Driving Efficiency in Public Sector FM

In 2009, it was estimated that the outsourced activity in the public sector in the UK added in excess of £45bn per annum.

As a trend for Total Facilities Management (TFM) continues to emerge also, public sector organisations are able to outsource all ‘non-core’ business activity to one provider, enabling a greater focus on core business. This evolution in business practice and strategy is becoming increasingly apparent across all industries and sectors, as a means of cutting costs and improving organisational efficiency.

A complex role

The complex role of Facilities Management in the public sector is summarised by Alexander (1995):  “Facilities management in the public sector is not only about organisational effectiveness, but also about public service and responsibility, particularly in the face of change. The challenge is to bring about change, to anticipate public needs, to identify the contribution that facilities make to public service, and to manage for the effective use of public assets and resources.”

Last year in a roundtable, hosted by Interserve, local government and industry bodies discussed how the economic challenge will change the way local authorities do things. As one individual at the roundtable commented “it’s time to chew the elephant”, others commented that local authorities were going to need to radically re-think the way they procure services.

The decision earlier this year by the London Borough of Croydon to renew its total facilities management contract with Interserve, targeting a potential £9 million saving by 2016, may be a sign that the elephant is at least being carved in a new way.

An interesting challenge
The London Borough of Croydon is the largest in London with around 350,000 residents and 350 properties including a listed town hall, office complexes, libraries, restaurants, sheltered housing, care homes, schools, youth and day centres, community centres, crematoria and cemeteries. Evidently, this presents an interesting challenge for facilities managers.

Even in 2006, there were financial factors at the root of the decision to move to a TFM model, with the contract designed to achieve £6 million of savings over its five-year life.

According to Aiden McManus, director of corporate services at London Borough of Croydon, the contract has achieved all it promised: “The total facilities management contract delivered £2m of savings in its first year and annualised savings have been very consistent. For example, we consolidated 50 contractors into just one with Interserve and avoided having to deal with 28,000 invoices a year. We adopted a delivery model with an ‘intelligent client function’, which remained in-house and kept a strategic and operational overview, whilst we contracted a full range of facilities services to Interserve under one delivery model covering everything from workspace services to minor and major projects. Working together we have also developed joint initiatives around energy saving, carbon reduction, Fair Trade, local community engagement and, in the latter years, we have put great emphasis on customer engagement and developing a single point of contact for users. A recent independent benchmarking exercise proved the service is value for money and a customer ‘pulse’ survey consistently demonstrates performance above target.”

Maintaining front line services
Yet in mid-2011, when discussions about the contract renewal began, it was clear that with the economic challenges it was critical for the Council to deliver further savings, whilst endeavouring to maintain front-line services. It is also mid-way through a range of significant capital programmes, including the move to the new Council offices which, as just one example of change, will lead to lower desk-to-headcount ratios, hot-desk working and more home, mobile and remote working.

The ongoing turbulence of the economy is clear in the language used in the new plans, which focus on cashable savings, resilience and ‘measure what matters’. It is no surprise then that the new contract, which extends to July 2016, is targeted to achieve £9million in savings, but it is useful to identify exactly where these savings arise.

£2.5 million in quick wins have been identified, primarily around the use of assets; the management structure is being transformed, with the in-house team slimmed down to a team of six, focused on strategic issues with some TUPE transfer to Interserve, saving a net £2 million; and efficiencies in Helpdesk and Energy Bureau processes will save £0.5 million.

However, the bulk of the savings, some £4.5 million, will come in changes to service line delivery and this, as Kelly Thoden van Velzen, general manager for Interserve explains, is where strategy and detail meet: “You have to get the strategic framework and vision right first, otherwise you are planning in a vacuum. This is hard, ‘thinking through’ complex options and consequences. Then the real delivery of savings is right down in the day to day detail. Such as introducing a new cleaning regime with three different standards of cleaning depending on the business use of each building; restricting the messenger delivery service to one delivery and pick up point per floor in a multi storey building; identifying that a service to inspect water tanks was covered by another service contract so we had duplication. These are not exciting changes but it really is the case that ‘the devil is in the detail’ when you want to make savings.”

“At the same time we have to be sensitive, so there are a wide range of properties which have had no changes to their cleaning or other services, as they are either residential or support buildings for vulnerable and high risk community members.”

The final part of achieving these savings was a contribution of over £1.2 million from Interserve in the form of reduced margin and a lower RPI indexation on the contract fee.

The new contract does retain some of the optimism of the earlier model, with a continued focus on sustainable development, lifecycle management, health and safety and new service options around energy efficiency.

Finding a balance
In the final analysis, this is the balance that all local authorities will have to find: between delivering a strategic vision and the reality of service reduction and cost pressures. As Keith Dorling, managing director – civil government at Interserve commented:

“Research with YouGovStone in 2011 showed that many councils are still getting to grips with the scale of the efficiency savings they need to make. This fiscal challenge is likely to mean radical changes in the way services are delivered.

“Croydon showed the way forward in 2006 when they moved to a total facilities management contract, which was bold for the time. Today, facing the new realities, they have shown the same level of forward thinking in the way they have engaged Interserve in renewing and extending the contract, with a real focus on risk sharing and delivery.”

Overall, the public sector is very important to the FM industry. The most recent research from MTW suggests that, whilst there may be a growing pressure on prices, the need for the public sector to continue to divest risk and seek to reduce costs through outsourcing should underpin this sector in terms of its value to the FM industry.

As we are aware, the Government is looking to resurrect PFI, in the form of PPP (Public Private Partnerships), and the FM industry will eagerly wait to see what impact this has. The recent announcement of an additional £2 billion of spending on new schools in the next two years and real term growth in spending on Healthcare is offering some moderate optimism to the FM organisations that are currently working in the sector.

At the same time, however, profit margins in public sector contracts are being increasingly squeezed, meaning that price competition between FM contractors will remain intense.

Looking forward, we are interested to see if the PPP initiatives succeed in bringing the public and private sectors together, making the public sector an attractive place for FM contractors to be, and ensuring that FM and effective outsourcing remains a viable way for public sector bodies to drive efficiency.

Facilities Management Association
The Facilities Management Association (FMA) works with a variety of large FM organisations, managing TFM contracts, and also single service providers. 
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