Borough Builders – Could a local authority actually be a builder? | Lewis Hubbard AoU

The title of this piece is inspired by / stolen from the Centre for London report Borough Builders: Delivering More Housing Across London (July 2018), which provides an expert critique of the capital’s housing development market and joins a growing body of voices advising how local authorities could positively address the shortcomings of the status quo.

However, I would like to use this opportunity to push an idea that goes one step further than their recommendations. And I think one step further than the arm’s length development companies that local authorities have set up to perform the role of ‘client’ on their projects.

Why not be the principal contractor too?

I am starting to think there could be so many be benefits to this idea that the costs are worth a closer inspection too. But first, the positives…

Removal of a big tender process for a single developer or principal contractor

Any competitive tender process is supposed to give best value for the client. Then, if a local authority is the client, it is in turn supposed to reflect best value for the community the authority serves. Too often however, it has instead become an expensive and fussy exercise that stymies community engagement, design and build quality and inflates construction costs.

I certainly don’t mean this as an attack on developers or tier 1 and 2 contractors; they are usually as frustrated by the process as anyone else. It’s meant more as an attack on the exercise itself that I will try now to justify.
The contract is normally the primary focus of the project team for several months, commanding hefty legal fees as the council and developer negotiate terms. It attempts cover of the whole scope of works, trying to fix the design as firmly as possible whilst taking a view on what changes might be forthcoming. However, there are too many aspects of a development project that cut across the tender stage creating an extensive list of project risks that are extremely difficult to capture within the contract. Several common ones that come to mind are discharge of planning conditions, diversion of utility infrastructure and upgrade of incoming supplies, ground contamination and clash with remaining obstructions, highways orders including stopping up, adoption, S278 works and traffic management. Surely skilful and experienced project teams deal with these matters well, but most of us would be lying if we claimed we had never been part of teams that tied themselves in knots over a hypothetical scenario that happened to concern the project’s protagonists that day.

Planning and design are iterative processes, continually responding to instructions from the various stakeholders and gatekeepers, but unfortunately the pressure of the big tender process serves to shut down those iterations as it attempts to fix the design. In some regard you may protest that’s not necessarily a bad thing, kicking discussion into action. But there are also enough examples of poor quality and selfish development out there to make one look regretfully at whatever pressure meant its issues remained unresolved.

Thirdly, this process is not only expensive in itself, I believe it is inflationary to the project’s costs as a whole, as each party tries to commercially protect itself against the project’s risks.

There are many flavours of contract that are intended to diminish the adversarial tendencies of construction work; but why expose yourself to that at all?

If a local authority performed as the principal contractor…

  1. They could engage directly with the local subcontractors. Appointment of a subcontractor is a far simpler affair as it doesn’t carry the risk of the whole project. Frameworks could be built up of local groundworkers, scaffolders and electricians under which the local authority would be in a much better position to manage their supply chain.
  2. Local firms provide local employment, improving productivity and developing workforce skills within the borough.
  3. Cost savings made in the process of design planning and construction would enable both more affordable homes to be built, and homes that are built to be more affordable. Projects would not need to carry the developer’s overheads and profit, easing the commercial pressures that mothball developments after months of wrangling with the viability model. That said, the local authority would need to consider its own overheads which would of course increase with such a direct undertaking, but they were paying those fees to the developer anyway.
  4. Generally, I see this as a commercial exercise that would actually deliver profit for recirculation within the local authority’s budget. But of course, it may decide to only break even on a development if it saw broader benefits. Some developments have strategic value, be it capacity for decant of residents enabling other sites to come forward, environmental gain or betterment of local civil and social infrastructure.
  5. In any case, this development model would not require the sale of land to developers keeping the increase in land value within the balance sheet of the borough.
  6. It would therefore be easier for the local authority to address its long term strategic objectives. Improvements to housing stock, neighbourhoods, civil, social and environmental infrastructure happen incrementally so it is important that they each align with the borough’s and community’s ambitions. You might say this is the job of the planning system, however left to the current model, there will be ever increasing pressure to relax controls for the sake of instant and cheap unit delivery. Local authorities performing as principal contractors would be able to be more responsive to the concerns of local communities and maintain better control of the final built product.
  7. Similarly, but at a more detailed level, the project team under this system would be incentivised to make longer-term design and cost decisions as, for all but development subject to freehold sale, the local authority would remain the owner and would be responsible for maintenance. No more cynical short-term cost savings.
  8. Design and planning would be streamlined as the in house principal contractor becomes familiar with the local plan, policies, infrastructure specifications, the local environment and local issues. There is definitely something to be said for the value of local knowledge that people develop from working in the same place over time.
  9. It would be easier and cheaper to organise site investigation works early in the project, which then further streamlines the work of the design team.
  10. And indeed their work would not need to be confined to big flagship development projects. Their role could surely extend to essential caretaker and maintenance work from plumbing to potholes.
  11. Could this also serve to overhaul highways term contracts that are so often blamed as the primary inhibitor to evolution of streetscapes?

What it would take

  1. Direct employment of the team that would normally serve the principal contractor and allocation of a project budget from which they could draw. But this isn’t additional money. It’s simply the money that would otherwise be paid to a principal contractor. The staff would then simply go about their work as they currently do but without all the front-end fuss and wrangling that it takes to get into the main contract.
  2. Establishment of the insurances carried by a principal contractor.
  3. Capital. – presumably debt. But the repeal of caps on borrowing may enable such commercial ventures, especially if backed up by a strong business case.

Further study

Clearly I have been writing this piece from my own perspective. I am the founding director of Lewis Hubbard Engineering, a practice of urban infrastructure specialists that plan, design and coordinate the infrastructure required to support developments. And we are particularly proud that a great deal of our work has been in support of local authority led regeneration schemes. I also spent two years of my career working for McNicholas Construction on site at the London 2012 Olympic Park.

In particular, I’d be interested to find out how such an undertaking could be managed commercially within a local authority’s finances, budgets and controls. Is there anything, now that the borrowing cap has been lifted, that would completely prevent this from happening? And does this proposal strike any political will? I’d bet that it would at least pander to some political frustrations.

Then, how would the ‘borough builder’ grow? What is the critical mass of work that it would need to take on to be able to command the purchasing power in supply chains to keep it competitive?

My proposal doesn’t particularly address the complexities of land assembly that are so often at the root of a development’s fortunes or failures. Though it would give a local authority greater agency for work within the land that it already owns, which in turn presumably gives it a stronger hand in any land negotiation.

I’d also be interested to explore how this proposal could actually benefit the private development and construction firms. At first glance they may perceive a ‘borough builder’ to be eating into their market share, however under the current system they are forced to riskily push their cross-subsidy model to its absolute limits, negotiating affordable housing provisions, Section 106 and Community Infrastructure Levy contributions. This is a frustrating process for anyone who has been on that carousel, especially the affected communities. I wonder whether it would actually be better for private developers if councils were able to manage more of that process themselves, allowing private development to continue on private land, but without the weight of having to solve all of the borough’s problems.

About the Author
Lewis Hubbard AoU is a chartered civil engineer and Academician of the Academy of Urbanism. He is a member of the GLA’s Infrastructure Young Professionals Panel and the London Borough of Enfield’s Place and Design Quality Panel. He also sits in the Association for Consultancy and Engineering’s property special interest group and Lewis Hubbard Engineering is a supporter of the Academy of Urbanism, the Architecture Foundation and the London Festival of Architecture.

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