Facilities management: The pros & cons of outsourcing

Should universities manage their facilities in house or collaborate with the wider industry? Cathy Parnham looks at the some of the key issues

With university income growing in 2019 by 7.4% to £35.9bn and total capital expenditure across the university estate exceeding £3.5bn*, how that money is spent bears scrutiny – especially in the current climate.

One of the most topical questions from students over the last year or so has been “What is the return on my investment?” And with a move to the student as a buyer bringing with it a constant focus on value for money and a demand for ever better facilities, university spending is very much under the microscope.
As guardians of the university budget, facility managers have the unenviable role of deciding how that money is spent on anything from systems and equipment to ageing buildings. They are the liaison point with outside contractors when things need replacing, repairing or updating.

So, when deciding whether to outsource facilities such as cleaning, food outlets, security or repairs, there are a number of factors to consider.

A question of ethics

One potential challenge universities – and individuals – face if they decide to outsource a facility that is currently managed in house is the TUPE transfer of staff, which could be difficult for all parties concerned.

Will these staff members have the same terms and conditions as staff employed directly by the university?

Jane White, AUDE executive director, comments: “Many universities feel that it is unfair and not a viable option for key roles within the university… to have a lower standard of employment protection, pay or pension provision than those roles that are clearly teaching or research focused.” She also notes that “many potentially outsourceable roles are vital to the institution’s successful functioning”.

Neal Grant, head of business development at Derwent Facilities Management, comments: “Outsourced providers will need to invest in TUPE staff to develop and support them during this process, particularly if they have worked for a university for a [long] period of time.”

Through tapping into cost savings and expertise beyond campus, universities can tailor certain offerings more closely to students’ needs

Cost & expertise

When outsourcing, a university would be seeking to take advantage not only of cost savings but of specialisms and wider industry knowledge/best practice that they may not otherwise have to hand.

“This allows universities to concentrate on their core business while their specialist provider effectively takes away the burden of the upkeep of their estates… and outsourcing can reduce costs dramatically,” says Neal Grant.

Cleaning, for example, accounted for 12.5% of total property costs in 2019, according to Aude’s Estates Management Summary 2019.

One advantage of outsourcing, aside from potential cost savings, is ensuring compliance with BICSc (British Institute of Cleaning Science) or other industry standards authorities, Grant tells us.

He comments: “By delivering to industry-recognised best practices, providers can almost guarantee [meeting] a compliant standard for the university. This means any potential reputational damage from non-compliant services, which will be increasingly under the microscope post Covid-19, is removed entirely and the university can be sure they are adhering to all legislative standards.”

If you have a multi-specialist approach, you can mitigate financial risk

Through tapping into cost savings and expertise beyond campus, universities can also tailor certain offerings such as gyms, retail or food service more closely to students’ needs as, says White, external suppliers are “more used to responding quickly to changes in the market. All of that is to the benefit of the student and isn’t a kind of expertise that the university itself necessarily needs to focus on developing.”

Mitigating risk

If you place everything with one provider, you may be able to maximise efficiencies and cost savings but what if they go bust? Think back to Carillion not so long ago. If you have a multi-specialist approach, you can mitigate financial risk.

Jane White concurs: “If something goes wrong with the service of a supplier, then it only affects one part of the business, whereas if there are problems with a totally outsourced provision, this can have wide-ranging consequences and disruption across the organisation.

“If a large, single-source contract is terminated, then it is much more difficult to transfer to another organisation and this will cause significant management input and legal costs.

“In comparison, switching, say, cleaning suppliers in isolation would be much more straightforward.”
Grant adds: “Outsourced partners are willing to provide services at a fixed cost for universities; this will likely be at a reduced rate from what the university is paying and allows the partner to absorb the financial risk that external market factors may have on the cost of delivery.”

Working in partnership

One deterrent to outsourcing is the potential need for a capital investment in new tech, for example, if a university’s systems are not compatible with a new partner. Says Grant: “This is where a partnership is crucial and having longstanding agreements between both parties ensures the payback and benefit for both parties.”

Outsourced partners are willing to provide services at a fixed cost for universities… and allows the partner to absorb the financial risk

Such partnership agreements are the biggest benefit to outsourcing, according to Grant, who notes: “Whichever type of contract agreement, whether that be bundled or individual services, the key driver throughout must be the end user and ensuring they see their FM providers as one aligned team there to maximise their experience.

“Ultimately, both parties must invest in each other: the university from a contractual perspective, of course, and the provider must ensure that they invest sufficiently to become part of the fabric of the university.

“This is not purely delivering against a contract but should include key principles such as: understanding the ultimate end-users; putting the local community at the heart of services offered with staff, contractors, and suppliers; transparently reporting income and profit; and ensuring the client’s goals are at the heart of the services they deliver.”

In summary

Outsourcing is clearly down to the needs of each individual university and to what it considers its core and non-core services. Jane White gives the example that “a sandwich shop may be viewed as ‘non-core’, even if it is situated on university property at the heart of the campus [while] cleaning and security services… are more likely to be viewed as ‘core’: an unclean campus or an unsafe space impacts on student wellbeing and university reputation in a more fundamental way”.

At a recent AUDE conference, delegates voted against outsourcing because, says White, “the benefits of retaining in-house teams outweighed the perceived benefits of outsourcing”; however, Aude’s view is that “the sector should remain open-minded to all initiatives that seek to improve efficiency and provide better value for money” and universities can benefit from “great external support”.

While there are pros and cons of outsourcing, a mixed approach could be beneficial, enabling a university to maximise both core and non-core services.

As Grant points out: “…if there is a drop in income post Covid-19, the HE sector will continue to look to the outsourced market to bring efficiencies, innovations and, ultimately, value for money in their FM provision”.

The pros and cons of outsourcing

Jane White, AUDE executive director, outlines some of the key considerations of outsourcing

It is a common misnomer that outsourcing an activity will solve a problem – in reality this is often not the case. Here are a number of advantages and disadvantages to consider:

Potential advantages

  • Potential to reduce running costs
  • Organisation can focus on core activities
  • Frees an organisation from investments in technology
  • Reduces direct management responsibilities; eg recruitment, appraisals, grievances
  • Severs old working practices
  • Reduces trade union involvement.

Potential disadvantages

  • Loss of direct managerial control
  • Hidden costs
  • Over time, management positions are increased to aid monitoring of contract
  • VAT
  • Insolvency of supplier
  • Being tied to the financial wellbeing of another company
  • Quality issues
  • Compliance with legislation; eg legionella, asbestos
  • Reputational risk
  • Threat to security and confidentiality
  • You may not be an important customer to the provider
  • Provider may be inflexible to changes in business environment
  • Cultural differences between the two organisations can cause inefficiencies.

In summary, outsourcing to a single provider exacerbates the disadvantages outlined above. It is the view of AUDE that a balanced approach using a mixed economy of both insourced and outsourced provision is the best way of achieving value for money while protecting the core business from unnecessary risk.

Organisations need to ensure that they outsource the correct business processes to the correct business provider and involve estates and facilities professionals, independent from outsourcing providers, early in the decision-making process and in the discussion of subsequent contractual issues.

The Association of University Directors of Estates (AUDE): www.aude.ac.uk

You might also like: Transforming Facilities Management into Infrastructure Management to Manage a Campus of the Future

Leave a Reply

Send an Invite...

Would you like to share this event with your friends and colleagues?