Development and associated procurement approaches

Part of: Housing Association Guide, Procurement Guide

This section details that Associations have a number of development approaches available for the provision of a new build, or existing properties for social housing for rent.

What is required

The Development and associated procurement approach selected by a PG / Association must take account of market conditions prevailing at the time, and how the approach delivers Best Value for Money.

Most development approaches require the procurement of construction works and services the procurement of which should be in accordance with, where applicable Procurement Law, NI Public Procurement Policy and Guidance and this Procurement Guide. Under the Off-the-Shelf approach minor construction works which are clearly ancillary to the acquisition of existing dwellings may be an integral part of the acquisition.

A Procurement Group/ Association proposing to award a contract without competition, or by either Negotiated Tendering or Competitive Dialogue, should first seek advice from the CoPE.

Procurement Groups/ Associations have a number of development approaches available for the provision of a new build, or existing properties for social housing for rent.  Associations may provide dwellings by a number of means.  

New Build

Acquisition and Works

‘Acquisition and Works’ is where an Association contracts, via a building contract, for the construction of new dwellings on land purchased or acquired for the purpose. For an acquisition and works scheme, the Association must own the land and have satisfactory title before the works start on site.

New build dwellings generally must meet the design requirements contained in the Department’s Design Standards and, on completion, must have a ‘structural’ life expectancy of at least 60 years and comply with all Statutory Requirements on completion of the construction works. The Department’s Design Standards can be found in the Design standards section of the HAG Development Guide.

[Note: Building Licence Agreement - Procurement Groups/ Associations should note that a ‘Building Licence Agreement’ does not meet the DfC’s acquisition requirements and Procurement Groups/ Associations having this type of agreement cannot claim any Grant from NIHE (DPG) until the Association is in a position to acquire the ownership of the site.]

Works Only

‘Works Only’ involves the development of land already in the Association’s ownership and for which no acquisition costs (other than legal charges) apply. Development costs are assessed against the TCI particular to works only (new build) scheme.

Competitive Design and Build

Competitive Design and Build (CD&B) is where, following a procurement compliant procedure, an association enters into a single contract or agreement with a developer/contractor to acquire land and the design and construction of dwellings. 

Under the CD&B approach, the Association must have satisfactory title to the land before the construction of the works start on site. 

New build dwellings delivered under CD&B must, on completion, meet the design requirements contained in the Department’s Design Standards, the requirements of all statutory approvals and have a ‘structural’ life expectancy of at least 60 years.  The Departments Design Standards can be found in the Design standards section of the HAG Development Guide.

A Housing Association’s Board of Management is ultimately responsible for the effective management of all contractual and procurement risks including those associated with the CD&B approach.  Since associations’ approaches to implementation of this innovative procurement route may differ and include the use of non-standard conditions of contract it is recommended that associations seek specialist procurement and legal advice in undertaking CD&B procurements and constructing its contracts. 

Joint Ventures

Joint Venture is being explored as an option for delivering new build social housing through the Social Housing Development Programme (SHDP).  This would be completed through contractual or corporate arrangement which has been known as joint venture with developer/contractors, land owners, funders or the like. Under a joint venture the parties contribute capital, property, resources and skills. Ultimately everyone shares the risks and rewards associated with the development of wholly residential (may include social, affordable, shared equity and private) or mixed use projects (may include commercial, community or other elements).

Joint ventures can be highly complex, both in their structure, funding and ‘management’.  Similar to Off the Shelf and Competitive Design and Build Schemes, an associations’ Board of Management is ultimately responsible for the effective management of all contractual and procurement risks including those associated with the joint venture approach. 

Since associations’ approaches to implementation of this innovative procurement route may differ and include the use of non-standard conditions of contract it is recommended that associations seek specialist procurement and legal advice in undertaking joint venture procurements and constructing its associated structures and agreements.

Associations considering joint venture arrangements should advise NIHE(DPG) of their proposal at the earliest opportunity.

Social Housing as delivered by Councils’ Local Development Plans as Affordable Housing.

Affordable housing is defined in the Department for Infrastructure’s Strategic Planning Policy Statement (SPPS).

‘Planning Gain’

With the introduction of the two-tier planning system on 1 April 2015, local councils in Northern Ireland now have the power to allocate land for housing as necessary to facilitate the ‘right’ mix of housing tenures within an area including open market and special housing needs such as affordable housing. Councils will publish detailed operational planning policies for inclusion within their Local Development Plans (LDPs), which will be tailored to local circumstances and take account of the SPPS.

Affordable housing need and mix

NIHE’s ‘Place Shapers’ have responsibility for identifying any affordable housing needs to council planners. When considering proposed housing developments, where a social housing need has already been identified, local councils can require private developers to provide a certain number/percentage of affordable homes within their LDPs. Ultimately, the social housing element of the site/scheme shall be registered with NIHE and included in the Social Housing Development Programme (SHDP).

Planning requirements

To formalise the requirement for a developer to construct affordable housing:

  1. a ‘Section 76’ planning agreement shall be signed. Section 76 of the Planning Act (NI) 2011 relates to legally binding contract(s) which are usually entered into between a council and a developer, before planning permission is granted; or
  2. ‘Planning condition’(s) will be applied to approvals.

Purchase contract

If the developer constructs social housing the ‘Planning condition’ or ‘Section 76’ planning agreement should reference that this social housing, as required by a council determination of a planning application, shall be constructed: as per the Development section of this Guide; to meet the requirements of all statutory approvals; and have a ‘structural’ life expectancy of at least 60 years. This is the standard that social housing receiving grant is predetermined to be delivered to. Then a Registered Housing Associations (RHAs) may purchase these developer designed and built homes and, where applicable, associated communal areas.

The social housing unit(s) shall be acquired by RHA via a purchase contract in compliance with the above:

  1. for the newly constructed units; or
  2. for the units as per detailed and specified on drawings, data sheets etc.

They units shall be purchased for first-time occupation by an RHA. The purchase contract is a document that outlines the conditions of purchase for the dwellings.  This contract may have Special Conditions annexed thereto requiring the developer, hereafter referred to as the vendor, to provide legal and/or technical documentation to the RHA which may facilitate future property management, for example, but not limited to:

  • Documentation relating to Title;
  • Statutory approvals;
  • As built drawings;
  • Delivered specifications; and
  • Health and safety files.

If a purchase contract of this nature, were to include characteristics of a works contract, then it may be at risk of challenge under the Public Contracts Regulations 2015. An RHA should therefore proceed with caution when engaging with a developer. An RHA should not seek to specify detailed construction works and/or influence the design of the homes in any significant way. A decisive influence on the type or design of the work beyond those requirements contained within the DfC Design Standards, could fundamentally change the main object of the contract, from being the acquisition of completed dwellings to the construction of dwellings. That is, the contract type could effectively change from a purchase contract to a works contract. Such an arrangement may be a contravention of the Public Contracts Regulations 2015 and could be subject to legal challenge on the basis that the works should have been procured.

In assessing whether engagement with a developer amounts to a ‘decisive influence’, an RHA should seek specific legal advice on this matter as both the level of detail of the specification and the overall number of requirements, (even if individually each requirement may seem minor) are likely to be key factors in determining if it amounts to ‘decisive influence’.  In general, any works required as part of a purchase contract for new social housing should be no more extensive than those which would usually be expected from a member of the public buying a new home ‘off-plan’ from a developer, or prior to completion of the works.

An RHA's Board of Management is responsible for the effective management of all legal risks associated with a purchase contract. It is therefore strongly recommended that RHAs seek legal advice when drafting or considering their purchase contracts.

Design, Planning application and Construction stages

During these stages RHAs can advise the developer on the application of the DfC Design Standards and discuss factors that would be ancillary to the purchase contract. These discussions cannot go beyond what is in the DfC Design Standards and should not alter the purchase contract.  Similarly, any ancillary items must be minor in nature and must not alter the essential nature of the scheme or dwelling. Examples of ancillary items include internal finishes, doors, kitchen and bathroom fixtures and finishes, and minor M&E changes such as radiator and socket layouts. 

During the construction stage, an RHA should not attend the developer’s site to inspect or monitor the quality of work, except where this relates to the finishing works identified in the purchase contract.

Public consultation

As outlined in the consultation section of the HA Guide the Department requires RHAs to consult with prospective neighbours, ideally prior to submitting a Planning Application, in order to provide them with details of new social housing proposals and to give an opportunity for community engagement.

Notwithstanding this and in keeping with the interests of tenant confidentiality, RHA consultation is not as a rule required, unless 6 or more units are planned or delivered by a ‘Planning Gain’ scheme for a particular area. In the event that 6 or more units are planned, then the consultation process should be implemented.

However, in a ‘Planning Gain’ scheme, if an RHA was to carry out community consultation that resulted in significant changes being required to the scheme, there is a risk that, if the RHA then specifies the resulting requirements to the developer, this will change the character of the contract from a purchase contract to a contract for works.

Given the significant benefits that consultation can have in terms of making the community feel involved, helping to alleviate community concerns and reduce objections, stimulating participation and enhancing a RHA’s profile, consultation should be carried out on all Planning Gain schemes once a purchase contract has been signed with a developer. To facilitate community consultation but avoid a RHA having a decisive influence, the associated purchase contract should contain a requirement that the developer must take account of the results of the RHA’s consultation, but without detailing what the changes should be.

The level of consultation required should reflect the stage at which the purchase contract is signed. If signed prior to a planning application then the RHA’s consultation must follow the guidance for new schemes as outlined in the consultation section of the HA Guide. However If signed subsequent to a planning application then the level of RHA consultation should follow the guidance for ‘OTS’ schemes.

An RHA does not need to carry out community consultation in cases where major housing developments are proposed by developers, and the Council’s Local Development Plan requires an element of social housing, as the developer is already required to undertake Pre-Application Consultation under Planning Legislation. In such schemes, a RHA can engage with a developer to advise on the consultation process if requested, but should avoid taking an active role where this could be construed as having a decisive influence.

Grant

Grant for Social Housing, as delivered by Councils’ LDPs as Affordable Housing, shall be claimed by an RHA in one (100%) tranche. This claim shall be submitted after:

  1. the execution date stated in the purchase contract between the vendor and the RHA, That is when the RHA is in complete ownership of the associated units; and
  2. an Application for Project Approval has been approved by NIHE’s Chief Executive Business Committee.

Therefore, the grant application in these schemes represents the final claim and no further advances of grant will be made.  

However in exceptional cases the Grant may be paid in two Tranches, 10% & 90%, with the first 10% to cover the initial deposit to the vendor.

Existing Properties

Acquisition and Works (Rehabilitation)

‘Acquisition and Works (Rehabilitation)’ is where existing dwellings are purchased and require substantial repair and improvement, conversion or extension for social housing for rent use. The total works cost of each unit should exceed £10,000 (excluding VAT).

Existing dwellings generally must meet the design requirements contained in the Department’s Design Standards and, on completion, have a ‘structural’ life expectancy of at least 30 years and comply with all Statutory Requirements on completion of the construction works.

Works Only (Rehabilitation)

‘Works Only (Rehabilitation)’ is similar to ‘Acquisition and Works (Rehab)’, but where the Procurement Group/ Association contracts for the construction works only, and involves the development of property already in the Association’s ownership which has hitherto been unimproved.

Re-Improvement

‘Re-Improvement’ is a category of ‘Works Only’ rehabilitation to Association owned property. In order to be considered for grant-aid, the property must:

  • be in the ownership of the Association
  • have been, at some time in the past, the subject of some form of grant or subsidy (grant or otherwise) for construction, rehabilitation or conversion
  • require substantial improvement & repair (ie, is no longer suitable for the purpose intended)

Off-the-Shelf Purchases

An 'Off-the Shelf' purchase is where newly constructed dwellings are purchased for first-time occupation by Housing Associations or have been occupied privately for period(s) not exceeding 12 months from completion, following inspection and independent valuation.

Purchase will be on the basis of a standard Purchase Contract. This contract may have Special Conditions annexed thereto requiring the vendor to provide legal and/or technical documentation to the Association which may facilitate, amongst other things, future property management, for example, documentation relating to Title, statutory approvals, drawings, specifications, health and safety files or the like. Special Conditions to the Purchase Contract may also require the vendor to carry out minor ancillary works to the dwellings. No additional allowances will be available to the Association in relation to the cost of any minor ancillary works; consequently such costs should be set against the 'on-cost' allowance due to the association.

Early engagement by an Association, whereby it may seek to negotiate an OTS purchase contract for dwellings prior to completion, is likely to be construed as a construction works contract which should have been procured. Likewise, specifying construction works, other than minor ancillary works, within a purchase contract may have the same effect. Such an arrangement would be a contravention of the Public Contracts Regulations 2015 and could be subject to legal challenge.

An Association's Board of Management is responsible for the effective management of all procurement risks including those associated with OTS purchases. It is therefore recommended that Associations seek legal advice in constructing its contracts for OTS purchases. 

Existing Satisfactory Purchases (ESPs)

Existing Satisfactory Purchases (ESPs) are when existing properties occupied as a residence for at least 12 months are purchased, following inspection and independent valuation by an Association. Having been openly advertised in the property market, unless the property has either been:

  • offered to the Association by a former tenant under the terms of the Statutory House Sales Scheme. That requires tenants who have purchased NIHE or Association properties and are selling within 10 years of purchase, to firstly offer the property for sale to the original Association or
  • is being offered directly for sale to an Association by the NIHE

Acquisition of ESPs is via a purchase contract, that shall not include the Association instructing the vendor to deliver repairs or upgrading of a property as a requirement of the property purchase. The condition of the properties should be such that they do not require full rehabilitation, but may require a degree of repair/checks/upgrading to bring them up to an acceptable standard for letting. The works are procured by the Association after the purchase contract has been completed.  

The cost of repair/checks/upgrading of each property or each dwelling in a multi-unit property should not exceed £15,000 (excluding VAT). 

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