Following the announcement of the successful bids of almost 150 housing associations, local authorities, house builders and other providers for a share of an estimated £1.8 billion investment programme to deliver 80,000 new affordable homes under the Affordable Homes Programme, DMH Stallard is covering the key issues that successful bidders should consider to ensure that they deliver their projects on time and within their allocated budgets.

This week, our team looks at the programme’s contractual framework and, in particular, the key risks that housing associations, local authorities and house builders alike should be seeking to mitigate and manage.

Background

Each provider under the programme is required to enter into an Framework Delivery Agreement (Agreement) with the HCA, which is, in the main, a non-negotiable standard form agreement – although the most recent version, published in August, does reflect the input of those providers who engaged in consultation with the HCA following the publication of the initial version. The HCA has prepared separate Agreements depending on (a) whether the provider is offering new supply within or outside of London and (b) whether the provider is part of a consortium arrangement. Those providers operating within London should note that they may be required to consent to the novation of their Agreements from the HCA to the Mayor of London in 2012, following the enactment of the Localism Bill.

Criticism

The Agreement has already faced criticism, notably from Housing Association providers, who for the most part deem that the Agreement provides them with insufficient flexibility to respond to changing local circumstances – one of the key drivers behind localism. The criticism focuses in particular on the Agreement’s “programme change mechanism” - which requires the provider to notify the HCA of any proposed change to its programme offer (including, for example a change to the type, number, location or tenure mix of the dwellings) and, which enables the HCA to terminate the Agreement if the parties cannot agree upon the change within 20 business days of notification. This gives the HCA a high level of control over the provider’s programme, and, while some might consider this to be fairly standard practice under a grant funding arrangement, providers take on a high level of risk as a consequence.

The HCA’s chief executive has recently been forced to defend the change mechanism, stating that “the process perhaps seems more formal and onerous in the contract than it will actually be”. Only time will tell how the process will work in practice and in the meantime, this assurance is unlikely to give providers any real degree of comfort. So what steps can providers take to reduce their risk?

Managing and Reducing Risk

The key to reducing risk is - as with all contractual arrangements - identifying it. As such, providers should carefully examine the terms of their Agreement before entering into it and should put in place internal procedures with a view to managing any risks it identifies. Providers should, in particular, ensure that they are fully familiar with:

  • the circumstances in which HCA can terminate the Agreement and withhold or claw back funding;
  • the circumstances giving rise to a default and the consequences
  • the procedure and timing for drawing down on the funding granted to it – in particular the deadline for practical completion (which currently stands at 31 March 2015); and
  • contract monitoring, reporting and record keeping requirements.