Category Archives: Current Affairs

Why the government prices smaller FM companies out of the market

Why the government prices smaller FM companies out of the market

Despite a promise by the government that small businesses in the UK will get over £33bn worth of government contracts by 2022, little seems to be changing.

In the past five years, direct spending on SMEs has only grown by one percentage point from 10% to 11%. So why is it so difficult for SMEs to get their foot on the ladder and win government projects?

Since the collapse of Carillion at the start of the year, there has been talk of a big shake-up in the facilities management world especially around public sector contracts.

But do the actions really match the words when it comes to a fresh look at how the government procures its FM contracts?

The procurement process for smaller FM contracts currently being undertaken by the Crown Commercial Service (CCS) once again talks about engagement of SMEs but when you read in to the detail the guidelines, terms and commercial framework, these seem to favour larger companies.

In particular the risk associated with blind bidding for work can be very dangerous for smaller companies as they may not be awarded enough ‘good’ contracts to offset the ‘bad’ ones.

As such the need to win large amounts and spread risk favours larger businesses and, in particular, the very largest. If we focus on the risk to small businesses, the requirement to commit to a ‘call off’ price for work by a specific measurable unit that can be taken up directly by any organisation using the framework is also fraught with danger.

Simply impossible

How do you price for air conditioning maintenance per m2 when you haven’t seen the building, don’t know the number of assets in scope, their age or condition, their workload and their prior maintenance history? It is simply impossible.

The same applies to cleaning, as how can you price to clean a m2 of office space when you don’t know the floor covering, the amount of staff using the space, if it’s open plan or modular, etc?

In my experience bidding for government work can be a lengthy and costly process and many smaller businesses don’t have the same resources as larger companies to put together winning bids.

I welcome the intent of the CCS to make the procurement process simpler, however they have just swapped some challenges for others.

For example, smaller FM companies often have a regional focus, whereas government projects tend to be on a national scale. It is therefore extremely difficult for a smaller business to find the resources to fulfil large scale contracts.

In addition, the penalty clauses for not delivering are huge and this has the potential to break the company – more risk!

As a result, a lot of small businesses will continue to shy away from competing for public sector contracts. This is a real shame as there is no doubt that these organisations are often more specialised and can provide a better solution.

However, the contracts which are suitable for these companies are often contained within a larger tender and given to one primary contractor as it is cheaper than tendering multiple parts of one project.

The end result for smaller businesses is often lower margins and higher risk. Despite these challenges, the government is starting to introduce measures that have been designed to help smaller businesses contribute to large projects.

Delayed payments

Another big risk for many small companies is delayed payments. As FM relies on its people, a delay in payment may result in staff not being paid on time and businesses eventually folding due to exceptionally tight margins.

However, in a bid to crack down on this, as of April 2017, large companies have to publically report twice a year on their payment practices and performance.

The government has also started to exclude businesses from projects if they cannot demonstrate fair payment practices. Whilst this seems like a good place to start, in my opinion, much more needs to be done to address the issue.

If there is one thing that we can learn from the collapse of Carillion, it is that there is great risk in concentrating all public business in the hands of a small number of big companies.

A fair framework

So what is the answer? I think the CCS should have a process which selects smaller businesses on local and national capability.

Once they have selected a long list of companies that meet the required standards of service and compliance, the end user can then select from this list to specifically quote for their contract based on a fair commercial and contractual framework.

This will allow the bidding companies to price the work correctly and get the client the best value price, not the cheapest.

More importantly it will ensure the providers do not play Russian roulette with blind pricing and any contracts awarded are sustainable for both the client and the contractor.

In conclusion, the government procurement process has developed a polarised market with a limited and stretched supply chain that ultimately cannot deliver what it promises over an extended period.

I believe that FM outsourcing in the public sector can be improved by not allowing poor procurement to deliver low standards of service and sustainability.

This article was kindly supplied by Mr Reed following comment from the PFM Editorial Advisory Board after the collapse of the Carillion and further industry demand for better FM procurement practices and improved treatment of SMEs.

Credit: PFM Magazine

CARILLION’S BUSINESS HAD GROWN ‘TOO DIVERSE’

CARILLION’S BUSINESS HAD GROWN ‘TOO DIVERSE’

Dave Wilson, a former BIFM deputy chair and now non-executive director with consultancy Morphose, said that it was “obvious for some time” that Carillion’s business had become “too diverse”.

“The FM part in particular was not core to their main construction offer, but was, in my opinion, a sound operation with good people and systems. 

“It is possible – but I have no direct knowledge of this – that bidding has been too aggressive. I think that is a problem which is quite widespread in the industry as businesses chase sales and market share in a relatively stagnant market.

“From an FM perspective, this is symptomatic of a problem with the tendering process, especially in the public sector, which still gives too much weight to price and not enough to quality or business sustainability.

“I would be surprised if there weren’t potential buyers for the FM business which, the last time I looked, was well run and had good products and service in some market niches. There are some fairly obvious potential buyers for a business with a strong technology sector record and some interesting public sector contracts. Might a management buyout of the FM business, as a whole or in parts, be viable?”

Joanna Lloyd-Davies, principal at JLD Consultants Limited, called the situation “horrendous” and “a great shame”.

She told FM World: “It must have been a very difficult time for those in charge to pull the plug.”

“We’ve got to look after the people, we have got to protect the reputation of the industry and we have got to hope to God that this doesn’t happen again.”

Lloyd-Davies worked in business development at Tarmac, which rebranded as Carillion in 1999 to place greater emphasis on its services provision. She recounted: “We started all the hospital PFI contracts. We were doing great things that would be good for the UK’s healthcare.”

“We have to show the world that one company has gone down, but this isn’t the state of all companies in the industry.

She said: “The main lessons we should learn are corporate responsibility, delivering according to the agreed contract and properly bidding on contracts.”

She added: “It’s going to make everyone wiser and more alert. We have to make sure we are running sensible businesses and delivering appropriately.”

Consultant Martin Pickard focused his attention on the likely impact of Carillion’s crash on its many sub-contractors, in particular the issue of suppliers forced onto more onerous payment terms last year.

“Government should learn to utilise all of the facilities management supply chain and not give all its work to a chosen few,” said Pickard. “Also, companies should finally learn that aggressive accounting and commercial practises will kick you in the butt eventually. Forcing your sub-contractors onto 120 day terms only provides a short-term fix to your cash problems but guarantees resentment and non-cooperation.”

Pickard also emphasised the problem of organisations too often letting their FM contracts drift ‘out of mind’.“

“Clients – including governments – must learn that outsourcing doesn’t transfer all risks, and both parties need to play an active role in facilities service management.”

Jeremy Waud, chairman of Incentive FM Group, called Carillion’s collapse a “sorry but rather predictable tale and a lesson to many of us”.

“Ultimately, its collection of banks did not have the courage to lend good money after bad and refused further funding – albeit the Government doesn’t seem to have been too bothered by the issue if they kept on awarding contracts to them up until recently.”

Waud is saddened by the end to such an established name in the sector.

“Carillion has a rich and lengthy history in construction and a long association with the FM sector which predates the demerger of Carillion from Tarmac in 1999. I recall Tarmac TFM in the late 1980’s  – pioneering days of facilities management in the UK.

“It appears that the damage done to this once great and proud name has been largely inflicted from the construction sector and hence has little to do with FM services. These contracts are inevitably large, complex and risky – something it seems the company didn’t fully or accurately disclose in its financial reporting to shareholders and funders.

“What is perhaps of more interest to us in the FM sector is what will happen to the hundreds of FM contracts it is engaged in. Although almost exclusively public sector, I am sure that while some may go back in-house, others will need to find new suppliers.

Waud also questioned whether Serco may now be wondering why they recently paid £50m for Carillion’s NHS contracts, “which would now perhaps be available on the cheap from the liquidator?”

Source: FM-World

 

Will president Trump be good for British business?

Will president Trump be good for British business?

YES Sammy Blindell

Founder of How to Build a Brand

President Trump has said that he wants to “put America first”. At first glance, this might seem like a downside for the UK, but think of it this way: in the future, Britain will be in a position to pursue its own trade policies, and Trump will be looking for the most forward-thinking ideas and lucrative international deals he can find. Is there any doubt that the UK has unrivalled innovation and opportunity to offer the US? I think both countries will be pleasantly surprised. President Obama told the UK it would go “to the back of the queue” for a trade deal if it left the EU, but Trump has already indicated that he is keen to make a “quick deal” with us. Couple this with his stated support for Brexit, which he recently described as “a great thing”, and his track record of doing business in nations who contribute to the global economy without making waves, and the prospects look bright for trade. Trump wants to build the “strongest economy in the world”. Now we can feel confident that trade relations between the US and the UK will be robust, it is safe to say that Americans aren’t the only ones who will benefit. He has vowed to maintain the good relationships already in place between the US and other countries and he has no reason to damage the dynamic with the UK.

NO Jeremy Waud

Chairman of Incentive FM Group

On balance, I think the Trump presidency will provide more challenges than opportunities for UK businesses. He has set out his stall in an entirely new, and perhaps more businesslike manner, not in the way politicians of recent times have done. His policies are very parochial; his stance on China is aggressive; and his relationship with Russia is currently, at best, unclear. Rex Tillerson is being very cosy with the Russians and the potential for joint oil exploration in the Arctic could be the motivation for Putin and Trump. None of this is good news for us. The key issue is that the US is the largest export market for Britain, at over £40bn per annum. Trump is hell-bent on rebuilding industry in the US by creating 25 million new jobs and becoming less reliant on imports. His focus is on the US economy and potential threats from China and Russia, certainly not on trade relations with the UK. His clampdown on Chinese industrial piracy will benefit US manufacturers ahead of any other and his investment in military rearmament and, in particular, the navy is unlikely to provide a boost for our economy, as he will source US-based contractors. Finally, his proposed import tax of 20 per cent across the board for all goods into the US will hurt us considerably.

SOURCE: Director