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Pound for pound

In the fifth of a series of industry roundtables, arranged in association with BDO Stoy Hayward, experts from the FM sector explore government spending and procurement processes

3 September 2009

The panel

Cathy Hayward (chair) is editor of FM World

John Bowen director, Gulfhaven Business Solutions

Gordon Brooks senior interim manager, Miller & Young

Peter Forshaw managing director, Maxwell Stephens

Gerry Askew FM director, SGP (properties and FM)

David Gledhill Business Development director for the Public Sector, Mitie

Paul Crilly deputy chairman, Reliance Facilities Management

Angela Gibbins head of facilities management, British Council

The roundtable

Cathy Hayward (CH): Government has been pumping huge amounts of money into the economy, especially into private finance initiative (PFI). But Gordon Brown’s zero-per cent increase year-on-year means the money may dry up. How must FMs adapt?

Gerry Askew (GA):  It’s a struggle to get banks to release money for PFI but there is still a lot of activity in the public sector, although business models will be a lot tighter.

John Bowen (JB):  Some FM firms will consider radical innovations. But within PFI, the FM enters into it as a subcontractor at the bottom. In this sense FM in PFI has stagnated.

Paul Crilly (PC):  I don’t think PFI exists to create exemplary service delivery. FM is subject to risky decisions taken at a previous stage of the PFI process. PFI is not an incentivised environment. The best you can do is 100 per cent of your service payment.

Ian Fielder (IF):  If you squeeze that initial capital investment it doesn’t necessarily have a net effect on the FM industry.

David Gledhill (DG): Historically the cost of FM has gone up year on year, but FMs now must make savings year on year and this challenges us to look at our own efficiencies.

Gordon Brooks (GB): Once you have a PFI contract quality of delivery becomes a key issue. Procurement is often too prescriptive and the service provider finds their initiatives suppressed.

PC: The quicker we use true outputs for our customer the quicker we can make savings for them.

GA: In PFI it’s about affordability. But there is a limited pot of money and we have to work within very restrictive parameters.

PC: Yes, the PFI customer at the early stage almost salivates at the prospect of having this fantastic facility. But this erodes as affordability kicks in.

Angela Gibbins: We don’t want FM to relate just to the built environment. There is a harsh realisation that funding is not going to be what it was. This focuses minds because the gravy days of capital projects are over. FM must support the core business and this is happening at the British Council and the Foreign Office, our host government department.

Peter Forshaw (PF): There’s an opportunity for the right people to be bold and effect change, to bring their team in with less money and resources. It means there is work for FM at the construction stage. But there will be less profit unless we can innovate better FM delivery.

DG: True, but while we have to save money year-on-year, we must also invest in projects. In the early stages of a contract not being paid for three months is a real issue. How do we recover that money over the contract period? It means some of those tenders might be no-bids because we cannot afford them.

CH: Are the costs of tendering for a project increasing so rapidly that tenders are just not worth going for?

PF: In the current market there is a shortage of private sector contracts so it’s an opportunity for FM providers to seek public work.

PC: But taking a public sector contract cannot be at all costs. Clients may halfway through the procurement process change their payment terms. Or they may want us to manage the Tupe, so we need a professional HR for that. But the client doesn’t want to see that HR cost appear. We need an open debate about what costs are appropriate.

CH: What about the length of the procurement process, where some face-to-face negotiations stretch to 40 days?

GA: That’s part of competitive dialogue but preparation in the public sector prior to setting on competitive dialogue is atrocious.

CH: Will pension responsibilities deter bidding?

DG: Yes, particularly with final salary pensions that can result in a no-bid.

PC: We’re looking at a PFI where the local authority retains final salary liability. But we tell them the costs of this pension responsibility and then get accused of creating liability. All we do is create visibility of liability.

GA: Does the public sector simply not understand that or are they playing dumb? Is there an element of ‘lets get this shifted’? I’ve seen some very good public sector project directors working well with the private sector. Others with only public sector experience perhaps don’t understand some nuances.

CH: What are the alternatives to PFI?

DG: We’re a member of a government frameworks contract meaning we pre-qualify for many contracts. Getting on it was a standard bid process. This time around the framework will be completely for FMs whereas before we had to partner with a property firm to get the work.
GA: PFI should be up to 10 years and not 25. You can’t realistically invest large amounts over a three- to five-year contract. Partnership starts only if you are into a five-plus year contract.

CH: Is the public sector becoming a more intelligent client?

John Bowen (JB): There’s a lot frustration by procurement with ticking boxes and a lot of it is sheer bureaucracy. They see us coming ashore like the Danes with horned-helmets and axes ready to take the country.

CH: Even with all this free consultancy we’ve mentioned?

GB: Yes, we still end up with a very prescriptive deal with little latitude to do more. Many suppliers are saying we can do more.

DG: Funding and financial constraints take you down the route of less innovation.

PC: That’s the contradiction of PFI. A big driver for outsourcing is to get our expertise. Why then be so prescriptive?

IF: Unfortunately, it seems the 2008 Julius Report recommending a move to better output specs and banishment of the fear of post-negotiations was simply buried.

PC: It’s like pensions. The answer is to identify liabilities and not pass all of them to the private sector. Think who’s best to deal cost-effectively with a liability.

CH: But that needs good partnership, which you say is missing?

JB: Purchasers must defend their decision so they specify the outcome exactly and how much the supplier is to charge.

IF: But that excludes innovation by supplier.

GA: Life-cycle work is becoming far more prescriptive. This year you do that, next year you do another thing. If we ask for the outcome spec to develop an innovative model then we get accused of only wanting more money. It destroys trust.

Peter McLennan (PM):  That’s because they still see FM as a commodity. Until you move it to onto a relationship standing with the client, FMs will always get bashed on cost.

Iain Lowson (IL): Isn’t it about making FM a provider of services to the workforce rather than to the building?

CH: After the next election, what do you want public procurement to look like?

GA: Procurement to have a deeper understanding of what they wish to accomplish and start their processes earlier, not just charging in.

PC: More bravery by the public sector to look at something that isn’t mainstream and work collaboratively. No more ‘we’ve always done it that way’.

GB:  For FM to be seen as less commodity and more added value, and over the contract life-cycle.

DG: Understand that FM providers report to the City and cannot take on unworkable contracts. If too much investment is needed and we can’t recover the money, then we walk just won’t do it.

PM: The public sector should see FM is a professional service. This happens in the hospital environment. Local authorities too often see FM as a janitorial service, a big mistake given that a third of all local authority employment is FM-related.

PF: More outsourcing. Reduce some middle management. On PFI contracts, have it so five years down the line there is room for innovation.

AG: The public sector needs better skills at managing outsourced contracts. If they couldn’t manage it in-house, they likely can’t manage it outsourced.

IF: The public sector should stop inventing complex models, such as detailed PFI, and second and third generation contract structures.

IL: Just how good is the FM profession at getting these messages across to government? It will be political decisions that make any changes.