A brief summary of how the Accelerate Construction process works

1. Successful places
with homes and jobs
A NATIONAL
AGENCY
WORKING
LOCALLY
Accelerated
Construction
Overview
December 2016

2. 1. What is Accelerated
Construction (AC)?
2. The Objectives of AC
3. Contractor Model Overview
4. Worked Example
5. Equity Model Overview
6. Who is AC Targeted At?
7. How Do I Get Involved in AC
Opportunities?
Contents

3. What is Accelerated Construction?
 The Accelerated Construction (AC) initiative is the Government’s new
approach to land disposal to increase overall delivery in the sector and
build on public land at a faster rate than the market currently does
 The initiative currently involves 2 alternative approaches – the ‘Equity’ or
‘JV’ Model, and the ‘Contractor Model’, but others may be used
 The ‘Contractor Model’ was approved by HM Treasury in November 2016
– and is therefore a live approach available for immediate use by HCA
 The business case for the ‘Equity Model’ is still being prepared – and
details of this approach will therefore be released at a later date
 The model applies only to public sector sites – and can be for projects
involving new build and / or renovation works

4.  Increase the pace of build
 Diversify the range of companies
involved in housebuilding, and
support existing players with
capacity to grow
 Diversify construction techniques –
with a particular focus on promoting
modular build (or New Methods of
Construction)
Objectives of AC

5. What is the ‘Contractor Model’?
 The ‘Contractor Model’ is a shared risk approach to site disposal /
development
 The model involves the HCA procuring a partner to build out on public
sector land significantly faster than the current market would under a
normal disposal
 The AC contractor is responsible for detailed planning, raising finance,
construction and dwelling sales
 To help mitigate the increased risk to the contractor, HCA provides a
guaranteed ‘exit’ from the project by agreeing to buy all unsold
properties at an agreed date (usually 12 months after practical
completion) at a pre-agreed discounted price

6. How the ‘Contractor Model’ Works
 HCA secures Outline Planning for the scheme, and agrees a S106 with
the Local Authority
 HCA invites contractors to bid competitively to become its AC contractor
partner
 Contractors are asked to bid the following information to HCA:
 Agreement to deliver at the required build rate, and to agreed
specifications
 A fixed development cost (including construction and finance costs)
 Details of the expected sale value of each property
 Their ‘Stop Loss’ position
 Their ‘Back Stop’ position
 Their ‘Gain Share’ position

7. Definitions
Stop Loss: Bid as a % of the development cost of the
unit. At the agreed Distribution Date (perhaps 12 months
after final unit completion), if sales revenue is lower than
the ‘Stop Loss’ position the HCA pays the difference into
the development account.
Back Stop: Bid as a % of the development cost of the
unit, below stop loss. At the agreed Distribution Date, if
any completed units remain unsold, the Agency will pay a
sum (the ‘Back Stop’) for each of these units into the
development account.
Gain Share: If there is a positive balance on the
development account (i.e. sales revenues minus allowable
costs) this surplus will be shared between HCA and
Contractor according to the agreed ‘Gain Share’
arrangements.

8.  The selected AC contractor secures reserved matters planning consent
for the scheme, raises finance, builds and sells the homes
 The contractor must aim to build / sell properties at an agreed pace, that
must be faster than the typical pace for that market location.
 All sale revenues go into a ‘Development Account’ (with HCA and the
contractor as co-signatories), and the majority of these revenues will be
made available to the contractor to fund ongoing delivery
How the ‘Contractor Model’ Works

9. How the ‘Contractor Model’ Works
 At the agreed Distribution Date, as a priority return, the AC contractor
takes its agreed fixed price development costs from the Development
Account.
 If the funds available in the account are below the agreed Stop Loss, the
account is topped up to the Stop Loss level by the HCA
 After the deduction of agreed development costs, HCA takes the majority
of any surplus, up to an agreed amount (usually land value plus HCA
costs)
 Any remaining surplus (profit) is shared out according to the agreed
‘gainshare’ arrangement

10. Example Scheme
 HCA land valued at £180,000 (including costs)
 Site has planning for 10 dwellings
AC Contractor’s Bid
 Development Cost per unit: £100,000
 Target sale value per unit: £150,000
 Stop Loss per unit: £95,000 (95%)
 Back Stop per unit: £85,000 (85%)
 Target Distribution Date: 12 months after practical completion
 Gain Share Distribution: Tier 1: 90% to HCA, up to land value
Tier 2: 55% of remaining surplus to HCA
Worked Example

11. Worked Example – Scenario 1
Surplus after Contractor Development Costs: £500,000
Tier 1 Gain Share: HCA £180,000 (90%)
Contractor £20,000 (10%)
Remaining Gain Share (£300k): HCA £165,000 (55%)
Contractor £135,000 (45%)
TOTAL HCA = £345,000
TOTAL CONTRACTOR = £155,000 (15.5% profit on cost excl. any margins within fixed development cost)

12. Worked Example – Scenario 2
Stop Loss Cap for 8 units: £760,000 (8 sold dwellings x £95,000)
Actual Revenue: £746,000
TOTAL STOP LOSS PAYABLE: £14,000 (£760,000 - £746,000)
Revenues credited to Proceeds: £760,000
Back Stop for 2 unsold units: £170,000 (2 unsold dwellings x £85,000)
Back Stop Payment up to Back Stop Cap (£850k): £90,000

13. AC Contractor’s Position = £0.85m revenue against £1.0m TDC
Benefits of AC to Contractor
 Whilst a loss is made under Scenario 2, the contractor’s loss is mitigated
by the guaranteed project exit HCA provides through the ‘Back Stop’ and
‘Stop Loss’ mechanisms. A margin may also be included within the
original development cost
 The protections given by HCA under the ‘Contractor Model’ will enable
contractors to reduces risks/losses from market failure situations
Worked Example – Scenario 2

14. What is the ‘Equity/JV Model’?
 Details of the ‘Equity/JV Model’ are still being finalised by HCA.
 The model is likely to involve HCA investing its land as equity, with the
contractor then investing its reasonable fixed development costs as its
own equity
 Scheme profits would be distributed between HCA and the developer
according to the proportion of equity that each party has invested
 Unlike the ‘Contractor Model’, HCA would not necessarily give its selected
development partner a guaranteed exit from the project in the event of
poor sales and may impose different obligations on delivery (eg use of off
site manufacture / modular within the scheme)

15. Who is AC Targeted At?
 The AC programme seeks to diversify the range of companies involved in
house-building, and support existing players with capacity to grow to do
so
 HCA has an ambition to make its land opportunities available to a wider
audience of development companies
 AC is therefore designed to achieve:
 New participants who are keen to enter the housebuilding market, where AC
models will offer the right incentives, assurances and balance of risk and
reward to do so;
 Existing builders, including SMEs, who wish to increase their output;
 An increased proportion of construction that is off-site or using MMC
 Builders delivering AC projects may also be eligible to bid for HCA’s
development finance via the ‘Home Building Fund’, subject to the usual
criteria and bidding process

16.  It is likely that the AC approach will be used on all HCA’s larger sites
(i.e. 50+ dwellings)
 HCA is required to procure development partners in line with EU
procurement law. To streamline this process HCA is seeking to
assemble a panel of development companies who have been pre-
vetted / pre-procured in accordance with EU regulations.
 By bidding onto the panel, members will be eligible to bid for HCA’s
larger AC opportunities without the need for repeated procurement
related vetting
How Do I Get Involved in AC?

17.  Each region of England will have its own panel (known as a ‘Delivery
Partner Panel’ (DPP)). In the Northwest, HCA is seeking to appoint up
to 35 panel members to its DPP.
 Companies who are interested in participating in AC opportunities are
therefore encouraged to bid to become one of HCA’s DPP members
 Bid documents for those interested in becoming members of one or
more of HCA’s regional DPPs can be found HERE
 Bids need be submitted by a close date of 25th January 2017. The
panel is intended to go live in April 2017 and will last for a period of 4
years
 Details of HCA’s development finance fund (the ‘Home Building Fund’)
can be found HERE
How Do I Get Involved in AC?

18. Contact Details
 If you would like to discuss AC in more detail, please feel free to contact
Phil Collings on:
 phil.collings@hca.gsi.gov.uk
 0161 200 6180
 If you have any queries relating to the DPP bidding process, please
direct your enquiries in writing to the following email address:
 ddp3@hca.gsi.gov.uk
 If you have any queries relating to HCA’s Home Building Fund, please
direct your enquiries in writing to the following address:
 homebuildingfund@hca.gsi.gov.uk