HEFMA Conference 2010
Should Higher Education Institutions Outsource
their Facilities Management Function?
John Samuel
Turner & Townsend
© Turner & Townsend plc April 15
making the difference
The path to be travelled
Context
Risk & cost
Contract and Management
Pros and Cons
Outsource Review
© Turner & Townsend plc April 15
2
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
© Turner & Townsend plc April 15
3
making the difference
Terminology

In sourcing


Out-tasking


Contracting of a Service Provider for the delivery of specific functional
services (eg cleaning, security)
Out-sourcing


Services are provided by institutional employees. External advisors
might be used to improve processes
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)
© Turner & Townsend plc April 15
4
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!
© Turner & Townsend plc April 15
5
making the difference
Capital vs Operational Costs
DESIGN
BUILD
OPERATE
DISPOSE
OPERATION = 40 %
R
R
3%
17%
MAINTENANCE = 30 %
ASSET REPLACEMENT= 40%
TOTAL
100%
R
?
Total
Cost of
model
Ownership
1 YEAR
TOTAL
LIFE CYCLE COST (LCC)
1 YEAR
2 YEARS
25 - 50 YEARS or longer
20%
80%
© Turner & Townsend plc April 15
6
making the difference
Facilities Management Trends
In- House
1970’s
• Cleaning
Contracted Services
1980’s
• Cleaning
• Security
• Catering
• Maintenance
• Grounds
Out tasking
Outsourcing
1990’s
2000’s
• Cleaning
• Security
• Catering
• Maintenance
• Grounds
• Mail
• Telecoms
• IT
• Print
• FM
•Admin
• Cleaning
• Security
• Catering
• Maintenance
• Grounds
• Mail/Courier
• Telecoms
• IT
• Print
• FM
• Admin
• Training
• Real Estate
• Marketing
• Manufacture
Workplace
Environment
2010’s
• Funding
• Construction
• Furniture
• Fittings
• Equipment
• Soft FM
• Hard FM
• Replacement
• Refurbishment
• Risk Transfer
• Availability
• Performance
• Pay for
Availability
Efficiency and Competition
© Turner & Townsend plc April 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
© Turner & Townsend plc April 15
8
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
© Turner & Townsend plc April 15
9
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
© Turner & Townsend plc April 15
10
making the difference
Contract vs Risk
Operations
Contracts
PPP
Out Tasking
In-house
Construction Contracts
Cost Plus
Outsourcing
Fixed Price
100%
0%
HE
Contractors
Institution
Risk
Risk
100%
Institutional
Management
© Turner & Townsend plc April 15
0%
High
Certainty
Low
Small
Management structure
Large
11
making the difference
Risk vs Expectations and Cost
User
Expectations
High
Cost 2
Cost 1
Low
Low
High
Risk Transfer
© Turner & Townsend plc April 15
making the difference
Function or Form?
Is it the Buildings or
the Teaching?
© Turner & Townsend plc April 15
13
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
© Turner & Townsend plc April 15
14
making the difference
Management - Where the rubber hits
the road
© Turner & Townsend plc April 15
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
© Turner & Townsend plc April 15
16
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
© Turner & Townsend plc April 15
17
making the difference
In Sourced FM Service Provision
Benefits
Disadvantages

Direct control of operations

Budgets first used for salaries

Direct control of service
level; adjusted quickly to
meet different needs

Budgets not secure; can be cut

Staff are non core to the institution - not in the
mainstream for development

Flexibility in delivery


Budgets can be adjusted
against service level =
adjust number of people
Low level staff in a highly “knowledge” based
organisation

Executive Management not geared for
managing low level staff
Good cultural fit in
provision of services;
institution's staff

Management required for large non core staff
numbers
All service delivery risks held by the Institution

Perceived as cheap; hidden
costs not measured



Control of consumable
costs outsourced
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


Skills shortages problem
outsourced
© Turner & Townsend plc April 15
18
making the difference
Out Tasked FM Service Provision
Disadvantages
Benefits

Multiple Service Providers
= multiple contracts to be
managed
Short term contracts (1-3 years)

Budgets used for delivery
Can change Service Providers at contract expiry
(1-3 years)

Budgets difficult to cut

Dispute in one service does not impact other
services
Flexibility in the delivery
of services reduced

Direct costs only are measured - hidden
management costs not measured
Changes in service level
cost money

Management skills in the
management and
administration of
operational contracts
required

No asset risk transfer

Low level Staff is not on the Institutions payroll

Direct management of the individual Service
Providers through their contracts





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
© Turner & Townsend plc April 15
19
making the difference
Outsourced FM Service Provision
Disadvantages
Benefits

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
© Turner & Townsend plc April 15
20

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
making the difference
PPP - Workplace Environment
Disadvantages
Benefits

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

Long term contract

Operating and refurbishment
Budgets committed

Management skill required for
procuring and managing a
complex contract

Institution needs
Turnkey solution - fixed price
Single point contact – construction and
services
Reduced Institutional management
Clear lines of communication
Help Desk
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

Asset and services budgets
secured
All funding, design, construction,
operating, equipment and
consumable risks transferred
© Turner & Townsend plc April 15




21

Procurement costs

Time in doing it right
making the difference
PPP Risk vs Cost
Risks
Funding
Design
Construction
Completion
Commissioning
Utilities
Operational Services
Asset Maintenance and
integrity
 Budget secured and fixed
 Refurbishment
 Asset Handover








© Turner & Townsend plc April 15
Costs
 Single monthly fee
 Interest and Redemption
 Services
 Replacement
 Refurbishment
 Management Costs
 Risk Premium
 Asset Integrity on
handover
 Contract Management
22
making the difference
Value for Money
Institutional
Risk
Value for Money
Current
Situation
Public Sector
Unacceptable
Situation for
Service Provider
At the same
level of
service
Outsourced Cost
Retained
Risk
X
Level of
Service
Existing
Outsourced
Delivered
Services
Unlikely to
Be Achieved
In-house Cost
Aspired
Private Sector
Service Delivery
© Turner & Townsend plc April 15
23
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
© Turner & Townsend plc April 15
making the difference
HEFMA Conference 2010
Thank You
John Samuel
Turner & Townsend
© Turner & Townsend plc April 15
making the difference