Asset Management Solutions for Local Government and the role of Strategic Property Partnerships

1. Asset Management Solutions for Local Government and the role of Strategic Property Partnerships Dr Connel Bottom MRICS FRSA PwC Real Estate Advisory 26th April 2006 Sheffield Hallam University Local Government FM Network

2. The context and the problem ‘Shoddy, ill-conceived or run-down buildings lower the morale of everyone that has to use them and undermine confidence in our public services. Beautiful, open, efficient, long-lasting public buildings, by contrast, have been shown not just to save on running costs, but to boost productivity and well-being’. ODPM • Public sector buildings have suffered from under investment. • Much Public Sector property is inefficient, expensive, inaccessible, non-compliant and in some cases dangerous • It inhibits service improvement and transformation because of poor specification, location, layout, etc.

3. Customer perceptions Confidence that the organisation is capable and professional. Access to services Physical location / design important determinants of accessibility. Staff issues Good physical environments send a powerful message that staff matter. Efficiency Poor asset management/planning diverts resources from corporate priorities. Community regeneration Strategic asset management provides opportunity to facilitate regeneration. Is property important to my organisation? • How is property linked to good public services?

4. Customer contact centres Requiring buildings that can support high levels of connectivity & servicing. Joint service centres Requiring locations in areas of high footfall and accessibility. Modern workspace Supporting e-enabled, joined-up and flexible working. Accommodation strategy Co-ordinating introduction of new technology and other infrastructure. Is property important to my organisation? • How is property linked to business transformation?

5. Ambition Evidence of a desire for radical change and service improvement. Prioritisation Ordering of improvements, developments, rationalisation and/or acquisition. Capacity Identifying and helping meet capacity requirements e.g. partnership working. Performance management Robust performance management arrangements; payment mechanisms. Achievement Setting key critical success factors. Investment Recycling assets, identifying new funding opportunities. Is property important to my organisation? • How is property linked to the Comprehensive Performance Assessment?

6. Complexity and interdependencies Short-termism Articulating the role of property Lack of in-house capacity and skills Stakeholder buy-in/Resistance to change Funding/Proving VFM Connecting to other business strategies What are the Challenges ?

7. What are the Trends ? • Asset Management Plans – but ‘good’ score does mean good buildings and services. • The Efficiency Agenda • Partnering • Prudential borrowing • Need for flexible space • Input into CPA

8. Likely Developments in the Sector • Partnership working across authorities • Aggregation of demand • Greater use of framework contracts • ‘Off the shelf’ service contracts • Strategic property and service partnerships • Private sector investment in ownership of property assets.

9. Options for improvement Broadly 3 options, firstly consider two common approaches: • (2) Best of Breed Contracting: • plays to specialisms of the supply market • allows maintenance of a competitive supply • potentially easier to manage suppliers • requires strong client side to co-ordinate • synergies identified on the client side • (1) In-House Options: • centralising the property and FM function • reconfiguring portfolios • exploring joint working arrangements with neighbouring public bodies. • use of Prudential Funding • difficult to drive through change ?

10. Options for improvement • (3) Strategic Property Partnerships (SPPs): • Ongoing and long term relationship - not a one-off transaction • Mutually beneficial • Common aims and shared responsibilities • Co-operative, not confrontational • Scope for improvement, innovation and change • Underpinned by openness and sharing in a contractual structure • They are continuing to evolve …

11. MINI MIDI MAXI Service bundling Asset transfer Spectrum of SPP options Complexity and implementation duration Political sensitivity

12. A benchmark SPP model Private Sector Private Sector Strategic Partnering Agreement Strategic Partnering Agreement Responsibility Responsibility Council Council Responsibility Responsibility Strategic Asset Management Services Strategic Asset Management Services Area where Area where incremental incremental framework framework arrangements arrangements Private Private are required are required Investment Sector Funding Transfer of the Transfer of the Retained Retained Investment City Centre Investment Investment Office and Commercial Estate Estate Estate Agreement to purchase commercial estate Offices Commercial developer FM and Related Services FM and Related Services

13. Property Partnerships – Pros and Cons • Advantages: • Incorporates scope for improvement and innovation • The partners work jointly, pooling resources and skills • Mechanism for managing risk • Access to scarce skills • Economies of scale and synergies captured • Incentive to manage the portfolio strategically • Opportunities to obtain a front-end capital payment • Disadvantages: • Not a quick or easy fix • Need quality information • Appetite to work in partnership and to rely upon a partner? • Need to assess change readiness • Complex and expensive to procure • Need to manage Industrial Relations • Attitude to control/flexibility • Need to understand ‘new’ costs

14. Assessment of constraints and drivers SPP attractive option POTENTIAL CONSTRAINTS • The Council does not need to exert control over how buildings and other infrastructure are supplied. • Continued asset ownership is not important. • Responsibility for ensuring that the facilities are in good condition, and are fully operational (e.g. clean, secure and compliant with legislation) does not need to be with the Council (not to be confused with front-line service operation). • Private funding to deliver new assets is required. • Limited capacity in-house to support complex business case and programme planning and delivery. Private sector skills and capacity required. • Private sector better placed to manage many property-related risks. POTENTIAL DRIVERS

15. Where do efficiencies come from? • Integrated teams 3% * • Efficient processes and systems 6% • Service bundling / consolidation 5% • Multi-skilling 3% • * Potentially more if strategic management/ planning taken into account

16. Route map for a successful transaction Set objectives Collection Value for Assess Contact Formal and of money and Financial delivery with procurement identify benchmark affordability close alternatives suppliers process in - house data testing solution Delivering the Benefits

17. Managing the Change

18. Conclusions The goal is to provide an estate that: • boosts public confidence, staff morale and productivity • supports redevelopment and regeneration opportunities • maximises value and opportunities and reduces waste • Partnerships may provide this through: • creating value • co-ordinating development • providing skills and capacity • better managing risk & uncertainty