Exclusive: Essential Living will start to procure directly with some “key trades” through a new tier two framework, according to its managing director.
Scott Hammond said the London residential developer, backed by US institutional investor M3 Capital Partner, was setting up a panel of five or six subcontractors for big packages of work such as M&E, groundworks and drylining.
Essential Living already operates a tier one framework which includes the likes of Balfour Beatty and Brookfield Multiplex.
Mr Hammond said that while the company’s “mission is to create a product, not be a contractor”, the supply chain market was proving “hugely challenging”.
When the developer entered the market it had intended to procure work through fixed-price, design-and-build contracts, but has been forced to move away from that due to market conditions.
On its three most recent schemes, Mr Hammond said one involved the firm working with a construction manager/contractor, one as a pure construction manager and a third using a design-and-build process.
He said 25-30 per cent of the cost of the construction was procured by Essential Living through its own supply chain agreements for products such as flooring, heating systems and taps.
Mr Hammond was speaking at the Construction News Summit on a panel alongside Anthology managing director Mark Dickinson, who said the developer was only interested in “light touch” development.
Mr Dickinson said Anthology would continue to outsource building and professional services on developments, for which its “sweet spot” was 250-400 residential units.
Anthology was originally set up to develop residential property within London’s Zone 1, but has expanded out to Zone 3 and 4 due to increased cost and demand.
It is backed by Oaktree’s European Principal Group, which has $6bn (£4.03bn) of assets under management in London, Los Angeles, Paris, Frankfurt and Luxembourg.
Mr Dickinson said Anthology wanted to be “seen as the best client to work for”.
“We know the market isn’t receptive to the aggressive tendering of 18 months ago,” he said. “We have a framework with three contractors [Bouygues, Sisk and Wates] on a two-stage process.”
The developer appoints contractors to schemes under preconstruction services agreements and then works up overheads, prelims and indicative cost on a collaborative basis.
He admitted there had been a “cyclical” nature to residential contracting where developer and contractor take turns “beating each other up” and warned the supply chain that the market would “turn” again.
Legal and General Property head of residential James Lidgate explained the firm’s investment in the industry, saying: “In any other industry where demand outstrips supply you would invest, so why not housing?”
Mr Lidgate added that without taking on development, planning or construction risk, developers were looking at a “negligible return on capital employed”.
Hyde Group group business development director David Gannicott said the biggest challenge facing the residential sector was capacity, pointing to the number of medium-sized housebuilders shrinking from 13,000 to just 3,000 during the downturn.