A white paper has been issued following the 2019 annual i-FM ‘Workplace Futures’ conference, which addressed one of the industry’s current hot topics, the fallout, challenges and way forward following the collapse of FM giant Carillion.
Taking as its core theme ‘Surviving FM’, the conference looked at how the industry can, and should, work more positively and more collaboratively to show innovation and to add demonstrable value. The result of failure to embrace change and move forward, the conference proposed, is an inevitable ‘race to the bottom in pursuit of reducing costs’.
As a leading company operating in the same sector as Carillion, the local authority market, Norse Group was able to make a significant contribution to the conference.
Introducing his presentation, ‘Meeting FM Needs in the Public Sector’, Norse Group Director Geoff Tucker outlined the company’s unique position as the UK’s largest Local Authority Trading Company (LATC).
Geoff went on to discuss the public sector market, its huge FM spend, the changing perception of outsourcing in the wake of Carillion’s collapse, and the sector’s growing appetite for more partnership-based solutions to service delivery.
The white paper can be seen here and the essence of Geoff’s presentation can be found below.
Meeting Needs in the Public Sector
As a supplier of services to the public sector, Norse Group is unique.
Firstly, it is wholly owned by a major player in the public sector, Norfolk County Council, and delivers a wide range of services, including cleaning, catering, transport, security, building maintenance, environmental, property and asset services and residential care facilities, found nowhere else under one roof.
The company’s primary trading model is public/public partnership through joint ventures, co-owned by Norse and the partner authority.
These features give Norse Group an ethos that is closer to the public sector in terms of culture, social value, environmental policies and staff wellbeing than its private sector counterparts.
Secondly, although having public sector owners, it is an autonomous arms-length company. This independence has enabled Norse to develop a highly commercial approach and build a strong, thirty-year track record of financially-sound and sustainable business agreements.
The Group now has a forward order book of more than £2 billion, a national workforce in excess of 10,000 and, with 27 local authority partnerships, it is the UK’s largest local authority trading company.
It is Norse’s business model, built to fit with individual local authorities’ requirements, that has been ground-breaking and highly successful. And in an industry which, because of the high-profile difficulties of the private sector outsourcing giants, has fallen out of favour with the public sector, Norse is enjoying ever greater success.
It is this powerful combination of public sector ethos, strong commercial skills and a partnership-based business model that gives Norse a unique perspective on the market.
The public sector market
The public sector currently spends, across all services, in the region of £250billion annually on outsourcing, of which around £60billion is spent on facilities management. However, although it is still an attractive market because of its relative stability, it is becoming harder to maintain profit margins. This is due to a combination of public sector austerity and ever-increasing labour costs.
The disastrous collapse of Carillion created shock waves that, amongst central government politicians and local councillors alike, amplified the increasing mistrust of outsourcing giants. Add to this pressure from voters, and the faith in outsourcing to the private sector has gone into free-fall.
Over the last twelve months alone there has been a 30% decline in contract awards for outsourcing of local authority services, with a growing trend for taking services back in-house.
The traditional contracting model of outsourcing services in the public sector has been in decline for some time, well before Carillion’s demise. In its place there has developed an appetite for a more partnership-based approach, with shared values and goals, mutual risks and rewards.
This growing enthusiasm has been shaped by a number of drivers; the loss of trust and political pressures of course, but also the need to deliver the same end-user services with ever reducing budgets, growing demand and increasing end-user expectations. These pressures have led to local councils considering alternative ways of squaring the budget/service-delivery circle.
They have had to consider innovative approaches that previously would have taken them outside their comfort zone, and take a hard look at new ways of increasing efficiencies and reducing costs. And all in the face of failings in a system that they had relied on and trusted for years.
However, simply taking services back in-house has its own downsides: the liabilities of funding and managing their own workforce, market forces on materials and commodity prices, capital asset management and support services overheads, to name but a few.
Some have looked at trying to emulate the Norse model, but soon realised the mountain they would have to climb before they could come anywhere near gaining the 30 years of commercial experience, operational and organisational skills, economies of scale in procurement power, long-term thinking and market knowledge needed to deliver such an option.
Insourcing and commercialisation
Norse refers to its partnership approach as ‘insourcing’ rather than ‘outsourcing’.
The model is firmly based on the shared values and goals, mutual risks and rewards mentioned above, and is generally more acceptable to the local councils because of Norse Group’s own public sector heritage.
Indeed it was Norse that pioneered this partnership-orientated business model, which quickly became the benchmark for councils when evaluating their service-delivery options.
The exact terms of individual partnership vary according to each council’s specific service needs and political requirements. However, it will usually include joint representation on the new company board, existing staff transferring into the new company under TUPE arrangements and a shared deal on annual profit realised by the partnership company.
The attractions of this model are threefold:
Elimination of commercial risk – this is taken by Norse Group
Overhead and service-delivery cost savings – overhead and support functions are generally handled by Norse, and Norse’s proven operational methodology increases use of resources, both capital and staff
Profit share from external commercial activities – the partnership model enables the company to win external contracts using Norse’s business development resources
With the prospect of further diminution of the traditional outsourcing model, partnership is the focus for an increasing number of local authorities, and will undoubtedly play a major part in the recovery of the FM industry.