In the present era of public spending cuts, reducing spends on repairs and maintenance is a popular first call to balance budgets. However, with capital to build new facilities even harder to obtain, a higher premium than ever should be placed upon managing and maintaining your estate, because it is likely to be the only one you will get for a number of years to come.
The cost of doing nothing to keep your estate properly maintained is the increased risk of catastrophic failure where a whole building and the services provided from it may need to be closed down for a period of time.
Starting with a plan
The starting point is to understand the present state of your estate, the scale of repairs and maintenance necessary to preserve its functionality and over what period the maintenance programme needs to be carried out. Does the existing use of buildings represent the most efficient use of space? Do you need all your current office or depot space? Can you reconfigure offices and create surplus space that can be sold off or mothballed pending better budgetary times? Can you create improvements in productivity and through life costs by refurbishment. What minimum spend is required to keep the estate safe and functional? Following consideration of these issues, you can start to develop your plan for maintenance.
Basic models for repairs and maintenance
- In-house provision: an in-house direct service organisation may be responsible for repairs to some or all of the elements of the estate. This may be the most efficient approach, provided the internal resource is working efficiently and is it fully utilised.
- Commissioning external contractors: an in-house team may commission private sector contractors either on ad hoc arrangements, from framework arrangements or on simple term service arrangements. In all cases, care must be taken to ensure that, in aggregate, works and services do not exceed current EU thresholds and contracts are procured in compliance with the EU Procurement Regulations. Consideration also needs to be given to the extent of any overlap between the internal and external functions – make sure that large internal teams are not spending the majority of their time manmarking external contractors.
- Strategic outsourcing arrangements: the provision of the repairs and maintenance may be outsourced to a private sector contractor, usually involving a TUPE transfer of any existing in-house staff presently providing similar services. This approach should, as a minimum, involve a term maintenance arrangement with the contractor taking the lead in advising on necessary maintenance based on anticipated budgets and an asset management approach.
- Joint ventures: outsourcing arrangements may also take the form of joint ventures with private sector organisations. These may be informal or delivered by means of a formal joint venture company. Specific types of joint venture presently being developed and used include:
- Local Asset Based Vehicles (LABVs): where the public sector partner provides land and property to the joint venture, and the private sector matches the value of the land with a capital contribution to secure finance and kickstart the regeneration programme, with both parties sharing the proceeds from the sale or letting of the completed development.
- Strategic Estates Partnerships: where the public sector partner seeks to make a step-change in service provision by utilising private sector investment and innovations for the strategic repair and maintenance of its estate.
- PFI or similar: the Private Finance Initiative may have had its day but other arrangements are already starting to emerge to allow private sector investment. These may be in the form of initial pump priming in an “invest to save” programme in return for control over the planning and delivery of the initial investment and a minimum period of contract. Simple models are already being used in highways maintenance and more developed models are likely to emerge to address maintenance backlogs.
There are a number of potential approaches to payment, although the most common starting points are:
- lump sums for specific groups of activities;
- tendered rates and prices for specified activities, possibly subject to some form of inflation indexation;
- payment of costs on an open book basis, usually subject to some form of target cost arrangement; or
- cost reimbursement (probably limited to circumstances where it is not practical to agree costs on one of the above bases).
Under any contractual arrangement lasting for a couple of years or more, some form of performance management will probably be helpful as a means of encouraging continuous improvement and focusing contractors on excellent service delivery.
A set of performance indicators needs to be specified or agreed, and calibrated according to their respective importance to provide a scoring mechanism. Scores above a specified minimum (either in respect of individual performance indicators or in relation to all of the indicators taken together) can then relate to incentives, for example entitling the contractor:
- to receive the whole of its profit element (an alternative arrangement would be an entitlement to the public sector partner to make performance deductions for under performance against performance indicators);
- to share in savings below target costs; and/or to extensions to the contract period.
Our recent experience
We have current commissions from both the health and local authority sectors to advise on procurement strategies for soft and hard facilities maintenance contracts in relation to corporate property, leisure and library facilities, schools estate, social housing stock, clinical acute facilities, mental health facilities and primary care facilities.
If any of the issues in this paper have struck a chord with you, we would welcome the chance to discuss your situation and concerns in more detail to help you develop an appropriate repairs and maintenance strategy.This article also appears in our local authority newsletter Authority View Spring 11.