The European Heat Pump City of the Year (HPCY) award winning GSHP project we delivered with Together Housing Group is not Procure Plus’ first large scale heat pump deployment project rodeo.
Prior to this 1,500 dwelling scheme, we were the procurement route for the Greater Manchester Smart Community Demonstration Project which saw the installation of 550 ASHP units part funded by the Japanese government. Now with the ERDF funded ‘Homes as Energy Systems’ project that is currently installing over 750 ground and air source heat pumps across GM, as well as several smaller installation programmes, we’ve had the time and occasion to consider and refine the procurement approach for heat pump installation schemes.
The VAT rules around energy efficiency works have recently changed (and become significantly more complicated), but unless the landlord is an ALMO or Local Authority able to recover VAT, the expectation is that the customer wants supply and fit to secure the lower VAT rate where possible.
This was the case with the HPCY project, but regardless of supply and fit or not, we encourage landlords to be more involved in the specification and product selection process and behave as though they are procuring the heat pump materials themselves as there are several reasons why ‘kit’ should be looked at separately to ‘fit’.
Initially, as a ‘new technology’, most landlords have no pre-existing specification or rationale for naming a particular product (as is often the case with ‘new’ technologies) so it’s left to the contractor. Sure, there are performance-based specifications that can be used but quality varies, are the right things being included or has a spec been written by a consultant with a particular product in mind.
In light of tragedies such as Grenfell and the ongoing cladding and insulation debacle, landlords want a better understanding of and control over the products and services that they are procuring. Landlords have a longer-term interest than contractors in these critical systems and, being liable for them long after the defects liability period has passed, want to be assured that what they’ve got is what they need.
Equally, landlords want to know that they are not sacrificing installation quality on a project because a cheaper contractor has selected lower cost components (knowing they’re responsible for the system for a short length of time) or because some contractors have preferential supply rates with manufacturers over others. Comparing the quality and cost of installation, excluding high value or volume commodity items, avoids these issues.
Where timescales allow, we advocate that competitions take a two-stage approach to procurement, and this was how the HPYC and other projects listed above where delivered.
Managing Successful Heap Pump Procurement Programmes
Firstly, we run a procurement to identify which heat pump manufacturers are to be specified across different property archetypes within a programme using a stringent, product agnostic, performance-based specification and evaluation process. Along with testing product performance (in terms of SCOP, noise, physical size of units and installation tolerances) clients can also assess the ongoing support available from manufacturers to their ‘TBC’ installation contractor, their in-house maintenance teams, ‘help desk’ staff and their tenants on using the new systems.
Manufacturers know that the pricing proposed is to be made available to the successful installation contractor. On our project, manufacturers are assured that these rates are only going to be used on eligible projects, and not throughout the wider marketplace, thanks to Procure Plus’ project management software system, Schemes Plus, used to transact projects.
A second procurement is undertaken for installation contractors, referencing the heat pump range to be used and associated cost of products. Again, installation mini competitions assess quality and cost in line with the client’s requirements (e.g. 60 quality /40 cost split). All contractors know to price the same product specific installation requirements into their submissions (helping compare ‘apples with apples’) and key considerations in the quality evaluation include how the contractor will manage programme delivery as well as work with the client’s staff and residents to ensure systems are handed over defect free and that all stakeholders know how to operate systems most efficiently and service and maintain them.
This approach, when used either in a supply and fit scenario or with materials free issued to contractors, enables landlords to have direct relationships with the full supply chain, allows them to secure better rates for both supply and installation and allows equal focus on quality of both product and installation.