With the collapse of Carillion in 2018 and Interserve going into administration, what does the future hold for Facilities Management (FM) outsourcing in the UK?
Before we can answer that question we should ask ourselves, why has this happened?
For a number of years, we have been hearing that FM and outsourcing is a growth industry with record numbers of organisations outsourcing their non-core services, such as cleaning, security, catering, reception, maintenance services. Indeed, trends suggest that outsourcing has been increasing year on year for the last 25 years.
Having been a practitioner and a consultant, in FM for the past 30 years, I have certainly witnessed the growth and all that is good and bad in FM. I have worked with many organisations that have had a need to purchase outsourced FM services, throughout the public and private based organisations and across most sectors. Representing purchasing (demand) organisations, within an FM procurement capacity has given me not only a good understanding of how a demand organisations mind works, including their objectives and critical success factors but also how the supply organisation (FM suppliers and contractors) respond within a procurement or tender opportunity accordingly. Indeed, having led and managed outsourcing tenders with an accumulative value of over $1 Billion with organisations across most industry sectors, I believe I have gained a reasonably clear understanding of where the market currently stands and what the problems are.
In the 1980’s and 1990’s, cost-reduction via outsourcing of non-core service areas within organisations was the driving force and ‘lowest-price’ was the order of the day. During the early years of FM, as we know it today in the UK, cost-savings in excess of 20% were regularly achievable, particularly during a first generation outsourcing deal and particularly in the public sector where the entire Crown Estate was outsourced away from Property Services Agency (PSA). With such cost savings being achieved in the public sector, the private sector closely followed in a quest to reap similar rewards.
Meanwhile, the FM profession was trying to develop and promote itself as a strategic, value-added profession. Unfortunately, however, the outsourcing revolution with the promise of significant cost-savings projected FM as a ‘cost-cutting’ commodity, an unfortunate tag which remains in place today in the minds of many within the demand organisation.
The average duration of an outsourced FM contract, whether it be a single service such as cleaning, security, maintenance, etc. or as bundled, integrated or total facilities services ranges, on average, between 3-7 years. Since the advent of FM outsourcing in the late 1980’s therefore, many organisations, particularly early adopters of FM outsourcing have by present day, market-tested between 5-8 times. Unfortunately, attitudes have not changed with many demand-based organisations, where they continue to target cost savings, several outsourced generations later.
Although the achievement of cost-savings in the order of +20% is a thing of the past following the early ripe pickings, many demand organisations continue to target 5-10% cost savings, year on year. This is clearly unsustainable over the long-term. How can any FM organisation expect to deliver an effective FM service at a proportionate cost which is +50% less than what it was 25 years ago (not accounting for inflation)? This is simple economics, it does not work!
As the demand organisation continues to flex its muscles through attempting to leverage unrealistic cost reduction expectations, FM suppliers and contractors do themselves no favours whatsoever by stepping up to the plate and continue to meet the unrealistic ‘cost-reduction’ targets of the demand organisations. The perceived benefits of the outcome are always short-lived and in the long-term, only negative connotations prevail. This will manifest in FM contracts being poorly performed or delivered, under-resourced, under-financed with the demand organisation being underwhelmed.
There are no real winners in this scenario, the demand organisation never receive what they expect to receive in terms of service quality, performance and compliance; the ultimate cost to an FM supplier will be to go out of business as we are witnessing today if this happens across too many contracts.
There are certainly a number of other variable contributory factors but I won’t go into these issues now. I learned a good lesson from a certain vice-president of real estate when being briefed on his overarching objectives for a major global outsourcing FM tender that I once worked on – simplify and standardise!
FM is certainly at a crossroads in the UK in 2019. What has happened to two of the largest FM companies in the UK surely tell us that current perceptions and attitudes need to change? What are the answers I hear you say? well, there are no quick wins! Sustainable and value-added solutions do exist and are currently being practised by more forward-thinking organisations. The FM sector needs to stand up and be counted. We need to re-think FM, much in the same way as the construction industry did back in the 1990’s. Furthermore, as globalisation takes hold, lessons learnt in the UK will be of significant benefit to other, less mature (FM maturity) countries.
In Parts 2 and 3, to be published in Apr-19 and May-19 respectively, we will consider specific problems encountered through outsourcing FM services in more detail, and we will identify solutions that can be implemented to project FM into the strategic and value-added profession and industry that it should represent today.