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Think Tank: A matter of scale

19 February 2016 | Jamie Harris

The cabinets of five councils have agreed to award a contract to Capita to deliver a range of corporate services including HR, IT, and finance. Vinci is to provide the same clients with jointly provided facilities management and property services.

These contracts will, say the clients, lead to savings of more than £50 million over a nine-year period.

So, for local authorities at least it’s a case of contracts becoming ever larger and longer. But how is the market changing? What does this mean for the smaller to medium-sized contractor more generally?

Fifty-six per cent of you said that the size of FM service providers is likely to increase over the next few years. One respondent explained: “FM companies that succeed [the most] will be those that can deliver all the benefits of big scale whilst providing the personal attention of small local [provider].”

“In the long term,” said another, “we will get more global size business. But for now, size isn’t everything.”

Other respondents note that a cost-driven industry, particularly in the public sector, is still prevalent. But some FMs are sceptical of the projected savings in larger facilities contracts.

“The amortised savings that are attributed to these huge contracts over many years are at best theoretical and at worst are more likely to reduce significantly if not erode completely over time.”

Another suggests that savings at such large-scale levels are based on a reduction in service.

“Reduced services will in time attract complaints and dissatisfied customers and eventually political pressure, in the case of councils, and commercial pressure in the real world will require investment to be made, making a nonsense of the savings that were anticipated.”

But many cited the opportunity for smaller expert providers in the market. One FM said: “If SMEs can operate their businesses efficiently and keep overheads under control, they are more likely to be able to attract and retain both the best talent and the best customers.”

“I think it is probably more the case that there will more large BPO & property management companies adding FM to their range of services,” said another respondent.

Some feel that there is room for both large and small-scale providers in the industry. “There will likely always be a place for large-scale operators in the marketplace but they operate in a ‘boom-to-bust’ cycle driven by low margins.”

The national living wage and its impact on service provision have also not gone unnoticed. One FM is expecting “a further surge in outsourcing to negate these cost impacts”. The consequential impact on the margins of smaller providers is still unclear.