1.5 As part of a Comprehensive Spending Review in 1998, the Departments decided that they needed to reduce the cost of running their estates. Just as the Departments were considering how to do this, the PRIME deal was close to being signed and was expected to cost £560 million less over the 20-year contract period than continuing with the existing arrangements. This was mainly due to lower capital expenditure, lower facilities services costs and extra property income.8
1.6 Over the 20-year life of the STEPS contract, when compared with the Public Sector Comparator, the Departments expect to save £344 million (in net present values), with an estimated first year saving of some £27 million. These savings are estimates because of the inevitable difficulties in accounting for changes to the size of the estate, rent increases, and assumptions on contract letting.
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| Benefits of estate management PFI deals |
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| Operational benefits Flexibility: These deals give departments flexibility in their occupation of estates, allowing them to vacate a large proportion of their estates without charge and to occupy additional space as required by evolving business strategy. Focus on core business rather than estate management issues: Reduced staff numbers in estate related functions are expected. Staff may also be transferred to the private sector contractor. Facilitating strategic thinking: Promoting a long-term focus on business need and how the estate can best be used to serve that need. Transfer of risk: Risks transferred usually include rent increases, costs exceeding budgets, losses on property development, costs associated with vacation of flexible properties, compliance with health and safety regulations and service delivery below set standards. Consolidation and rationalisation with a single service provider: Prior to these deals, departments had to deal with fragmented service contracts. These estate management deals consolidate these to a single contract with one service provider who deals with sub-contractors. Standardised services across the estate: A single point of access for service delivery issues is usually created via a helpdesk, often available 24 hours a day, 7 days a week. Helpdesks generally deal with reported faults such as replacement of lightbulbs, emergencies such as a broken lift and service requests for porterage and room bookings. Incentivising performance: A payment mechanism that makes deductions for poor performance is used to incentivise the contractor to maintain standards of service delivery. Professionalism in estate management: Experts in estate management are brought in. They are best able to take advantage of the property cycle, deal with estate management risks and bring cost effective management of the property portfolio. This frees the public sector from dealing with rent reviews, lease negotiations and disposal of surplus property with multiple landlords. Other Government departments: There may be opportunities for other government departments to occupy space within the estate and share the benefits of the deal. Financial benefits Cost reduction: Cost savings are to be expected through reduced facilities management (FM) and maintenance costs, lower capital expenditure, receipts from the disposal of surplus property, and potential savings on utility charges and the purchasing of items such as furniture. Up-front payment: A capital release from the sale of the properties can be made in the form of a one-off up-front payment from the contractor at the start of the contract. Profit share: There are opportunities for further gain by including profit-sharing mechanisms in the contract. |
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| Source: National Audit Office |
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