Delivering a Financially Sustainable Property Service

The current Covid-19 health crisis has compounded existing budgetary challenges for local authorities, increasing the financial struggles and their sustainability. Councils are issuing Section 114 notices, essentially declaring bankruptcy. This leads to concerns relating to the sustainability of the frontline Council services which many depend upon, as well as the Property and Facilities Management services which support delivery.

In order to protect frontline Council services and ensure that Property and Facilities Management budgets are well managed, there are two key areas any service should look at:

• Efficiency Savings

• Income Generation

Efficiency Savings

It is important to swiftly identify areas where, in the delivery of Property and Facilities Management services, a council may be inefficient or overspending . This then allows effective strategies to be developed to address these areas of overspend. In theory that sounds very simple, but from our experience that is often not the case!

Delivering efficiency savings within local authorities has historically been associated with service cuts. The ‘salami slicing’ of services and gradual erosion of Property and Facilities Management budget has been common practice. In it’s place, we recommend taking a longer term view to the delivery of savings, while also future proofing the service to ensure it delivers for the years ahead. This is how we approach any change project – to quickly identify savings, but also to prioritise those which will at the same time improve efficiency and enhance the service, not savings that takes quality away or impact negatively on performance.

In our experience, staff involved in the delivery of these services can often be challenged by limited capacity or can be close to the numbers, to be able to see where the problem areas are. Alternatively, staff may know where the issues are but the challenge of tackling them just seems too big! In this instance, we we often find ourselves supporting as a critical friend, sitting alongside client teams to work through the problem together.

Peopletoo know where the big financial pressures are inefficiencies are likely to be. To use an increasingly familiar phrase, we use our own ‘track and trace’ methodology to hunt these out, diagnose the issues and prioritise actions, strategies and programmes.

Benchmarking can provide a useful indication to identify the areas of overspend and key opportunities for delivering savings. However, benchmarking has its limitations and will often only point you in the right direction, rather than allowing you to fully get to grips with the problem. From our experience it should be seen as a guide of where to look, not as a means to provide the final answer.

For instance, if a council is spending way below the £/sq. m. on building maintenance, this could be for a variety of reasons. Is this because the service is extremely efficient and buildings are in good condition? Or that budgets have been massively cut already? Perhaps the a council does not have the funds to spend and the buildings are falling apart? Without this key contextual information overlaid against benchmarks it is quite possible to be ‘led up the wrong path’, and to focus on the wrong areas.

Likewise, while we will always identify a number of ‘quick wins’ when working on savings projects, increasingly the bigger opportunities are contingent on longer term transformation programmes. In Facilities Management for instance, this is an area which has taken a real hit in recent years, with margins slashed and several suppliers declaring bankruptcy due pressure from the public sector looking to save money.

From experience, we continue to see opportunities in Facilities Management for savings through more intelligent provision and taking a strategic view on FM delivery, but the bigger opportunities to save money, are simply to reduce the number of buildings retained by the local authority. This links FM back to wider property services and requires joined up working, while also requiring councils to take a longer-term view to savings. Equally, it requires the foresight to not over commit to savings, but to allocate some for reinvestment into the remaining buildings, and also to support delivery.

Income Generation

When it comes to making money, many authorities have been developing commercial strategies, often appointing commercial directors to identify and implement new commercial opportunities. These strategies can often focus on large and ‘innovative’ commercial projects or programmes, fuelled by the need to generate sources of new income. And why stress over managing multiple, smaller projects which take up more project management time and are stretched over a longer period, when you can deliver a single large scale project in one go, which delivers the same income and is covered by one project team?

But the bigger the opportunity, the bigger the risk and uncertainty. That is all well and good, if the organisation is set up properly to identify and evaluate those risks and uncertainties; all too often the robustness of the business case development and challenge is not as it should have been. Often business cases are framed to justify proceeding with an opportunity against a decision that has already been made. There are numerous examples of well-intentioned commercial products falling flat and for this reason, organisational optimism bias is rife in local government.

Clearly, before embarking on any regeneration project, there needs to be money to fund it. Some councils have taken the approach of procuring a partner from the private-sector to partially fund the project, which is then overseen by an in-house regeneration team, or increasingly common, setting up an arms-length management organisation.

But where to raise the capital required internally? Well as hinted above, asset rationalisation, informed by a robust strategic asset management plan, can generate significant capital receipts which, while some can be cashed as savings, others can be used to fund commercial programmes. This takes time to perform successfully and patience is key. Any project must be viewed as a long-term commitment.

Should we not be exploring these large commercial opportunities?

Well yes you should, but you need to do so in a way that brings robust challenge and scrutiny and a true appraisal is undertaken, so decisions are made in full awareness of all the risks and uncertainties. It is remarkable how a sector famed for its aversion to risk can reach decisions to take a large commercial risk, without a robust process of business case evaluation in place.

Following the last financial crisis in 2008 and the period of austerity that followed, there was a sustained drive from central government for local authorities to become, or be close to, self-sustainable. Many forward-thinking councils identified this as an opportunity to expand their commercial asset portfolios, acquiring assets such as land for development, industrial units, and office buildings.

This came to serve a dual purpose, both underpinning a redevelopment agenda while also generating rental income and capital receipts, and indeed, many councils have been hugely successful in this approach. However, as a result of Covid-19, these very councils which were championed for their sustainability, can find themselves in deep financial difficulty.

While it is considered best practice to profile the rental income streams over a 10- year period to assess where, when and how much the risk is and what the mitigation measures would be, this is not something which has been universally adopted by many local authorities. Post C-19, this is a practice which will be critical as integral to introducing robust mechanisms to manage the process of lease re-gears, and implementing processes to identify if a tenant is looking likely to default.

Furthermore, as we move forward following the initial impact of Covid-19, many councils are now starting to consider the long-term composition of their commercial portfolios. Indeed, some of the authorities we are currently working with are actively changing some of their future development plans – shifting from a position of retaining several offices, to repurposing these as residential developments. This is both as a desire to diversify their portfolio to reduce risk, but also due to the anticipated reduced demand for physical office space and to the increased acceptance of home working.

Are there alternatives?

Well yes there are. The clear alternative is not to focus on the big shiny commercial opportunities at all, but instead to develop a programme that develops gradually a commercial mindset throughout the organisation. Instead of limiting the responsibility of developing and delivering the commercial strategy on a single commercial director, why don’t we make it everyone’s responsibility to think and behave commercially. As the old saying goes, look after the pennies and the pounds look after themselves’. There are opportunities to be more commercial and to generate fresh income across the whole organisation.

Of course, this is not a binary choice. Organisations can pursue bigger projects and smaller projects at the same time, but key is developing a balanced pipeline of these opportunities, and diversifying risk across a range of projects, some larger, some smaller. This also allows councils to be more balanced and targeted in what they want to achieve in each project: one may be to maximise revenue, another to prioritise the provision of spaces to support the most disadvantaged groups within the authority and to generate social value, to promote wellbeing, and to achieve wider corporate objectives.

A people issue

Whatever savings or income opportunities you are looking to pursue, everything comes down to people. People can often be the biggest barrier to any change programme but, conversely, people can also be your biggest vehicle for success.

Fundamentally, people often don’t like change; we all have tendencies to stick to what is familiar to us, even if it means the gradual erosion of a successful and a healthy property service. Being or acting commercially is not always hard-wired into local authorities – staff quite rightly see themselves as public servants and if they wanted to work in a commercial environment, they would have got a job in the private sector, often for more money!

That was the vocational choice they made and is embedded into the culture of local government, and it therefore takes effort to mould that mindset and use it to your advantage in bringing about change. Culture change is often seen as the ‘nice to have’ of any project, the add on that comes at the end of any change programme and facilitated through a collection of short workshops, without the time required for reflection and growth.

However, it should be considered one of the key pillars of transformation, without which people can invariably revert back to their comfort blanket or old habits and processes. It takes time, and might be seen as a costly investment in the short term, but in the longer term, the benefits are huge and the change is sustained.

When people see the connection between identifying commercial opportunities and saving their own jobs or those of their colleagues, they begin to warm to the idea. When that button is switched on, you begin to see people as the vehicle for good, and a vehicle for change. They start to see opportunities everywhere. And they each become part of something much, much bigger. They start to see themselves as savers of jobs, savers of their service, and supporting other frontline staff, such as adults and children’s services, to deliver quality services to the people that need them most. This feeds the ‘inner self’ that brought them into the public sector in the first place. They begin to weld public service with commerciality. They become your ambassadors of commerciality.

Article jointly written by: Chris Brain of Chris Brain Associates and Danny Marsden, Service Manager at Peopletoo.