UK Facilities Management

Copyright: David Lawson/Financial Times 1996

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Imagine a whole city run by the private sector. Not so far-fetched when you consider how much importance the government places on outsourcing local services - and the noises New Labour is making about professional city mayors if it wins power.

In fact, why not pass central government services across the divide? The private finance initiative (PFI) steamroller is already heading in that direction.

A sharp intake of breath at such prospects illustrates the confusion that pervades an industry which has grown up around these services. That is understandable, as the industry appears just as confused about itself. But the fact that such grandiose ideas are even contemplated also reveals its swelling ambition.

One source of confusion stems from the jargon. 'Facilities' is almost meaningless to outsiders but is merely an umbrella term covering everything from catering and cleaning to complex engineering projects. Businesses have increasingly farmed out such 'non-core' services, particularly since the cost-cutting pressures of the recession. Local authorities and central government have followed with compulsory competitive tendering (CCT) and PFI.

The fog descends again, however, once the term is attached to 'management'. Lionel Prodgers, joint managing director of Chesterton Property and Facilities Management insists that a facilities manager does not necessarily provide services but decides whether outsourcing is even necessary, and then buys and co-ordinates them.

Hence, the idea of a town run by managers - answerable to the politicians, of course - put forward by Oliver Jones, FM managing director for the Symonds Group He sees this as a natural development for an industry now reaching maturity, particularly when CCT had produced such 'paltry' savings.

Such depth is not consistent, however. Despite sheltering under the same umbrella term, most firms are still involved in service delivery. That matches the market, where single-service contracts predominate, according to the annual industry review sponsored by Mowlem and published by the Centre For Facilities Management at Strathclyde Business School.

But most operators are 'seeking the management high ground' by acquiring consultancies. Honeywell took over FM2; Johnson acquired Procord; Chesterton won British Gas FM; and Symonds threw in its lot with, Compagnie General des Eaux.

Don Kenny, managing director of Mowlem FM believes this is a false trail and the industry will polarise into service and management firms. The two areas require different skills, he says. Facilities managers need to focus on strategy, while service suppliers concentrate on efficient people management.

Such niceties may mean little to outsiders, but they are shaping the future of an industry which has quietly grown into a giant. Market Audit, a study by Asset Management, estimated the current UK market at 47 BILLION pounds excluding IT services. About 20 billion of this has been contracted out, showing cost savings of 7 per cent in the public sector and up to 20 per cent in businesses.

Property is a major player, with 'building facilities management' considered one of the 'least core' services and outsourced by 36 per cent of British companies, according to the report. More than a quarter of all businesses aim to farm this out in the next five years - one reason why so many 'facilities managers' are emerging.

Property agents and construction companies see an alternative to their moribund core markets. Traditional suppliers want to expand into a wider range of services. The industry is in flux, leading to takeovers like BET/Rentokil and a host of smaller mergers.

'Control companies continue to acquire managing agents and are beginning to establish a market lead,' according to the CPM/Mowlem report.

Beneath this turmoil a more fundamental examination is going on. Management is impossible without tools, and meaningless without measures of efficiency. 'Any fool can save money by cutting costs; the real measure is increasing value,' says Prodgers. He is spending much of his time developing software powerful enough to handle complex FM needs.

The British Institute of Facilities Managers is also trying to set up industry standards to act as benchmarks but there are still problems over defining costs. Most data is historic or expensive, making it difficult for consumers to assess value for money. Elizabeth Collie of King Sturge also points out that FM has traditionally serviced owner-occupiers, and has not been geared to providing data on investments, with their extra need for dealing with service charges. This is already proving a problem on some government estates.

One certain fact is that outsourcing of services will grow. Who manages that process is debateable. David Miller, managing director of FM2, puts question marks against many current operators.

Property agents, which have problems to overcome in their own core area plus the difficulty of adjusting from landlord servers to user servers. They would have to buy expertise, as Chesterton has. Construction companies expanding out of maintenance into wider services are also walking a knife-edge in their main markets and are likely to boil down to a couple of leaders such as Tarmac and Mowlem.

Service suppliers are killing themselves through cut-throat tendering and trying desperately to move into management. 'They should stick to what they are good at,' says Miller, who predicts more mergers in the BET mould.

Another pitfall waiting on what most hoped was the road to riches could be the end of recession. 'This would remove some of the cost pressures that have driven market growth,' says David Sharpe of Asset Information. Businesses could pull back outsourced services - a real threat where traditional managers are jealous of their power - or at least cutback on further contracts.

But the consensus is that facilities management in all its guises is near the beginning of a growth curve. This may be less steep but should still be driven upwards as businesses become more experienced in outsourcing. Then they realise that the initial attraction of cost-cutting is less important than freeing managers to concentrate on their core business.