A square peg in a round hole? A case study of whole life costing applications within sustainable procurement practices in the UK social housing sector
Ford, J., Phillips, W. and Cicmil, S. (2011) A square peg in a round hole? A case study of whole life costing applications within sustainable procurement practices in the UK social housing sector. In: British Academy of Management Conference, Aston, UK, 13th-15th September, 2011.
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The UK social housing sector is facing challenging times. The reduction in housing grant subsidy, the restructuring of affordable rent levels and the planned reforms of housing benefit under the Comprehensive Spending Review (HM Treasury, 2010) have created an uncertain environment for investment (Cole and Powell, 2010). In response, policy makers have been prompted to create economic stimulus packages that support growth within the public housing sector. One key growth area is through the Government’s Green Deal, focused on energy efficiency and renewable energy (Department of Energy and Climate Change, 2010). This stimulus provides a unique chance for the sector to apply innovative sustainable procurement strategies for social housing provision. Sustainable procurement, as defined by Walker (2009) is “procurement that is consistent with the principles of sustainable development, such as ensuring a strong, healthy and just society, living within environmental limits, and promoting good governance”. It is rising up the policy agenda in many countries, but knowledge remains limited. Within the purchasing and supply community there is a prevailing view that there needs to be some constraint in economic and societal development, to minimize negative impacts on the environment (Walker and Phillips,), but that any approaches must fit with the quantitative reality of procurement practices. For this reason, Whole Life Costing has been presented as an appropriate tool for procurers to evaluate social and environmental impact by applying either perceived or scientifically proven financial metrics and adding these to the recognized Life cycle costs of an asset over a fixed time period (Norman and MacDonald, 2004). Proponents of Whole Life Costing (WLC) highlight the Green Deal as a key opportunity to evaluate social housing investment projects by their long-term economic value to achieve best value to public spending. As Jackson (2010) states, "In times of economic change and fiscal restraint, the power of procurement becomes even more important. We need to make sure that every pound spent upon public service provision and procuring goods reaps maximum value and benefit". The inclusion of environmental and social metrics in this evaluation approach will capture the wider cost risks and benefits that occur as a result of social housing provision. These have been traditionally considered as externalities in appraisals despite their impact on our future economy. Senior management and Procurement professionals within the public housing sector are well versed with the values of socially and environmentally responsible business activities (Harwood and Humby, 2008). They also recognise that the social housing business model is conducive to Life Cycle Costing (LCC), with construction, maintenance and disposal of an asset a central budgeting concern. Yet, in the absence of incentivisation, the inclination in public sector housing procurement remains on delivering greater value for reduced capital costs rather than WLC analysis. There is a need within the UK public housing sector to properly scrutinise the notion that WLC, or Triple Bottom Line (TBL) accounting, is a sound method of demonstrating sustainable procurement and that it does deliver best value for money. The purpose of this paper is to investigate opportunities and barriers of implementing WLC in sustainable procurement. The paper builds on the findings of a four year research study of an English Housing Association (HA)supported by the Technology Strategy Board, which looked at the creation and implementation of a WLC toolkit for the assessment of energy efficiency improvements within the HA's housing stock. To gain a better understanding of the use of WLC as a means of supporting sustainable procurement, we employed a case study approach (Yin, 1994). Three cases were identified within the focal company: 1. Analysis of the business case for installing Photovoltaic (PV) panels to tenant's homes under the Government's Feed-in Tariff (FiT) 2. The evaluation of the best whole house approach to achieving the code for sustainable homes in new build 3. A review of the replacement heating strategy for off-gas properties in the housing stock Qualitative case studies (Morgan and Smircich, 1980; Eisenhardt, 1989) were chosen due to the need to develop a rich and contextualised view. Also, in line with others, we suggest that the flux and change processes at work in the UK social housing sector give qualitative approaches advantages over more traditional methods (Morgan and Smircich, 1980).Each case study involved semi-structured interviews with key project members and senior level staff of the focal housing association.Where available, documentation and secondary sources were also collated and analysed. In addition, the draft studies will be presented to 5-10 representatives of other housing associations and supply chain partners for review and commentary. Based on these studies, we explored the limitations of WLC in terms of its use as a tool to support the pursuit of sustainable procurement within the social housing sector and identified key issues associated with the implementation of WLC across several operational areas. The issues identified included: • The contrasting timescales of social, environmental and economical metrics • Reducing risk in future forecasting • Procurement legislation and redefining competitive bidding • The availability of WLC data • The construction contract and where the duty of WLC falls • Who benefits from WLC • The cascade of the WLC methodology knowledge through the public housing sector • The interaction between WLC and Life Cycle Analysis across the entire supply chain Having presented a comprehensive review of relevant literature, the paper will present the findings of the case studies as outlined above, presenting the difficulties associated with the use of WLC in Sustainable procurement. Drawing on these findings, the papers will go on to discuss how these barriers may be overcome and will consider whether WLC is indeed a suitable vehicle for supporting sustainable procurement in the housing sector. The paper will conclude by proposing alternative models for evaluating sustainable procurement, presenting the concept of “Whole life Impact Assessment” (WLIA) as a means of embracing more comprehensively the key principles of sustainability.