Contract Management & FM

Keith Fraser BSc (Hons)(Lond), MSc (Lond), MIFMA

Legislative Background

• Some legislation has been around for a number of years:

• Health & Safety at Work Act (1973)• Transfer of Undertaking Protection of

Employment Act (1981 updated 2006)

• Significant amounts of legislation have come into force recently

• Fire Regulatory Reform Order (2005)• Security Industry Act (2001)• Disability Discrimination Act (2004)

• Increased levels of regulation create increased risks of non-compliance to FMs

Risk Management Strategies

• Manage risks “in-house”• Means becoming an expert in everything

increasing headcount and costs• Have to develop your own compliance systems• You retain full control of how assets/workspace

is managed

• Transfer risk to a supplier• Can benefit from supplier’s economies of scale• Supplier can “drop in” resources when needed• Accept the risk of poor procurement, mis-

alignment of business model, or costs of robust contract management

• Transferring risks by outsourcing brings into play the risk of a badly written or badly managed contract and the effects this has on the organisation – therefore the commercial relationship is vital!

Procurement Options

• Private Finance Initiative (PFI) • “Traditional” Contracting Out

• For public sector bodies European Procurement Law dictates the process

• For private sector organisations compliance with public accounting regulations and internal procedures will dictate the process

• Private sector suppliers need to understand public sector procurement rules if they want to enter that market

Public Sector Procurement Regulations• Binds all bodies who receive money raised

from the public and not just central and local government e.g. BBC, some charities, NDPBs

• Covers procurements where the aggregated spend is over £101,323 for goods and services and £3,927,260 for construction

• Failure to comply means a body covered by the Public Contracts (Amendments) Regulations 2009 can be sued for damages, have the contract award set aside, and have to pay a substantial fine to HM Treasury

Types of Procurement Exercise• OPEN TENDER: Any supplier who expresses an

interest is invited to submit a tender– Best suited to a restricted market place with a

small number of suitable suppliers as it keeps tendering costs down and is faster than the alternatives

– Not suitable where there is a diverse market place

• RESTRICTED TENDER: Usually involves a 2-stage process where interested parties have to demonstrate capability and a shortlist of best scoring suppliers is invited to tender– Best suited to a diverse market place – More expensive and resource intensive than open

tender– Timeframes are longer as there is an added stage

Types of Procurement Exercise (2)

• COMPETITIVE DIALOGUE: This process is used most frequently in PFI and is allowed for where it is impossible for the client to adequately define a specification but where they can adequately articulate the desired outcome

• The dialogue process seeks to refine and clarify the bidder’s response, knocking out bidders who’s developing solution will not deliver the outcomes, until all sides are clear on the brief that emerges out of the process

• Bidders are then invited to tender against that brief

• A “Preferred Bidder” is selected and contract negotiations begin

Competitive Dialogue Process

OJEU Notice

Issue PQQ

Select PB& “Stand Still”

SelectBidders

Evaluate Tenders

Final Tender

Post-TenderNegotiation

DialoguePhase

Invitation todialogue

ContractAward

PFI Stakeholder Map

CD Procurement Timetable

• Identify and Articulate Need and BC Approval 18m

• Treasury Approval to invest6m

• Seek tenders and appoint PB 12m• Post Tender Negotiation 9m• Construction phase

24m • Commission & Operation 6m

Total: 6 Years 3 Months

Capital Funding PFI

Exists as 2 main types:

Traditional PFI: Financing build and operation through financial structure where debt and equity are paid back from the project cash flow

Real Estate Partnership: Outsourcing of the transactional (OpEx) costs of an existing

asset and leasing back over a long term

• Typically PFI means Design Construct Manage and Finance (DCMF) in the context of most schemes

Outsourcing Tender Process

Prior Indicative Notice (PIN): Valid for 12 months as an expression of intent

Issue OJEU Notice: Invites expressions of interest (37 Days)

Pre-Qualification Questionnaire: Scored to produce tender shortlist (40 Days)

Invitation To Tender: (52 Days)

Standstill Period: Triggered when Contract Award is announced (15 Days)

Procurement Cycle

The Government Estate – High Performing Property• The current strategy is called “High

Performing Property” and was launched in 2006 following the 2004 Lyons Report

• The strategy seeks to achieve:– A rationalised 'fit for purpose' government

estate – Property Asset Management (PAM) positioned

as a strategic arm of business delivery  – Hard edged performance data driving

continuous improvement  – Improved stewardship and accountability  – 20% annual efficiency savings driven out of

the estate

HPP - 4 Pillars

Property Asset Management in Government

• Each Department to have a Property Management Board to set strategic direction for their owned estate;

• Estates and Facilities Management recognised as a professional stream in the Civil Service with a “Property Champion” (Admiral Tim Lawrence, Chief Exec of Defence Estates) appointed in 2010 (only 14 years after the disbandment of the Property Services Agency!)

PAM- High Performing Property• Estate Rationalisation – Drive for shared

facilities (NDPB’s co-located with sponsoring Department) and re-stacking of existing estate/disposal of obsolete buildings

• Significant drive to flexible working to reduce costs – 70% desking ratio now the norm

• Open plan working in all refurbished offices – 7 miles of internal walls were removed from the Treasury

• Increased use of PFI and long-term contracts to manage workspace and share “benefits realisation” (e.g Home Office, MoJ, MoD)

Adaptive Re-use Drivers

M = f([P],[B])

P = Physical system (building)B = Behavioural attributes or activity of

the organisation

M is a vector of the mismatch of the functionality of P and B. The higher the value M the greater the need for a new facility.

Nutt B and Sears D (1972): Functional Obsolescence in the Planned Environment; Environment & Planning, Vol 4 pp13-29

Risks Associated with PFI

• PFI prices on shared risk where a service is costed and the risk of any variation is (often) borne by the Government

• This risk should show as a liability on the Government’s balance sheet

• Balance Sheet Liabilities can affect the Standard & Poor credit rating (currently AAA)

• Criticism of PFI is that these liabilities do not always show up – “off balance sheet recording”

Observation of reality

• Changing the physical surroundings doesn’t always lead to desired behavioural change - British Airways post 9/11

• Space not used as it was intended – “Think Pods” become de facto private offices, meeting rooms block booked but not used, break out space used as desk space by consultants

• “Islands” of disaggregated groups make space useage inefficient and operationally expensive

• “It has allowed better and less interrupted thought to more important pieces of work. I would also say that on average I feel fresher and more in command of myself and my team” – (DfT Manager comment) Is this a function of the changed workspace or the realisation of previously poor management skills? Is the effect linked to the cause?

Contractual Inefficiencies

• Support contracts still reflect old methodologies – cleaning routines still done at 0600 – 0730, catering a “mass offering” at breakfast and lunch as opposed to “hoteling services”

• KPIs based on 100% contract price paid for 90-95% service delivery

• Contracts priced for delivery of aspirational view of facility – costs based on real life mis-match, often at a premium

• Specifications modified following POE should take note of actual useage identified during the evaluation, not subjective views – the plural of evidence is NOT anecdote! (see above slide)

Conclusions

FM involves managing compliance risks in an ever-changing regulatory environment

Risk management strategies can include decisions on paying someone to manage those risks on behalf of the organisation

I argue that risk operates in a closed system: outsourcing the management of risk creates the risk of poor procurement or contract management

Procurement in the public sector is driven by legislation and there are various methods of procurement

Strategic aspirations do not always feed through to actual behavioural or working practice changes, yet contracts are often based on aspiration and not reality making them inefficient

Conclusions (2)

Introduction of space standards brings about some rationalisation, but different Departments have different approaches (DfE SCS Grade 3 sits in open plan, in MoJ entitled to cellular office)

FM Model still “traditional office” supporting quasi-hotel provision

Behaviour patterns still largely territorial, occupational model becomes a compromise – something not reflected in any of the positive spin case studies

www.prres.net/papers/Haynes_Office_Environments_That_Enable_Human_Contribution.pdf

Flexible Working in Scottish Local Authority Property: Developing a Combined Resource Management Strategy , Ed: Darbas Škotijos Vietos Valdžios Požiūriu: Kuriame Kombinuotą Išteklių Vadybos Strategiją Publ; Versita Warsaw, 2009

http://www.ogc.gov.uk/efficiency_documents_better_asset_management.asp