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

© Turner & Townsend plc 18 Apr 2023 making the difference

HEFMA Conference 2010

Should Higher Education Institutions Outsource their Facilities Management Function?

John Samuel

Turner & Townsend

© Turner & Townsend plc Apr 18, 2023 making the difference

The path to be travelled

2

Context

Contract and Management

Outsource Review

Risk & cost

Pros and Cons


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


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


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


Capital vs Operational Costs

6

80%

20%

model

DESIGN BUILD DISPOSE TOTALOPERATE

1 YEAR 2 YEARS 1 YEAR TOTAL25 - 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


Facilities Management Trends

2000’s2000’s

• CleaningCleaning• SecuritySecurity• CateringCatering• MaintenanceMaintenance• GroundsGrounds• Mail/CourierMail/Courier• TelecomsTelecoms• ITIT• PrintPrint• FMFM• AdminAdmin• TrainingTraining• Real EstateReal Estate• MarketingMarketing• ManufactureManufacture

2000’s2000’s

• CleaningCleaning• SecuritySecurity• CateringCatering• MaintenanceMaintenance• GroundsGrounds• Mail/CourierMail/Courier• TelecomsTelecoms• ITIT• PrintPrint• FMFM• AdminAdmin• TrainingTraining• Real EstateReal Estate• MarketingMarketing• ManufactureManufacture

OutsourcingOutsourcing

1990’s1990’s

• CleaningCleaning• SecuritySecurity• CateringCatering• MaintenanceMaintenance• GroundsGrounds• MailMail• TelecomsTelecoms• ITIT• PrintPrint• FMFM•AdminAdmin

1990’s1990’s

• CleaningCleaning• SecuritySecurity• CateringCatering• MaintenanceMaintenance• GroundsGrounds• MailMail• TelecomsTelecoms• ITIT• PrintPrint• FMFM•AdminAdmin

Out taskingOut tasking

1970’s1970’s

• CleaningCleaning

1970’s1970’s

• CleaningCleaning

In- HouseIn- House

1980’s1980’s

• CleaningCleaning• SecuritySecurity• CateringCatering• MaintenanceMaintenance• GroundsGrounds

1980’s1980’s

• CleaningCleaning• SecuritySecurity• CateringCatering• MaintenanceMaintenance• GroundsGrounds

Contracted ServicesContracted Services

Efficiency and CompetitionEfficiency and Competition

2010’s2010’s

• FundingFunding• ConstructionConstruction• FurnitureFurniture• FittingsFittings• EquipmentEquipment• Soft FMSoft FM• Hard FMHard FM• ReplacementReplacement• RefurbishmentRefurbishment• Risk TransferRisk Transfer• AvailabilityAvailability

• PerformancePerformance

• Pay for Pay for AvailabilityAvailability

2010’s2010’s

• FundingFunding• ConstructionConstruction• FurnitureFurniture• FittingsFittings• EquipmentEquipment• Soft FMSoft FM• Hard FMHard FM• ReplacementReplacement• RefurbishmentRefurbishment• Risk TransferRisk Transfer• AvailabilityAvailability

• PerformancePerformance

• Pay for Pay for AvailabilityAvailability

Workplace Workplace EnvironmentEnvironment


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


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


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


Contract vs Risk

11

Contractors

Risk

0%

100% 0%

100%

H E

Institution

Risk

Construction ContractsFixed Price Cost Plus

CertaintyHigh Low

Operations

PPP In-house

Management structureSmall Large

Outsourcing Out Tasking

Risk Pro

file

Contracts

Institutional Management


Risk vs Expectations and Cost

Cost 1

Cost 2

Risk Transfer

UserExpectations

Low

Low High

High


Function or Form?

13

Is it the Buildings or the Teaching?


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


Management - Where the rubber hits the road

15


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


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


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

Benefits Disadvantages


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



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



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



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


Value for Money

23

Level ofService

Service Delivery

Public Sector Private Sector

Existing

Aspired

CurrentSituation

Outsourced DeliveredServices

UnacceptableSituation for

Service Provider

Unlikely to Be Achieved

X

In-h

ou

se C

ost

In-h

ou

se C

ost

Ou

tsou

rced

Cost

Ou

tsou

rced

Cost

Retained Risk

Value for Money

At the same level of service

Institutional Risk

Institutional Risk


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 18 Apr 2023 making the difference

HEFMA Conference 2010

Thank You

John Samuel

Turner & Townsend

Documents

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