Box 4.2: Soft FM- factors for consideration

Whole life costs: The long-term structure of PFI contracts requires upfront estimation of whole of life costs. Long-term contracts incentivise public authorities to think more strategically about the services required, whilst there is the incentive for private sector service providers to consider whole life costs. Because of the risk transfer inherent in PFI, the contractor is incentivised to find the best balance between upfront investment costs and ongoing operation and maintenance costs and hence deliver VfM. An example is where the initial investment in better materials, such as consistent use of the same cleaning materials or better flooring initially though costly, reduces the maintenance and life-cycle costs to the extent that a lower unitary charge can be bid.

Lower interface issues & single point of contact: With the use of one contract for services in PFI rather than several separately let services, interface issues become the responsibility of the contractor. Additionally, if the use of a single point of contact for a range services is considered important to the delivery of VfM then this can be mandated in the PFI procurement. This will be the case if the management of resources in this way reduces transaction costs and the authority's administrative burden, and provides additional flexibility in responding to issues. However, how this could be implemented optimally may differ depending on the size and coverage of the project. For example, for smaller and more localised service provision such as in a school it may be felt that there is greater benefit from a single general manager for the project, rather than a general helpdesk which may be more relevant to larger accommodation style projects. 

While the PFI route may allow for a range of services to be included in one contractual agreement, over-reliance on the contract or lack of coverage in the contract may negate the potential interface benefits.

Design Integration: Innovation and integrated input from different parties into the design of an asset can improve its operational activity. It is therefore crucial to consider how soft (and hard) FM will be provided by service specialists. The inclusion of soft services in PFI could provide such specialist input. However it is important to remember that much of the benefit of design integration relies on early discussions of the issues. Thus the Stage 2 assessment should consider what actions should be taken to ensure this (e.g. clear questions asked in tender documentation to demonstrate that the bidders have done this, linked to bid evaluation/ assessment criteria; establish a formally meeting multi-disciplinary design team requiring representation across the board (service providers, constructors etc) within the contract).

Effective management of resources: Another VfM driver may be the exploitation of any efficiency available from economies of scale/scope, and expertise available in the private sector. PFI may import effective solutions to the management of subcontractors and resources where such an activity is its core business. While any improvement in management of resources should not be achieved at the expense of workers' terms and conditions, analysis of how more effective management of resources could be realised should be included in the Stage 2 assessment.

Flexibility: The requirement for some soft services may be uncertain or prone to greater change over the life of service provision than other soft services. If service needs are likely to change significantly, regularly or frequently then if they are included within PFI contracts they may not offer the best value for money. Assessment of the needs should also consider how the asset use may change over time.

Interim Services: In some sectors or projects, there will not be a discrete distinction between the build and operation phases e.g. some projects include extensions to existing assets/refurbishment. In such cases the use of interim services may be required. Interim services are those provided soon after financial close up until the asset is fully operational. The level at which they need to be provided will be different to that provided when at steady state (i.e. when the asset is fully operational). 

Interim services in PFI involve the early transfer of service provision to soft FM providers as part of the SPV or those subcontracted to it. This can provide several benefits including better transition to the fully operational stage, and reinforcement of design and whole of life cost integration as service providers are involved from the outset and can provide feedback through experience of operation in the interim phase. A gradual increase in service provision during this phase can help ensure that services are provided at the right level (e.g. teething problems are worked out earlier and less time is needed to embed service provision changes) when the asset is fully operational. However the benefits from the use of interim services rely on an early assessment of their use and correct budget establishment (comparing like-for-like).

Financial Incentivisation: The use of the unitary payment system in PFI could provide better financial incentives than separately let services as the performance regime is directly linked to payment, with an integrated approach to different elements of the service provision. However the payment system will only work as an effective incentivisation tool where performance thresholds have been correctly calibrated. Confidence in the suitability of the performance regime could be established through mechanisms such as the use of a post-verification phase six to twelve months into the contract for instance. This will provide opportunity to re-assess performance standards and thresholds. Furthermore, given the generally longer duration of PFI contracts, the use of benchmarking or market testing adds value by providing an opportunity to test that services are fairly priced in the light of prevalent market conditions13.