Do decarbonisation grants have too many strings?

Gayle Monk looks at the challenges faced by councils and social housing providers when using decarbonisation funding.

Over recent years, we have increasingly been advising local authority and social housing clients on their work to utilise decarbonisation funding – Public Sector Decarbonisation Scheme (PSDS), Social Housing Decarbonisation Fund (SHDF), and others – as they seek to implement their net zero and sustainability goals.

In the context of those funding pots, we have supported clients at all stages – from reviewing grant funding terms and conditions and arrangements across consortia, through advising on compliance with subsidy control laws and procurement routes to drafting and negotiating terms with contractors and consultants to implement the planned decarbonisation works.

Given the tight timescales allowed by the funding bodies for delivery of the decarbonisation works, this has often meant calling off from existing framework arrangements rather than separate procurement exercises. While expedient, this can often mean that the form of contract used under the framework is not a perfect fit for the client’s requirements and either requires amendment (within the limits of the framework itself) or requires everybody to tolerate a contract which is less than perfect. Frameworks are excellent for run of the mill purchases, but for more bespoke purchases can often mean compromising on price, quality, or both. Without tight timescales, many may have chosen to consider their procurement options in full rather than leap to frameworks for delivery.

It has also meant a resurgence of lead contractor models, where smaller subcontractors are delivering the majority of the works. While not a problem in principle, this can mean that until work is under way, clients don’t necessarily know who they are dealing with on a day-to-day basis.

All of this means that clients are running into problems after contracts have been entered into and schemes are under way. Most of these works are not of a complex nature and can be readily carried out by a range of contractors. The problems are being encountered for a number of reasons, all of which are exacerbated by the limited time in which the client body must negotiate and enter into contract and start the works. At the heart of the challenge is often that contractors are being asked to work in environments with which they are not familiar – public buildings that must continue to be open to the public, schools where works can either be undertaken during the summer break or not at all and homes with vulnerable tenants.

Adding to these contractual frustrations is a changing financial and commercial landscape to which clients and contractors alike must respond – within which the goal posts for value for money calculations have shifted, especially in reaction to fluctuating energy prices. Many decarbonisation measures (and particularly those that are introducing renewable energy sources to a building) are benchmarked against gas prices rather than alternative renewable sources and the fluctuating gas prices over the last two years put in jeopardy the viability of schemes that might, at the point of application for the funding, have looked very different.

It would be unfair to characterise these grants as wholly unhelpful. They are a critical component of the UK’s net zero ambitions and they contribute to the overall larger funding needs for housing providers and local authorities to decarbonise, in the context of otherwise steadily reducing funding streams. However, given that a third of decarbonisation funding is unspent despite the known need for the measures these funding supports, there is clearly scope for improvements in the way that these funding schemes are administered, allocated and utilised.

These changes could include the following:

• in the short term, funders more formally allowing for time extensions if they are reasonable and provide value for money (or ideally simply allowing more time);
• allowing a dedicated time period for procurement and contracting, which does not form a part of the grant spending period (or procurement of new, bespoke and fit for purpose central or regional framework agreement(s) that both contractors and grant recipients commit to using);
• a programme of investment in the upskilling of the marketplace to create a prepared and knowledgeable supply chain; and
• changes to how the viability of schemes is calculated to enable renewables to be compared with renewables and calculating value for money not just in terms of pounds and pence but in terms of environmental impact.

In the meantime, we will continue to support our clients through the challenging processes of applying for and using the funding and, regrettably, the unfortunate outcomes of unsatisfactory contractual relationships and unviable projects.

Gayle Monk is a Legal Director in the projects team at Anthony Collins.