Community Partnership Projects Limited
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Is it time to stand back and reconsider the race to outsource?

Is it time to stand back and reconsider the race to outsource?

Ever since I can remember the public sector has been told by experts that FM is not “core” business and these functions should be considered for outsourcing because there is better expertise and more cost effective models out in the glittering world of the private sector.

But like all these bold statements the reality and therefore the truth of the statement is questionable – whilst there is a lot of challenge needed within the public sector, it is not as black and white as it is so often painted.

This is where I start to feel like a turkey voting for Christmas, “should I really be saying this”?  The reality is that for organisations such as Local Authorities and NHS Trusts the size and scale of the FM service provision means that they should be able to compete with any private sector provider on quality, economy of scale, recruitment and retention and above all on flexibility.

However, for many years now the ancillary functions associated with FM have been seen as a non sexy, non core business function, effectively representing that unwelcome problematic family member – tolerated because we have to but wherever possible excluded from the parties and the important get-togethers.

One view is that outsourcing is not actually about the micro economic impacts but the macro – by reducing the strain on the public purse to put “non-core” services out into the private sector, the private sector pay the overheads and running costs.  This alleviates the burden of employment cost and administration on the public sector, reducing the apparent cost of public services to you and I without reducing the service delivered – everyone’s a winner!

Well it is hard to operate in the middle ground and argue with that philosophy but the reality of the impact is again not so straight forward.

NHS Trusts for instance represent a sizable FM undertaking; a 1000 bedded hospital will occupy around 100,000m2 of hospital buildings. 100,000 m2 of hospital requires an FM operation to manage it with an annual turnover of around £20 million.

The private sector offer services based on customer need at a price it feels is acceptable to the client whilst maximising its own profit. Nothing dirty in that – CPP is a private limited company and we price based on a whole set of criteria and one of those is ‘will it be profitable to carry out this work’.

The issue comes when the contract becomes a stick to beat and limit service provision in order to deliver maximum profit, in effect the contractor becomes a manipulator of the contract in order to maximise the return. If I, as an Employee managing a service contract for a major Private company,  do well in this regard, I am rewarded, if not I am moved on and the next manager picks up the challenge.

£20 million turnover is a reasonably sized operational business and the concept that this is automatically better placed with the private sector should be considered carefully. Once upon a time it was said the rationale was as much about unlocking the strangle hold of unionised practices. I think the days of public sector management being held to ransom by union hard liners are well and truly gone.

The reality is I am in favour of market testing and tendering to ensure your service and the cost of services remains competitive. However, don’t just offer tendering to the external market, allow the internal teams to bid for it. Give them a realistic chance to show the merits or otherwise of the service and be open minded about it. Remember if the new contractor comes in, the same faces that were operational within the in-house team will be there the following day, just this time they will have a different paymaster and uniform.

Giving the in-house team a realistic chance includes allowing them to budget for bidding. We are living with Alice in Wonderland if we seriously think the cost of bidding is not wrapped up in the private sector’s final cost. Bidding, marketing, schmoozing all costs money and we (the private sector) budget for it and the costs of it are applied to the contracting price.

In Hospitals and Schools I see poorly worded contracts based on a simple misunderstanding about the need for flexibility, and on the part of the contractor, a sensible but deliberate desire to limit the risk and exposure on the contractor. This can be mitigated by specifications that ask bidders to deliver against the current service configuration as a compliant bid and offer them an option to deliver an added value submission as a variation. That way you measure like for like first and then consider innovation. Yes it takes a bit more managing in terms of the tender evaluations and management inputs but if the value of the contract is £20 million per annum and the contract is for 5 years, then the tender evaluation should have a degree of robust technical challenge commensurate with the decision to appoint.

There is a misguided view in some quarters which deals in almost comic book (good versus evil) rhetoric, and the FM world often gets portrayed as the big bad private sector Viking Marauders, pillaging the poor public sector Saxon Villages but just like in history, that is so far from the truth.

The private sector exists only if it is providing something that a client wants and only if that service is profitable, so by definition, a contract has to be risk averse and sustainably profitable and for every hugely successful cash rich FM contractor out there, another exists that is struggling and not delivering the sustainable profit required for survival. There are great examples where the private sector has transformed the delivery and quality of FM services and consequently the experience of the physical estate adds value to the organisations business or operation.

However, in a mainly human resource driven industry, there should be little to choose between the management competencies of the public sector versus the management capabilities of the private sector. I doubt if anybody would be surprised to hear me say, that FM service quality is all about quality management practices and professional and technical competencies. Once upon a time there was a view that the public sector could not compete with the private sector on pay and therefore the high flying managers did not come into the industry. Well I do not want to break the myth for the down trodden public sector but in my 25 years’ experience I can safely say that the public sector middle management upwards are paid very well and in many instances considerably more than their private sector counterparts. So there is no reason not to recruit the right caliber of FM manager to deliver a quality service from a motivated work force at a cost that is very competitive.

I’m not saying private sector bad, public sector good, what I am saying however, is do not rush to hand over FM services to the private sector without considering the in-house option seriously. Hey if it is good enough for BT to bring their FM back in-house, it can’t be all that big a risk to invest in the in-house option!

 

Ian Denison

Director CPP Limited

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