FM Recognized as Central to Business Planning

Copyright: David Lawson - published Property Week April 2006

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Almost half the £40bn spent on facilities management last year went to outside contractors. Occupiers see outsourcing as a key way to cut costs and concentrate on their core business. Yet this falls far short of predictions that almost everything would be spun off following the government’s lead in PFI projects. More than 80% of contracts merely buy in staff for services such as catering, cleaning and security, says the Building Services Research and Information Association [BSRIA] latest market report.

    Outsourcing is of less concern to managers than matching tough new regulations and making their core business more efficient, according to a poll by the British Institute of Facilities Management [BiFM]. They feel the need to stay in control. Attitudes have moved sharply since building services became a focus for cost cutting a decade ago. FM is now recognized as playing a central role in business planning.  Take a simple service like catering. Few occupiers now employ their own staff and constant pressure is kept on contractors to cut prices by renegotiating every couple of years. Yet BA showed the dangers of losing control when its contractor, Gate Gourmet, tried to trim costs by sacking workers. This struck at BA’s core business when a strike forced passengers to go without meals.

   The new chief executive of a major US bank spotted a similar danger when he reversed plans to outsource IT a couple of years ago. He felt that while this was a non-core service, any failure would cripple operations and cause irreparable harm to client relations.  Cleaning might appear an even more basic service, yet managers have moved from ensuring floors are kept tidy to asking whether those floors are used effectively – or even necessary. A new science has evolved around key performance indicators [KPI], rating the value of every square metre of space.

  Dozens of these indicators range from total property cost per head of staff to the average response time for delivery of services. Benchmarks can be tested across buildings, companies and even whole business sectors to determine best value. Forward-looking firms use FM to decide how much space they need - and where. Managers have traditionally complained that relocation decisions are made at board level and they then have to make the best of what may be a bad job. Now they are increasingly part of advanced task forces, quizzing agents about how buildings work rather than allowing real estate managers to make decisions based purely on rents. ‘Successful organisations will approach FM as an integral part of their strategic plan,’ forecasts BiFM in its view of the future. ‘Those that treat it as a commodity overhead will be at a significant disadvantage.’

  Facilities managers will play a key role in the way occupiers hold property, Oliver Jones, business development director at Carillon, predicted at a BiFM conference master class. He sees a balanced mix of serviced offices, flexible space and traditional long leases. ‘There needs to be a shift from owned assets to managed services,’ he said.  ‘The example here is fleet cars. Yet property is an anomaly with long leaseholds on the balance sheet.’ 

    David Alberto, head of Avanta, the managed business centre group, goes further. Businesses should transfer everything into flexible long-term occupancy contracts. Instead of leases and rents, they should bundle property and services, paying suppliers on how well they provide those facilities.Under this kind of all-in package, occupiers retain complete control of property, expanding and contracting as needed, while surplus space can be turned from a liability into asset by letting off, says Alberto. 

   When Clifford Chance, the world’s biggest law firm, moved from central London to Canary Wharf, the project was driven not by estate managers but the facilities team. They even redesigned the new 1m sq ft HQ because they knew better than the lawyers themselves what was needed. A seemingly routine service like lighting became a key factor. This had to be infinitely flexible because vast numbers of staff shift around every week as teams break up and re-assemble. Each person demands their own level of illumination.A system was designed so each light fitting was linked to a central computer network and could be adjusted from the desktop PC below. This reduced absenteeism from headaches – an expensive problem when lawyers bring in around £500 an hour. It also dramatically reduced the torrent of helpdesk calls each Monday morning when engineers had to crawl around lighting ducts.  The new HQ was also turned into what some consider the greenest, most luxurious working environments in the world. That might seem to breach the dictum of cost cutting but attracting top staff – particularly to a place like Canary Wharf – is seen to justify this kind of outlay.

[All sourced: UK market for Facilities Management (2006) BSRIA]

Facilities Management Market

2001                £15bn              40% outsourced

2005                £19bn              44% outsourced

Estimated to exceed £22bn by 2008

By Sector [rounded]

                                                            % of market

Financial                       £1.9bn                         5%

Other offices                 £5.1bn                         12%

Retail                            £5.5bn                         13%

Leisure                         £6bn                            14%

Manufacturing               £11bn                          26%

Medical                        £5bn                            12%

Education                     £7.8bn                         18%

TOTAL                        £42.6bn

Outsourcing Contracts

Manpower only                                    83%

Manpower and operational                   12%

Manpower, operational, strategic          5%

Type of Contract

Individual services                                 57%

Basic FM                                             16%

Grouped services                                  14%

Full FM                                                13%