1. © Turner & Townsend plc May 15 making the difference HEFMA Conference 2010 Should Higher Education Institutions Outsource their Facilities Management Function? John Samuel Turner & Townsend

2. © Turner & Townsend plc May 15 making the difference The path to be travelled 2 Context Contract and Management Outsource Review Risk & cost Pros and Cons

3. © Turner & Townsend plc May 15 making the difference Statement and an Easy Question  Statement  Facilities are key to the delivery of HE Institutions core mandate – higher education and research  Management of the development and operations of facilities requires managerial skill  Question?  Should Higher Education Institutions Outsource their Facilities Management Function?  Answer - It all depends !!!!!!  Corporate culture  Assets are significant to the Balance Sheet but is FM a core business?  Managerial and technical skills  Asset development and operational management structures 3

4. © Turner & Townsend plc May 15 making the difference Terminology  In sourcing  Services are provided by institutional employees. External advisors might be used to improve processes  Out-tasking  Contracting of a Service Provider for the delivery of specific functional services (eg cleaning, security)  Out-sourcing  Full transfer of the Facilities Management Function to an outside firm – an Integrated FM Service Provider (IFMSP)  PPP  Fund, design construct, operate, maintain, transfer (full turnkey solution) 4

5. © Turner & Townsend plc May 15 making the difference Saudi Women’s University _ Riyadh  "Princess Nora Bint Abdulrahman Women's University“  Area 800 ha square metres  Built area 300ha.  Administration buildings, 13 faculties, 700-bed student hospital, laboratories, research centres, residential area for students and staff.  University capacity approx 26,000 students.  Cost $12bn (USD)  Construction 2 years  The campus will be so large that they are building the campus' very own mechanically operated (as in no conductors) sky railway system that will take students from door to door of each building! 5

6. © Turner & Townsend plc May 15 making the difference Capital vs Operational Costs 6 80% 20% model DESIGNBUILDDISPOSETOTALOPERATE 1 YEAR2 YEARS1 YEARTOTAL25 - 50 YEARS or longer R 3% R 17% OPERATION = 40 % MAINTENANCE = 30 % ASSET REPLACEMENT= 40% LIFE CYCLE COST (LCC) R ? 100% Total Cost of Ownership

7. © Turner & Townsend plc May 15 making the difference Facilities Management Trends 2000’s Cleaning Cleaning Security Security Catering Catering Maintenance Maintenance Grounds Grounds Mail/Courier Mail/Courier Telecoms Telecoms IT IT Print Print FM FM Admin Admin Training Training Real Estate Real Estate Marketing Marketing Manufacture Manufacture2000’s Cleaning Cleaning Security Security Catering Catering Maintenance Maintenance Grounds Grounds Mail/Courier Mail/Courier Telecoms Telecoms IT IT Print Print FM FM Admin Admin Training Training Real Estate Real Estate Marketing Marketing Manufacture Manufacture Outsourcing 1990’s Cleaning Cleaning Security Security Catering Catering Maintenance Maintenance Grounds Grounds Mail Mail Telecoms Telecoms IT IT Print Print FM FM AdminAdmin1990’s Cleaning Cleaning Security Security Catering Catering Maintenance Maintenance Grounds Grounds Mail Mail Telecoms Telecoms IT IT Print Print FM FM AdminAdmin Out tasking 1970’s Cleaning Cleaning1970’s In- House 1980’s Cleaning Cleaning Security Security Catering Catering Maintenance Maintenance Grounds Grounds1980’s Cleaning Cleaning Security Security Catering Catering Maintenance Maintenance Grounds Grounds Contracted Services Efficiency and Competition 2010’s Funding Funding Construction Construction Furniture Furniture Fittings Fittings Equipment Equipment Soft FM Soft FM Hard FM Hard FM Replacement Replacement Refurbishment Refurbishment Risk Transfer Risk Transfer Availability Availability Performance Performance Pay for Availability Pay for Availability2010’s Funding Funding Construction Construction Furniture Furniture Fittings Fittings Equipment Equipment Soft FM Soft FM Hard FM Hard FM Replacement Replacement Refurbishment Refurbishment Risk Transfer Risk Transfer Availability Availability Performance Performance Pay for Availability Pay for Availability Workplace Environment

8. © Turner & Townsend plc May 15 making the difference Different views  Facilities Management  Development of Facilities  Design & construction - Outsourced  Management – In-source or outsourced  Operations Management  From nearly all in-sourced to outsourced  All HE Institutions outsource some “FM” activities  Design + Project Management  Construction + Project Management  Full Integrated FM Service Provider - Outsourcing  Functional Services – Out Tasking  Specialist Services – Hard FM requirements 8

9. © Turner & Townsend plc May 15 making the difference Management and Risk  Management Structure  Scale  Skill  Depth  In-house vs Out Tasking vs Outsource  Risk Transfer vs Direct cost  Direct Cost vs Indirect cost 9

10. © Turner & Townsend plc May 15 making the difference The Balance  Service Delivery measured by outcomes  User not interested in HOW  Service Level = User  Cost = Finance  Staff Issues = Operations and Executive  It’s a balancing act  Service Level  Cost  Management involvement  Flexibility  Risk Transfer 10

11. © Turner & Townsend plc May 15 making the difference Contract vs Risk 11 Contractors Risk 0% 100% 0% 100% H E Institution Risk Construction ContractsFixed PriceCost Plus Certainty HighLow Operations PPPIn-house Management structure SmallLarge Outsourcing Out Tasking Risk Profile Contracts Institutional Management

12. © Turner & Townsend plc May 15 making the difference Risk vs Expectations and Cost Cost 1 Cost 2 Risk Transfer User Expectations Low High

13. © Turner & Townsend plc May 15 making the difference Function or Form? 13 Is it the Buildings or the Teaching?

14. © Turner & Townsend plc May 15 making the difference Where it matters  Contracts  SMART (Specific, Measurable, Attainable, Realistic and Timely)  Robust  Meaningful  Procurement  Input vs Output Specification  Service Level Agreement  Management  Latin – to lead by the hand  French – the art of conducting, directing  Leading and directing …… through the deployment and manipulation of resources 14

15. © Turner & Townsend plc May 15 making the difference Management - Where the rubber hits the road 15

16. © Turner & Townsend plc May 15 making the difference Management  In-source - Management competency  Technical competency – Soft and Hard FM Services  Human Resources  Financial  Significant management organisation - broad based  Management depth and back up  High level of flexibility – multiple point accountability  Out Source – Integrated FM Service Provider  Contract Management – small number of staff with high level of skill  Performance monitoring  Contract administration  Limited flexibility – single point accountability 16

17. © Turner & Townsend plc May 15 making the difference Management  Out task  Contracts for limited duration per service function  Contract Management – multiple contracts, with high level of skill  Performance monitoring - multiple contracts  Contract administration – multiple contracts  Limited flexibility – accountability per functional service  PPP – Finance, design, build and operate  Best on a new facility  Capital cost > R500m  Asset risk transfer  Contract Management – Complex contract  Performance monitoring  Contract administration  More limited flexibility – single point accountability 17

18. © Turner & Townsend plc May 15 making the difference In Sourced FM Service Provision  Direct control of operations  Direct control of service level; adjusted quickly to meet different needs  Flexibility in delivery  Budgets can be adjusted against service level = adjust number of people  Good cultural fit in provision of services; institution's staff  Perceived as cheap; hidden costs not measured  Control of consumable costs outsourced  Skills shortages problem outsourced  Budgets first used for salaries  Budgets not secure; can be cut  Staff are non core to the institution - not in the mainstream for development  Low level staff in a highly “knowledge” based organisation  Executive Management not geared for managing low level staff  Management required for large non core staff numbers  All service delivery risks held by the Institution  Staff relatively expensive with respect to the market  Staff cannot be changed easily  Control of consumable costs not well established – not core  Skills shortages for management and hard FM services 18 BenefitsDisadvantages

19. © Turner & Townsend plc May 15 making the difference Out Tasked FM Service Provision  Low level Staff is not on the Institutions payroll  Direct management of the individual Service Providers through their contracts  Short term contracts (1-3 years)  Can change Service Providers at contract expiry (1-3 years)  Dispute in one service does not impact other services  Direct costs only are measured - hidden management costs not measured  Functional staff have a career path in a Core business  Staff can be changed easily  Budgets secure; difficult to cut  Functional service delivery risks transferred  Cost Savings for same level of service  Control of consumable costs outsourced  Skills shortages problem outsourced  Multiple Service Providers = multiple contracts to be managed  Budgets used for delivery  Budgets difficult to cut  Flexibility in the delivery of services reduced  Changes in service level cost money  Management skills in the management and administration of operational contracts required  No asset risk transfer 19 Benefits Disadvantages

20. © Turner & Townsend plc May 15 making the difference Outsourced FM Service Provision  Single contract for the provision of services and asset maintenance –  Single point contact  Reduced Institutional management  Clear lines of communication  Help Desk?  Asset survey and maintenance budget provided  Services budgets secured  All service and integration risks transferred  Cost Savings for same level of service  FM staff and low level staff not on Institutions books  Skills provided by the IFMSP  Career development for IFMSP staff  Consumable and operating risks transferred  Operating Budgets committed -limited flexibility  Asset maintenance and refurbishment budget not fixed; can lead to cuts and backlog maintenance  Management skill required for procuring and managing the contract  No asset risk transfer 20 Benefits Disadvantages

21. © Turner & Townsend plc May 15 making the difference PPP - Workplace Environment  Single contract for the funding and provision of assets and services  Robust feasibility – clear understanding of the requirements  No Capital  Monthly payment for availability of serviced workspace  Lender construction and services supervision  Turnkey solution - fixed price  Single point contact – construction and services  Reduced Institutional management  Clear lines of communication  Help Desk  Asset and services budgets secured  All funding, design, construction, operating, equipment and consumable risks transferred  Long term contract  Operating and refurbishment Budgets committed  Management skill required for procuring and managing a complex contract  Institution needs  Well developed concept  Robust feasibility  Sound procurement process  Competent contract management  Needs (project) of sufficient size to cover feasibility and procurement costs  Up front feasibility and procurement costs usually hidden  Procurement costs  Time in doing it right 21 Benefits Disadvantages

22. © Turner & Townsend plc May 15 making the difference Risks  Funding  Design  Construction  Completion  Commissioning  Utilities  Operational Services  Asset Maintenance and integrity  Budget secured and fixed  Refurbishment  Asset Handover 22 PPP Risk vs Cost Costs  Single monthly fee  Interest and Redemption  Services  Replacement  Refurbishment  Management Costs  Risk Premium  Asset Integrity on handover  Contract Management

23. © Turner & Townsend plc May 15 making the difference Value for Money 23 Level of Service Service Delivery Public SectorPrivate Sector Existing Aspired Current Situation Outsourced Delivered Services Unacceptable Situation for Service Provider Unlikely to Be Achieved X In-house Cost Outsourced Cost Retained Risk Value for Money At the same level of service Institutional Risk

24. © Turner & Townsend plc May 15 making the difference Why Contract Out Facilities Management  FM is a Non-Core Business  Management Focus on Core Business = Higher Education and Research  Better Service for the Same Cost = lower cost same service  Transfer Risk - Has Risk Allocated to the Party Best able to Manage that Risk  Assets maintained – Reduced back log maintenance  Workplace experience enhanced  Access to Industry Best Practice and Experience  Specialist Service Providers  Career path for staff

25. © Turner & Townsend plc May 15 making the difference HEFMA Conference 2010 Thank You John Samuel Turner & Townsend