Decision

Cabinet:

1)      Approved the procurement of leaseholder buildings insurance, with an estimated contract value of £5.9 million through an open procedure under the Procurement Act 2023 and the Contract Procedure Rules, for the period 1 July 2027 to 30 June 2032.

2)      Delegated authority to the Strategic Director of Resources to award and enter into the contract, following completion of the procurement and statutory leaseholder consultation, in consultation with the Portfolio Lead Member for Finance and Resources and the Deputy Leader and Portfolio Lead Member for Housing and Regeneration.

3)      Noted that the contract variation has been approved at the Strategic Commissioning Board on 8 October 2026 to ensure a robust procurement timetable, and that officers will have regard to observations received through the statutory consultation before the procurement proceeds and before the qualifying long-term agreement is entered into.

Options & Alternatives Considered

A competitive tendering procedure is the default route under the Procurement Act 2023.

The options below considered:

·            the procurement procedure;

·            use of existing commercial arrangements;

·            opportunities for collaboration;

·            contract structure and duration; and

·            alternative methods of retaining or transferring the underlying    insurance risk.

Option 1: Open competitive tender procedure (recommended)

Under this option, any interested insurer or appropriately authorised provider could submit a tender against the Council’s published specification and award criteria.

Benefits:

(1)              Provides a legally compliant and transparent route to market.

(2)              Allows all potentially capable suppliers to compete, supporting equal treatment and market access.

(3)              Provides a clear audit trail showing how price, policy coverage, exclusions, claims service and administration arrangements have been assessed.

(4)              Supports demonstrable value for money for leaseholders, who ultimately bear the premium cost.

(5)              The data that will be requested by bidders regarding the leaseholder property portfolio is already held by the insurance services team, reducing any administrative burden from housing and minimising any time delay risk. 

Risks and Disadvantages

(6)              All compliant tenders must be fully evaluated, although the likely small number of bidders limits this burden.

(7)              An inadequately specified requirement could result in non-comparable policy terms, exclusions or excess arrangements.

(8)              Limited insurer appetite could result in only one or two bids, weakening evidence of competitive tension.

Option 2: Extend the current contract for 12 Months

(not recommended)

The available contract extensions have already been utilised; therefore, a further extension of 12 months is not available under the current contract and would be considered a new procurement and insurance policy.

Risks and Disadvantages

(a)              Insurers would only offer a 12-month extension based on new policy terms and conditions as applicable to all new and renewal policy, which would mean reduced cover for alternative accommodation and increased excesses for non owner-occupied properties.

(b)              This means that insurers may charge more for a 12-month leaseholder buildings insurance contract because the shorter term gives them less commercial certainty and fewer opportunities to recover their acquisition, underwriting and administration costs.

(c)               There would be a risk of the Council not being able to secure best terms from insurers owing to the Local Government Restructure being on hold.  This was originally due in April/May 2028, where 200 Local Councils will now not be moving to a lower number of unitary authorities but may be required to tender their portfolios at the same time.

Option 3: Competitive flexible procedure with participation stage (not recommended)

Under the Procurement Act 2023, this allows for a tailored multi-stage competition. A first stage could assess conditions of participation, followed by invitation of selected suppliers to submit tenders.  This is not recommended.

(a)              May help refine complex cover, exclusions, deductibles, claims arrangements or risk-management services.

(b)              Could improve comparability where different insurers initially propose materially different coverage structures.

(c)               Provides flexibility to manage a complex or uncertain requirement.

Risks and Disadvantages

(d)              More complex and resource intensive than an open procedure.

(e)              A separate participation stage may add little value if only a small number of insurers are likely to compete.

(f)                Could extend the timetable and put pressure on the required 1 April 2027 commencement date.

Whilst this tender exercise would pre-qualify potential insurers, preliminary market intelligence indicates that the number of insurers currently willing to underwrite this class of London local authority risk may be limited. This approach is not considered proportionate because the additional participation stage is unlikely to deliver sufficient benefit in a market with a limited number of potential bidders.

Option 4 – Procurement through a framework. (not recommended)

The Council could use an existing framework that expressly covers leaseholder buildings insurance and under which the Council is an eligible contracting authority.

An existing framework has not been identified.

Option 5 – Procurement through a dynamic market (not recommended)

The Council could consider awarding through an established dynamic market that includes relevant insurance suppliers.  This is often useful for recurring procurements, or where the supplier market changes frequently.  A relevant dynamic market has not been identified for this procurement.

Option 6: Collaborative or joint procurement with one or more councils (not recommended)

The Council could procure jointly with another borough or as part of a consortium, using a lead authority or jointly managed procurement.  While aggregated purchasing power may attract greater insurer interest or improve pricing, it is likely that other authorities will have different renewal dates, lease terms, property profiles, sums insured, claims histories and risk appetites therefore aggregation may make the combined risk less attractive and would introduce additional complexity in aligning renewal dates, policy requirements, risk profiles, governance and consultation arrangements.

Option 7 – Fully self-insure (not recommended)

This may eliminate commercial insurance premiums, and the avoidance of incurring premium costs, which includes insurer overheads for policy administration, assumption of risk and underwriting profits as well as insurance premium taxes.  While this may give the Council direct control over claims handling and settlement, the potentially severe and volatile property losses would be transferred back to the Council and the leaseholders. 

In addition, with self-insurance, capital must always be available in reserve if there are claims that must be paid, and insured properties requiring reinstatement or repair.  The Council cannot guarantee that these reserves can be met by the leaseholders as there may not be enough funds available to provide an adequate level of protection to their own as well as Council owned property that may be affected by any loss. 

Option 8 – Do Nothing and allow the current contract to expire (not recommended).

This would avoid the immediate premium payment and procurement administration, and no new long-term contractual commitment would be made.

The Council would become uninsured or unintentionally self-insured from 1 April 2027, and the Council and leaseholders could be exposed to catastrophic property losses. It could also breach obligations contained in leases, mortgage requirements or the Council’s duties as freeholder or landlord.