Outsourcing Facilities Management

PRESENTERS Joanna Frost Crescent Purchasing Consortium Tel: 07990 763974 email: j.frost@salford.ac.uk David Thoms Tenet Education Services Tel: 01376 511411 email: david.thoms@tenetservices.com Give a bit of information on our backgrounds. Jo – procurement advisor at the CPC – background in facilities management tendering – conducted over 100 OJEU tenders for fm services – a number of which included first time outsourcing.

AGENDA 1. What is facilities management 2. What is integrated facilities management 3. In-house vs outsourced 4. Considerations when outsourcing Feel free to ask questions as we go along

What is Facilities Management? “Facilities management is a profession that encompasses multiple disciplines to ensure functionality of the built environment by integrating people, place, process and technology” – International Facility Management Association PPM of building assets Cleaning Manned security Grounds maintenance Caretaking Waste disposal Catering

What is Integrated Facilities Management? Incorporating a number of services into a single contract for delivery by one external contractor. Usually split into hard and soft services contracts Hard services Planned preventative and reactive maintenance to building fabric and its assets and water management Soft services Cleaning, catering, manned guarding, caretaking, waste disposal, reception, post room, grounds maintenance Hard FM – facilities services which focus on managing the maintenance of the building fabric, heating, ventilation, lighting maintenance, energy management and fit out Soft FM – services that ensure staff work in a safe, clean and productive environment.

Integrated Facilities Management Key advantages Single contractor to communicate with Cost savings Potential for multi task full time positions Key disadvantages ‘Eggs in one basket’ Comprehensive contract management required Only effective if most soft services included Cost savings come from the drop in profit and management fee the contractor will charge for a larger contract. Typically in FM contract of around £200k per annum will attracted approx 10% profit charge whereas go up to £1m then this can drop to approx 5%. Eggs in one basket – to combat need to make sure the contract is large enough to make it worth while the contractor getting it right!

Integrated Facilities Management The Supply Market – Examples Soft Services Companies (sub contract hard services) Sodexo Facilities Management Facilicom Facilities Solutions Hard Services Companies (sub contract soft services) Balfour Beatty Workplace Norland Facilities Management Soft and Hard Services Companies ISS Facilities Services Mitie Integrated Facilities Management

Integrated Facilities Management Case Study Hackney Community College Have achieved significant annual savings from the year prior to the outsourcing to the present time, the total services comparable costs being as follows: Outsourced all of the following services to a single provider in 2003: Cleaning; Security; Campus Support (incl. Postal and Transport); Waste Management; Reception/Switchboard; Building Maintenance; Grounds Maintenance; Catering 2002 £1.6m plus VAT 2003 £1.4m plus VAT 2008 £1.5m plus VAT 2013

In-house vs Outsourced A recent i‐FM survey* provides some perspective about the service provision and reports a larger than expected proportion of respondents (26%) providing all their FM services in‐house. Just under a quarter (22%) were using individual external suppliers for each service, with consequent supervisory cost and, just over another quarter (26%) used a bundled or integrated services approach, with two or more service lines delivered by a single supplier. 6% of respondents said they have a integrated FM solution in place, with 4% reporting a single solution for FM and property services. Now going to look at whether to delivery FM services in-house versus outsourced delivery Slide shows results of a survey across the wider FM industry – evidence that there is no right or wrong answer Similar number of respondents reported in-house to single contract outsourcing to integrated FM outsourcing. Often the pressure comes to consider outsourcing when college needs to produce cost savings. Ideally the decision to outsource should be made on more than one objective – requires careful consideration of all relevant criteria. After all the quality of facilities services affects occupier performance Growing body of research evidence showing that poor lighting, poor cleaning, bad environmental conditions, poor heating, inefficient IT and poor quality furniture, particularly seating, has a negative effect on productivity. – so you want to get in right. *FM Market Survey 2012 data from i‐fm website.

In-house vs Outsourced In-house advantages Staff are direct employees Employment package is often better than external contractor No VAT payable on the wage cost In-house disadvantages Staff absence Lack of expertise Difficulty in restructuring services as required In-house review In-house bid? Now we start to look at some of the advantages / disadvantages of in-house delivery. Just some – am sure you can come up with more Advantages: college has more control over direct employees – Maybe the ethos of the college to employ its own staff - long term the employees generally have a better employment package. Monetary perspective – no VAT payable Disadvantage: staff absence – particularly an issue on cleaning contracts due to the short hours. – Expertise – can be difficult for Estates staff to keep up to date with latest practices or access professional training – Changes can be harder to implement when the staff are direct employees – difficult to move past what we have always done. Review: Review what you are doing in-house – would advise a review is done first before decision is made. If the service is not meeting the College’s expectations – look at why this is and try to address them in the outsourced specification. You could seek advice from external consultants specialising in that area or you can do a general comparison against other colleges e.g. for cleaning you could benchmark based on the price paid per square metre. Use the CPC communicator forum or network meetings to ask other colleges for this data. When looking at the costs of an in-house operation need to try and identify the true costs of the in-house service e.g. hr and payroll costs, IT costs, cost of overheads, bought in material and equipment, management time etc In-house review should also look at the skill level and experience of the relevant teams as a factor in deciding whether to outsource. Can run a tender plus do an in-house bid to see if it is worth outsourcing. Need to make suppliers aware of this possibility. EU case law in this area – advise caution – make sure you inform suppliers that the in-house bid is a comparator to assist the College to decide whether the tender should be continued or abandoned – not intended to be used to evaluate or deselect any bidder. Down sides of in-house bid approach: doesn’t give staff involved a clear picture of what’s happening Could be conflicts of interest within the college

In-house vs Outsourced Outsourced advantages Experienced management and expertise Lower costs Restructuring of service easily achieved Guaranteed service levels Outsourced disadvantages Employment terms not as generous Contract management can be subject to change VAT payable on contract Fewer staffing issues for College Efficiencies Budget control Time & effort managing contract Now to compare against the advantages and disadvantages of outsourcing Advantages Experienced management – more efficient and expert services – compliance with industry standards e.g. in a catering outsourcing the contractor may have access to a broader range of food or offer better menus – professional trained staff – frees up College’s Estates Manager from the nitty gritty concentrate on more strategic areas e.g. no internal management time spent on monitoring staff attendance, ordering consumables, managing the financials of the contract, arranging DBS checks, recruiting and training staff etc Fewer staff problems – troublesome HR issues such as absence responsibility of the contractor. Lower costs – generally this is borne out by the contractor being able to run the service more efficiently plus removes the need for the college to invest in the capital to run the service. E.g. cleaning service – contractor will employ a higher productivity – through training and equipment – reduces number of hours cleaning required – reduces contract costs. Catering contractor – better understanding of what sells – improved sales, reduces subsidy or increases profit share Also offers enhanced budgetary control and means the college operates with a smaller workforce – cost benefits this brings Restructuring of service – important if the college facilities subject to change i.e. new buildings, refits etc – the responsibility of changing in staffing is the contractors responsibility - or if change in building fabric means different equipment required – contractors responsibility. Service levels – providing you have a good SLA in your contract – monitor performance against KPIs – penalties for defaults – incentivise for over achievement – access to professional training for staff – better career development opportunities for staff – innovation from contractor based on their experience elsewhere. – easier to ensure compliance than it can be when controlling employees yourself. Disadvantages: Employment terms – talk about TUPE later but generally private sector terms not as advantageous as college’s (holiday / sick / pension) Contract management – success of the contract largely depends on the contract manager assigned by the contractor. Some areas of FM where these roles can be subject to high turnover of staff. Important that you give appropriate weighting to these area within the bid evaluation process to so you probably evaluate the strengths and weaknesses of the contractors contract management. Managing the contract itself does take time and effort, have fewer direct staff issues but still need to manage the contractor. Different set of skills required. The advantages of outsourcing don’t just happen, college needs to put time and effort into the contract management to make it happen. VAT – payable on outsourced FM services - can be one reason not to proceed with an outsourcing.

In-house vs Outsourced “Regarding the move to outsourced provision, in our circumstances – moving from two to one site and dealing with the new building, I have little doubt it was the right decision for us. As well as delivering some savings having a professional cleaning company take control of the staffing shifts, workloads etc to meet the new requirements took a very significant amount of management time away from the Academy to enable us to concentrate on other matters. Enabled a breaking away from “old habits” that had become ingrained and would have been difficult to shift without the fundamental change.” Thought we would demonstrate an example of where outsourcing an FM contract worked Quote from Thetford Academy – concerned their cleaning contract – moved from solely in-house provision to an outsourced cleaning contractor As you can see the advantages they realised related to the freeing up of academy management time and removing the hassle of dealing with problematic staffing issues. I guess it depends on the pressures on your particular institution – Thetford Academy were obviously in a period of transition from two sites to one and welcomed taking on a professional company to manage that change in terms of cleaning its facilities.

Considerations when Outsourcing Procurement regulations Value of contract over £172k regulations set out in The Public Contracts Regulations 2006 apply OJEU contract notice publication Adherence to tender timeframes Adherence to specification, selection and award criteria regulations Adherence to standstill process Risk of supplier challenge Framework agreements Negates the need to publish an OJEU notice and adhere to tender timeframes Negates the need to select suppliers Provides example specifications, sets award criteria and terms of contract Reduces risk of supplier challenge CPC has 5 facilities frameworks Once you have reviewed the in-house provision – looked at the adv/disadv – and assuming you’ve made the decision to outsource – here are some practical considerations to take the process forward First one – procurement regulations – if your contract is going to exceed the £172k threshold need to procure in a compliant way. Means conducting a tender process via OJEU – advertising the contract to Europe – adhering to the timetable and process regulations – equal treatment – can’t favour local suppliers based just on locality – need to develop award criteria that is published to bidders in advance – follow the award procedures, divulging the scores and reasons why a bidder didn’t win. Regulations also provide the suppliers with a vehicle to challenge your award decision if they feel you have not complied with any of the Regulations – can be time consuming, costly and will certainly involve having to get legal advice. Recommend buy in expertise or use a framework As a framework has already been set up in compliance with EU regs, you don’t need to have to complete the full EU tender process. Instead you run your own mini competition amongst the suppliers who are on the framework. Saves time, no need to vet the bidders – as been done for you – reduces the risk of challenge and provides you with a number of template documents to get the process started. CPC has 5 frameworks in the area of outsourcing facilities – Catering – Cleaning – Security – M&E and building maintenance – Grounds Maintenance

Considerations when Outsourcing Stakeholders Estates Finance Procurement Human Resources Affected Employees Specifications & tender information Timetable Input vs output specifications Cleaning – detailed breakdown of square metres PPM – asset list – response times Security – hours, length of shifts Catering – sales info, investment Stakeholders – cross functional team best approach – avoids conflicts of interest – increases buy in from all departments. Suggest a representative from each team is involved in all meetings and stages of the outsourcing process – including the tender evaluation. For Catering its also a good idea to get the students involved in the evaluation to increase their buy in – going to be important – especially in a college environment where there is more competition on the catering services. Need to also consider the affected employees as a stakeholder – they are bound to feel vulnerable which affects morale and staff motivation. Staff communications plan need to draft with HR – aim to ensure services not affected during transitional period – can be quite long Timetable – important to allow yourself enough time to conduct the tender process – OJEU timeframes longer than a framework tender process – also important to allow 6 to 8 weeks implementation time after the award decision prior to the contract going live – enables the TUPE transfer to take place. Specifications – these will need to be developed for the service – if in house you might not have a formal specification in place – important to consider all the options rather than just replicating what you have now – might need to bring in expertise to do this – output specification will produce the most innovation from your outsourced facilities partner – enables you to define what the service should result in but not detail how the contractor achieves it – gives them more scope to innovate and bring their best practice. Along with the specification you will need to provide the bidders with supporting information about the service. This will differ depending on what facilities management you are outsourcing. Some examples here for different types of services. Catering – current subsidy or breakeven or profit - Investment in infrastructure of kitchen or dining room - Competition from other outlets in local area Communications

Considerations when Outsourcing Transfer of Undertaking Protection of Employment (TUPE) Information from HR Distribution of TUPE information to bidders Local Authority Pensions Consultation with employees Contract management Key Performance Indicators Default clauses Exit strategies Regular contract management meetings Supplier Development Innovation OJEU notice Data protection TUPE – protects the terms and conditions of your current employees – they all have the right to transfer to the contractor you select on the same terms. Means you need to work with HR to gather the information you will need to provide to bidders. If this is not supplied, bidders will base their tender prices on incorrect assumptions and risks may arise. For example, your pricing evaluation may be skewed so that the wrong bidder wins. This could expose the College to claims from unsuccessful bidders. The winning bidder may pull out before contract signature if they cannot deliver the service for the quoted price once true liabilities become clear. Conversely they may have bid on a worst case scenario resulting in the College paying an inflated price, or the College may have to give the successful contractor an indemnity in respect of unknown liabilities. Information has to be provided by law at least 4 weeks before the date of transfer. Make it clear to bidders from the outset that TUPE applies – put it in the OJEU notice – make sure you remove any personal information about the employees before distributing - Pensions: TUPE has some pension protection for employees transferring – although if your employees are a member of the LGPS then there is probably extra protection for their right to either continue in the LGPS after the transfer or to be provided with a broadly comparable pension scheme – very complex area - need to seek legal advice. Contact the LGPS - Provide bidders with as much information on the LGPS – advise them to seek their own legal advice. Consultation: TUPE regs stipulate the consultation process – make sure you understand its requirements to avoid penalties & claims from employees. Contract management Co-operative approach between respective facilities managers (supplier and college) will delivery the greatest advantage to both parties – recognition of each others business interests of mutual benefit. Skills needed to manage outsourced services are different from those required to deliver in-house services – needs to be acknowledged and addressed internally KPIs – only measure what is meaningful, useful and will add value to the College – suggest start with a set that you come up with initially but work with the contractor over the first few months of the contract to develop these. For example if outsourcing cleaning may want KPIs relating to the number of failures identified through cleaning audits not to reach more than x per month etc Royal Institute Chartered Surveyors Research in 2012 looked into what measures organisations use to evaluate the performance of the facilities management team and also, what metrics teams used to track their own performance. Some of the most popular performance measure looks at service levels achieved i.e. response times, maintenance issues resolved, workplace environment and the like. Employee satisfaction [at 59%], is the third most popular; presumably sourced from occupying customers. The contract should also set out what happens if the KPIs are not met or even bonuses for exceeding etc. Also need to make sure the contract has appropriate exit strategies – sets out what happens upon termination of the contract – handover to new contractor – TUPE etc Contract meetings – first 6 months most important – invoices / billing important to get right Also good to foster good working relationships with contractor – ask them what they suggest to continually improve the contract. Ask them what you could do to enable improvements that would then benefit both parties. Penalties Legal advice

Summary Review in-house provision Consider what services could be outsourced When outsourcing: Set up a cross functional team Consider the procurement options Produce the documentation Allow sufficient time Manage the contract effectively Hopefully that was useful if providing some practical tips if you choose to outsource any of your facilities contracts. In Summary: Review in house – is it meeting expectations – what are the alternatives – cost/ benefit analysis Individual services or integrated FM – research the supply market to see what is available Any questions?