Category Archives: Current Affairs

Survival of the Fittest

Survival of the Fittest

By Jeremy Waud, Chairman at Incentive FM Group

It has been suggested that ‘the only thing that is constant is change’ – which perhaps is a fair observation for the wider facilities management and contract service industry in 2019. So what are the main influencers and disruptors of the moment?

Stability of Competitors

It cannot have escaped the attention of many that big names in our sector have got themselves into trouble over the last year. These include: Carillon’s collapse into the warm and friendly arms of its bankers; Mitie’s long spell of enforced restructuring; Interserve’s ‘Pre-Pack’ to a new owning company to avoid a complete collapse; and Kier are in the news and under the microscope. A number of smaller single service companies have also gone out of business as a result of a tough market which we consider to be largely driven by the factors below:

Politics and the Economy

The majority of our politicians have clearly never run a business and may not have ever even run for a bus! Yet, they are empowered to decide on the health and direction of our nation, whether in Europe or out and it seems to make little difference which party, or which Prime Minister is at the helm. It has been a shambolic year which has not helped businesses one iota. The lack of clarity or certainty for our clients across a wide spectrum of sectors has been an unhelpful side effect of Brexit, and is reflected in the incredulity with which we are viewed from overseas. Our customers are understandably nervous, uncertain and risk averse at every turn, which is not a healthy backdrop to try and operate in front of and to make investment decisions within.

Friend or Foe?

Another major change of the past year has been the effect of some of the major global surveying organisations diversifying into service delivery. For example, CBRE acquired skills and capability in the mechanical and electrical maintenance sector for the buildings it manages through the acquisitions of Norland and Johnson Controls GWS. These skills, now wrapped under the parent branding, are changing the way it chooses to deliver services to its managed properties and it is not clear where this will this end up.

Similarly, JLL made the significant M&E acquisition last year of Integral. These businesses are indeed friends of ours and big customers as are other major surveyors, notably Savills, who this year acquired the property management business of Broadgate Estates from British Land.  All the while these organisations buy from us in sensible volumes, we will not be entering the property management market – hence we are all friends and not foes.

Procurement Trends

We are of course a big service delivery organisation, employing more than 3,200 staff in the process. We therefore spend a large part of our time on the receiving end of procurement departments and specialists with differing levels of appreciation of what we do and what needs to be done. Buyers are largely charged with the responsibility of delivering even better value for their ultimate clients.  Longer term viability and operational reality can often be a secondary consideration. This drive comes from economic pressure, opportunism and of course good practice, as defined by corporate governance and the likes of the RICS in the challenging retail sector. Our consultancy business, along with other specialists in this sector, helps many high-profile companies with their procurement strategies and processes. Having specialist FM procurement, such as Incentive Consultancy, can help to understand and bridge the gap from ‘generic’ buying practices to a 360-degree view of the challenges from all sides.

Commercial Sanity

None of the above drivers or disruptors make for higher contractor margins, in fact quite the opposite. The result is too much risk exposure and cash management pressure being levelled on the contractors in the sector, so much so that you can almost hear the pips squeaking!

The challenge for the market going forward is to not be backed into the corner at every turn, but to deliver attractive, creative and mould breaking service delivery solutions that share risk with the clients and intermediaries.

So a final message to all those who think contractors can operate within the 5-10% gross margin space, take high risks, be paid at 60 days, employ all of the semi and lower skilled staff that are needed in their operation and then invest in all manner of skills, experts and technological advances – please get real and think again. Thank you.

IFM News – https://www.i-fm.net/comment/survival-of-the-fittest

Incentive FM Group – Brexit Update

Incentive FM Group – Brexit Update

As a business we continue to keep fully up to date with the probable and possible impacts of the UK’s decision to leave the EU on 29th March 2019.

EU Settlement Scheme – As mentioned in previous updates our primary concerns has always been for our staff from the other 27 EU nations that work hard in our business and for our clients every day. The uncertainty the Brexit process has provided over the last few years has been both unwelcome and unsettling for all. I am pleased to see that today the government has launched the pilot scheme for the right to apply for ‘settled status’ for anyone from the EU who has lived and worked in the UK for 5 years. This will be extended to anyone with less than 5 years through the ‘pre settled’ process right up until the end of December 2020. The government has announced this afternoon that all applications for both will be without a fee and I would encourage all of our staff to apply when the full scheme opens on 30th March 2019. Any of our staff that need help with the process will be supported by both local and national management where required. It will be good for all to have this major issues finally resolved and we can have certainty that the rights of our staff to stay and work with us in the UK are fully protected.

https://www.gov.uk/settled-status-eu-citizens-families/applying-for-settled-status

Supply Chain & Legislation – I recently chaired a meeting of my Group Leadership Team in which the supply of goods and services from the EU to us was reviewed to ensure that our clients will not be impacted by any version of a no deal or managed Brexit. I was pleased to hear that, as expected, there will be limited impact or no impact from a managed exit and there is also limited risk with a no deal outcome. We have no major exposure on supply chain and where our suppliers are sourcing products from the EU we have had confirmation that where necessary mitigation planning has occurred to ensure consistent supply. We have had little or no increases in cost directly associated with this planning and we will work with our supply partners to mitigate in this area.

The unknown – Obviously the planning we have made and the areas we have considered are the known areas. It is very difficult for us to plan for all eventualities as many of the scenarios are unknown at this time. For instance we believe there will be either a delayed or orderly exit from the EU and therefore at this point we have not considered the impact of major unknowns such the impact on the wider economy, the currency exchange rates, interest rates etc. There are then the more extreme outcome such as civil unrest which at this point we have decided not to plan for. I think like all other businesses we will have to deal with these changes and scenarios if and when they occur or plan when we have further clarity of the direction the exit will take.

Our number one concern over Brexit was always the impact the process would have on the talented people who work for us. The process last two years has been unsettling not only for our staff from the EU but also their colleagues from the UK and wider world. We will continue to monitor the progress of the exit process and its likely impact on our staff, our business and the services we supply to our clients. We will give further updates as and when any significant relevant information is available.

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