being locked into expensive contracts.
Consider the role of the Official Journal of the European Union when procuring alternative suppliers. One way to do this is to use a dynamic purchasing system (DPS) as it allows for a more flexible environment, which can easily reflect the changing nature of supply chains and products in a way that traditional frameworks cannot. The management of a DPS is quite intensive and requires some degree of commitment, and not all goods and services are suited to DPSs. A sensible balance of frameworks and DPSs is likely to achieve far better results.
How do you think Brexit might impact construction targets?
While supply chains as a whole will face some challenges post-Brexit, the construction sector may face more challenges than others. This is primarily due to a considerable amount of raw materials sourced from EU countries, such as timber from Sweden and Germany or bricks from the Netherlands and Spain. The result of this is that many construction companies have stockpiled products or found new native suppliers.
Having said that, 40% of materials are sourced from other countries – Asia supplies most of the UK’s electrical components.
We have also seen an improvement in UK production of raw materials. For example, Forterra in Leicestershire aims to be producing 170 million bricks per year by 2022.
What further advice would you give?
I’d suggest an audit as your first step in understanding your supply chain.
Essentially, it’s all about identifying risk in your supply chain from the perspective of Brexit. Look at the suppliers that your organisation spends 80% of its budget on, and categorise them as UK, EU or global. And don’t simply consider the actual product but also any key components for build or, later, repairs.
Next, ask yourself what is the strategic importance of each supplier, what is your spend with them and are there alternative providers for this product or material? Then, rank them in order of risk to your organisation so that you have a clear picture.
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