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Government outsourcing tops £6.4bn and growing

12 January 2009

The market for outsourced ‘bundled’ services within Central and Local Government is valued at around £6.4bn in 2008 according to AMA’s first Facilities Management Outsourcing – Central and Local Government Markets 2009-2012.

AMA Research has published the 1st edition of Facilities Management Outsourcing – Central and Local Government Markets 2009-2012. It is specifically focussed on outsourced management and delivery of 'non-core' services within Central and Local Government.

There is an overall market value for outsourced ‘bundled’ services and TFM of almost £14.5bn in 2008. The Central and Local Government application sectors represent the largest end use sector for outsourced FM services, accounting for an estimated 44% of the overall market. It has been increasing in value by around 3-4% since the turn of the millennium, influenced to a significant degree by the focus on improving efficiency within government departments. This has driven not only a general increase in outsourcing but also investment in the public sector estate in order to achieve reduced long term running costs, or improved control, with a significant number of schemes funded through PFI/PPP and often including long term FM concessions.

Central Government represents the larger sub-sector, with outsourcing of ‘bundled’ FM services valued at around £4.5bn in 2008. However, the sector is generally considered to be mature, with growth rates of 2-3% in recent years largely dependent upon new property developments. By contrast, FM outsourcing within Local Government is less well established, enabling growth rates of 4-5% since the turn of the millennium to a value of around £1.9bn in 2008.

Key sectors benefiting from investment in recent years, in turn stimulating opportunities for FM providers include the Ministry of Defence, the Police Force, the Prison Service, the Courts Service, Leisure and Cultural Facilities, Social Housing, the Fire and Rescue Services and Central & Local Government Offices.

While the programme of redevelopments in some sectors such as Central Government Offices is now largely over, some growth is expected to continue to be supported over the next few years by government investment in increasing the provision of prison accommodation, improvements to the Fire and Rescue Services, investment in social housing, regeneration schemes and developments in connection with the 2012 Olympics.

Other areas of opportunity in the public sector over the next few years is likely to arise from ‘Building Schools for the Future’ programme.

While the downturn in the economy is expected to have a negative impact on the growth of the overall FM market, the Central and Local Government sector is due to receive a boost over the short to medium term from the Government’s decision to bring forward £3bn of capital spending to 2009-10 from 2010-11 in order to provide some impetus to the economy. However, this measure will result in lower departmental capital expenditure limits in 2010-11, resulting in more moderate growth in the sector in the medium to longer term even though the overall economy is expected to slowly recover in that period.

A potential threat to proposed PFI/PPP schemes exists, with the impact of the global credit crunch making it harder and more expensive for potential bidders to raise finance, possibly causing delays or even cancellations to some projects.

The penetration of FM outsourcing within the Central Government sector generally is estimated at around 60%. In contrast the local government sector is less mature with outsourcing accounting for around 30% of overall FM provision by value.

Leading FM contractors in the Central and Local Government sector include Carillion, Serco, Land Securities Trillium, Interservefm, Sodexo, Babcock, Morrison, John Laing Integrated Services and Mapeley.

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