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Promises, Promises

15 April 2005

Amidst the hype of a General Election, it is hard to recognise the policies and pledges that will make a
difference to the FM sector. In his second article, Stephen Hoare highlights areas of importance to the future prosperity and effectiveness of the sector that have emerged so far

ON THE 16 MARCH, Chancellor Gordon Brown’s Budget signalled the beginning of the run up to May’s General Election. It was the Government’s last chance to lay down some markers about how it wants to shape the economy. The Budget and the subsequent statements from the other two major political parties reveal some important issues in store for the FM industry.

The Labour spin was that the economy has continued to grow – 50 consecutive quarters of steady expansion – the longest period of unbroken growth since records began in 1701. But the City analysts are not convinced this will continue and the growing feeling that the Chancellor is over-optimistic about the economy and could have to raise an additional £35bn in taxes to cover a projected shortfall. The alternative of slashing public spending would be disastrous news for the FM industry.

Less obvious but equally important news for FM is that the Chancellor plans a shake-up of the way Britain regulates business with a cull in the number of inspectors examining organisations. A slimmed down Health and Safety Executive will have a wider remit covering the licensing of engineering, power lines and security. Health and education budgets are set to rise and the building programme that has so benefited FM looks set to continue as it is unlikely a future Conservative administration would reverse this policy.

Without doubt the FM industry is now a sizeable lobby. Member companies of the Building Services Association have a combined turnover of £15bn. There are more people employed in FM than there are in construction. The policy statements to watch from the major political parties relating to the FM industry concern economic stability, workforce training and cutting red tape. The Conservatives are pledged to reducing the barrage of legislation that threatens to impact on commercial property transactions, employment law, health and safety and environment.

But what of PFI? The Government’s influence in pumping up the FM industry is a spin off from its policy of encouraging large scale PFI projects. Norman Rose director of the Building Services Association is concerned that having involved the FM industry in providing services for massive PFI schemes, a future government could begin to turn off the tap. He comments, “A reduction in public investment would be bad for
business, bad for us and bad for everybody. The worst case scenario I could envisage just now is a reduction in soft FM services which are outsourced. That is a distinct possibility.”

But if legislation is a threat then where will it fall? Ian Fielder, chief executive of BIFM, argues that the changing nature of FM now means that legislation from almost any quarter will affect the industry. He comments, “Anything that can be outsourced is now the province of FM. FM companies, for example, with a background in catering are now being asked to manage things that are not their core business – like IT, human resources or payroll. So strategic alliances and joint ventures suddenly come into play.”

Mike Liddle chairman of the UK Chapter of IFMA agrees with this analysis. “The big issue for the future is how will legislation affect a transformed FM industry whose remit has in recent years got bigger? My prediction is that in the next few years FM, IT, finance and human resources will come together. It’s already going that way.”

The All-Party Parliamentary Group for Business Services believes these changes have been wrought partly by government policy on PFI and public private partnerships (PPP). The momentum of outsourcing that has benefited the FM industry, it says, needs to be maintained. Tim Boswell Conservative MP for Daventry and a member of the business services lobby says, “There is too much regulation and tax rates are too high. What the public sector needs to do is to invest continuously. But it is difficult to see output coming through in terms of government expenditure.” In other words a future government of whatever party will be faced with some hard choices. It is hard to justify accelerated public investment against a background of falling tax revenues and a stagnant economy.

Growth engine
But the public sector has so far been adept at raising capital and is itself a major engine for economic growth that must be sustained. The next generation of PFIs are moving from one off capital projects like hospitals to major local authority-wide property outsourcing and urban regeneration as is happening in Bradford, a pathfinder local authority total outsourcing deal. Oliver Jones of Carillion says, “At Bradford where we are bidding for a major Council property and services outsourcing deal anything that you can think of that the Council does is included in the mix. The scope is broad-based and can include everything from social services to waste management. This is taking FM outsourcing to a new level.”

The future therefore begins to look very challenging for FM providers. PFIs have evolved from complex funding mechanisms for large capital projects to Public Private Partnerships. The barriers that have prevented the private companies gaining a foothold in the delivery of public services are breaking down. A future government could take the brakes off even more and allow Councils to act like businesses retaining profits from commercial activities and ploughing these back into improving public services.

Peter Cordy, acting head of property for Stoke City Council and deputy chairman of the BIFM, explains that prudent Councils have already been granted extended borrowing powers by the Office of the Deputy Prime Minister (ODPM) over and above the public sector borrowing requirement. Cordy says, “Providing the local authority can demonstrate return on investment, it is being permitted to borrow up to the headroom.”

True not many Councils have so far decided to raise their heads above the parapet for fear of being penalised or of simply getting the business case wrong, but many more might follow Stoke’s example if a future government was more encouraging. The implications for FM are enormous. Cordy explains, “From the property angle, it offers local authorities a great opportunity to tackle existing backlog maintenance and bring properties up to a better standard.”

Extra pots of money are coming together to fund the backlog and there is plenty of room for creative budget management. The billions the Government has promised for rebuilding secondary schools over the next decade under its Building Schools for the Future programme is one area. Then the Extended Schools and Children’s Centre initiatives will demand that both secondary and primary schools are remodelled to create new health and social care facilities to be shared with the public. Lumping social services, education and libraries and leisure department budgets together will createa big pot of money for a major local authority building programme while education and health budgets could be pooled under NHS LIFT – local improvement and finance trusts.

There should be plenty of opportunity for the bigger FM groups to become involved through consultancy and service delivery in PFIs and PPPs to ensure that FM is designed into new public buildings at an early stage. Peter Cordy says, “FM should feed in to the whole life aspect of a building. You don’t just manage the development, you manage through the life of the building. Developing the business case for the full 30 year duration of these contracts will come to the fore.”

Energy role
FM can come to the forefront of procurement so creating an opportunity for specialist FM providers to develop cutting edge solutions. One such is to make buildings work more efficiently and reducing costs through greater efficiency. Ian Fielder sees energy use as a major battleground of the next government – one where FM companies need to become involved. BIFM is currently being consulted on seven major pieces of new legislation including Building Regulations Part L (energy use). Fielder comments: “As an industry we need to be proactive rather than reactive. We need to engage with energy saving and energy efficiency. Since our members control energy use and procurement, we think we have a lot to contribute to the debate in terms of strategy and consulting.”

The other major change which industry insiders predict is that clients and FM providers will form strategic alliances. PFIs may have led to significant growth in FM provision but such growth is hard to sustain and is susceptible to ‘boom and bust’ pressures. PFIs in particular have been blamed for overheating local economies as FM resources are channelled into a handful of mega projects while smaller clients have to pay inflated prices for increasingly scarce FM provision. This is an area where a more measured approach from central and local government would pay dividends.

BIFM’s Peter Cordy has observed the public sector response in Stoke where the Police Authority, the university and the hospitals have formed an alliance to exchange market information and to obtain preferential prices by staggering their FM workload.

Such an approach chimes with current government policy on procurement and goes way beyond the mere bundling of public sector FM services. It is more of a long-term strategic approach that ensures continuity of work for FM providers and stable prices. Cordy comments: “What Stoke and other local authorities are trying to do is to look at a local economy approach to procurement rather than a public sector approach. Major clients and FM companies are all in the same boat. It you develop joint ventures and strategic alliances there has to be a win-win.”

In terms of the commercial sector, state intervention is not on the cards. But legislation is expected on the review of commercial rents highlighted by Reading University’s report on the Code of Practice for Commercial Leases. Legislation to outlaw upward only rent reviews is in the offing. Some believe this is a certainty and the Conservatives have indicated that they would probably support it. Carillion’s Oliver Jones has this to say. “Owners of commercial property can no longer afford to take a short term view. On the balance sheet, a long term lease is a long term liability.”

Meanwhile the introduction of the much heralded real estate investment trusts (REITS) appears to have stalled. Whether or not there is still an appetite from the public to invest in commercial property is still an unknown but enthusiasm may be dimming as interest rates look likely to rise after the next election, damping down activity in the property market generally.

BIFM is concerned that the industry is being engulfed in red tape. A future government could do more to protect business from rising costs and the demands of needless bureaucracy. Fielder observes, “In the past 3-4 years we’ve had 4,000 pieces of legislation, much of it highly influential. But the cost of policy is moving from the state to the employer and client organisations. Companies now have to produce safety method statements when, in the past, they would have been inspected by the Health and Safety Executive. Public buildings must produce an audit to demonstrate how they manage energy efficiency. Those extra costs fall on the FM company and there is no funding within BIFM to train the FM providers.”

Skills gap
Training and qualifications are a big issue for a future government and for the fast moving but fledgling FM industry where management qualifications need to reflect the expanding scope of the business. FM is now so broad that its remit cannot be delivered by a single company. It encompasses hard building services and maintenance through to the provision and management of soft services. BIFM believes its role is to reshape courses at certificate and diploma level to reflect these important changes. But government help is needed to fund research.

Some work has been done on how home working and virtual offices will impact on the FM industry particularly by institutions like the University of the West of England, Reading College of Estate Management, Sheffield Hallam, University and Leeds Metropolitan. The FM industry contributes to research fellowships but not as much as it would like and certainly nowhere near the levels of funding available through government-funded research councils which are investing fully in engineering, medicine, IT, biosciences and indeed every single important industry sector.

Fielder comments: “Because there is no sector industry code for FM the Government is not giving research grants to universities. The funding for research can’t all fall on the FM industry.” The issue is clearly one an incoming government might wish to consider.

Vocational training for the armies of staff now working at the client interface is just as pressing. Workforce training and adult skills comes under the remit of Asset Skills, the newly created sector skills council representing FM and the former national training organisations for property services, housing, and cleaning. Richard Beamish chief executive of Asset Skills is a man with a mission. “Let’s give employers their say and find out what they want.”

He is right. Qualifications are a patchwork badly in need of mending. Rationalisation is needed to make sense of the vast array of overlapping vocational programmes. With a three-year contract from the Government, Asset Skills’ task is to deliver training that is relevant to the FM industry. It is now for the industry to decide how best to ensure quality and deliver skills. Beamish believes the system must be made to work. “Skills training is free for employers up to level 2. But it’s a one-off entitlement. Health secretary John Reid has not made any money available to FM firms to train cleaners in combating the MRSA ‘superbug’. One solution is to make sure this training is included in level 2 courses for cleaners.”

On another important issue Richard Beamish lays down a challenge for the next government. Whatever Labour’s rhetoric on improving education, the fact remains that one in four school leavers still leave school functionally illiterate and innumerate. Labour’s belated attempt to address vocational training by boosting the role of Further Education (FE) colleges and supporting industry training bodies such as Asset Skills could be a shrewd bit of electioneering. Beamish says, “The Government has a duty to pay for the failure of the school system. But improving skills of the workforce to boost our performance as an industry is not solely down to government. Employers have a duty as well.”

At present big FM companies provide a lot of their own training in-house while smaller companies cannot afford to put workers through training programmes. Someone needs to make sure training is more widely available and that it is of a standard quality. Beamish points out major inconsistencies in training. He asks: “Who accredits private training? In some cases nobody does. Companies believe that national vocational qualifications (level 2) are too much hassle. Training represents too much form filling.

But the Government’s new training agenda as set out in Labour’s Adult Skills white paper will mean greater flexibility, greater collaboration between the state and the private sector. This could help address skills shortages faced by the FM industry which are most acute at higher level supervisory and management level and in the area of multi-skilling – equipping staff to carry out a wider range of jobs. Public funding will follow industry demand through a network of ‘action for business’ colleges who co-ordinate training with employers and private providers and FE colleges. Says Beamish, “Action for business colleges are exactly what the FM industry needs. It is the only way we have of plugging skills shortages - giving staff the additional support they need to go for supervisory and management jobs.”

....Stephen Hoare is a freelance writer

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