Leaner and Greener: Delivering Effective Estate Management
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Follow up work
The Westminster Sustainable Business Forum (WSBF) undertook a research inquiry to examine how best to promote greater sustainability in public sector estate management. The WSBF inquiry, chaired by Matthew Hancock MP, sought to identify bold recommendations for how to more efficiently manage public sector estate to improve economic and environmental efficiency in a time of austerity whilst maintaining and improving service delivery. The resulting report also provides a route map for how public sector organisations can improve the sustainability of their estate management.
The findings suggest that local government can save money and improve services by managing their property assets efficiently, sustainably and in partnership with other public and voluntary sector organisations. Specifically, local government should reduce the space that it occupies by 20-30% with the potential savings in running costs of up to £7 billion a year.
The October 2010 Comprehensive Spending Review introduced cuts of 26% in funding (£6.7 billion) from central to local government over the next four years, with councils’ budgets cut by up to 8.9% in 2011. This places local authorities under significant pressure to deliver more for less.
At the same time, there is a range of legislative imperatives and targets designed to drive local government to improve their environmental performance. For instance, the introduction of the Carbon Reduction Commitment (CRC) in April 2010, will force qualifying organisations to buy carbon allowances from 2012, costing the average participating organisation approximately £200,000 a year.
The scope of financial and environmental pressure is likely to have a profound impact on the way services are delivered and force local government to seek efficiency measures in additional areas like asset management and procurement. Improving the management of local governments’ vast property portfolios offers a crucial opportunity for delivering economic and environmental efficiency. The value of public sector property assets is estimated at around £370 billion and costs around £25 billion to run every year. Two thirds of this property, around £250 billion, is owned by local government.
As local governments’ property portfolio typically represents one fifth of revenue expenditure, there is vast potential for achieving savings by lowering the operational cost of property. This report explores the possible efficiency gains that can be made through 15 recommendations from reducing the property portfolio and associated operational costs of local government and its public sector service delivery partners.
Local government can save money and improve services through managing their property assets efficiently, sustainably and in partnership with other public and voluntary sector organisations.
The report’s findings show that local government can achieve efficiency savings through decreasing the space it occupies by 20-30%, by implementing low cost, flexible working practices and establishing central control over the management of its property assets.
Moreover, there is a strong business case for increasing the sustainability of local government estate with potential savings of £180-200 per m² per year. Local authorities currently spend up to £200 for every tonne of carbon they produce. In addition, it is estimated that the Carbon Reduction Commitment (CRC) will cost participating organisations approximately £200,000 a year.
This report highlights the importance of partnership working between local councils and its service delivery partners in the co-location of back office and front line services within common premises. Cooperation on the establishment of Local Property Management Boards and Pooled Asset Vehicles will enable more efficient asset management.
Public sector challenges
The Comprehensive Spending Review (CSR) in 2010 announced cuts of 26% to local government funding over the next four years. Meanwhile, other legislative imperatives such as the CRC will cost participating organisations approximately £200,000 a year. This creates a huge pressure on local government to make efficiency savings. The public sector estate is worth £370 billion and costs £25 billion a year to operate. Two thirds of this property, around £250 billion, is owned by local government. This report explores the possible savings that can be made from reducing the property portfolio and associated operational costs of local government and its public sector service delivery partners.
Space Utilisation and Centralised Asset Management
Lowering occupied space will enable the public sector to lower its property running costs. The average space occupancy rate within the public sector is estimated at 14.5 m² per full time employee (FTE). This figure is on average 20%-30% higher than the 2008 Government Space Standard of 12 m² per FTE for existing properties. The report has found that public sector organisations can deliver up to £7 billion of savings from lowering the space it occupies and through co-operation in procurement.
To effectively rationalise its estate and generate considerable efficiency savings, local government should strive towards the establishment of a structure where all property decisions are being made centrally, rather than by individual service directorates. A Central Property Unit (CPU) will enable local government to target inefficiency in its property use and strategically address it. In addition to pooling skills within CPUs, local authorities should also develop measures that provide service directorates with incentives to critically assess their property use.
Local government should reduce the space it occupies by 20-30%, by following best practice examples of low cost, flexible working practices.
Local government should introduce a range of flexible property solutions to meet changing needs of various users and services.
Local government should ensure effective property management by establishing centralised control of its estate within one department. A Central Property Unit should be made responsible for centralised property decisions, including leases and the procurement of buildings.
Local government should incentivise efficient use of space at all levels. They should introduce techniques varying from an internal charge for the property use, to allocating a share of benefits from the sale of vacated property for their own budgetary use, to further incentivise occupied space reduction.
Investment in environmental sustainability is an opportunity for achieving economic savings through carbon reduction and energy efficiency measures. The report has found that there is a strong business case for environmental efficiency. The energy cost of producing one tonne of carbon is within the range of £150 to £200. This is in addition to the added costs for carbon emissions generated from the CRC. The introduction of green measures for a standard administrative building, with staff on average public sector wages, can deliver financial savings in the range of £180-£200 per m² per year.
Government must emphasise the extent of savings available from decreasing energy consumption and the inclusion of the price for carbon emissions when settling future budgets to incentivise investment in more sustainable estates.
Local government should use both quantified environmental and economic savings to strengthen the business case of paying a premium for increased environmental efficiency.
Cooperation with Partners
The report highlights that economic and environmental efficiency gains become considerably larger if local government cooperates with other parts of the public sector and voluntary sector. So called co-location of front and back office services not only improves the service access for the customer, but also lowers operational costs by achieving economies of scale on support services, while generating capital receipts from the sale of redundant property and delivering carbon savings.
In order to establish effective joint property solutions, local government and its partners must have the right data about its estate and service delivery. Local government needs to develop effective customer targeting methods to establish the service needs of a community. The appropriate service intelligence should be combined with an asset mapping tool, or a common public sector GIS map, to enable effective decision-making.
Local government should cooperate with public and voluntary sector partners to identify matching property requirements. This process should involve partners on all central and local government levels as well as service providers from health, police, fire, education and the voluntary sector.
Local government should develop a Service Asset Strategy, to align service delivery and property requirements. The strategy should set out a forward looking vision of service requirements and be responsive to the changing needs of its customers by employing commercial targeting and profiling tools.
Local government should invest in asset management systems and adopt a pragmatic approach to data capture that limits the information collected to what is necessary to inform strategic decisions on the use of the estate.
Local government should introduce a common set of metrics to analyse the performance of its estates. Effective use and analysis of data should include overlaying essential property data to a GIS system to support effective cluster analysis and the identification of cross boundary rationalisation opportunities.
Implementing Solutions: Shared Asset Management Approaches
Cooperation between executives of all key public sector organisations in the area is crucial to the successful co-location of services. The report highlights the importance of a Central Property Unit in local government as the first step towards centralised property management. However, in order to establish a deeper level of cooperation, local authorities and their partners in the public and voluntary sector should then develop a common management solution, ranging from a local public sector property management board to a property vehicle for the estate of all local public service providers, to enable strategic asset management in a locality.
A local public sector property management board is a less sensitive option due to its limited managerial power over assets. As service providers are often not fully aware of the cost of the space they use, organisations should be incentivised to reconsider their property needs and rationalise the space they use. Centralised control over all local public sector estate delivers numerous benefits for public sector organisations in a locality because they will be able to focus on delivering services, while minimising their costs by only occupying the space that is really needed. Creating a Pooled Asset Vehicle in the locality and introducing a lease between the asset vehicle (as landlord) and the service provider (as tenant) will transfer the true cost of the premises each organisation occupies into its budget.
A public sector Pooled Asset Vehicle would benefit from greater financial resources. This would enable further investment into the properties, creating efficiency benefits from shared property, joint support services and improving service delivery. However, there are noteworthy governance, legal and accountability issues associated with property sharing and service co-location which should be addressed by central government to facilitate public sector property cooperation.
Local Government and its public sector partners should establish a joint centralised property management structure to improve the efficiency of property management.
Local government and other public sector bodies should strive towards the creation of Pooled Asset Vehicles to facilitate a joined up approach to asset utilisation and to create a platform for levering private sector investment into the public sector asset base.
Central government should seek the removal of legislative, taxation and governance obstacles to the creation of Pooled Asset Vehicles to facilitate public property sharing on the local level.
Sustainable Asset Solutions
Improving environmental efficiency should be key for local government and its public sector partners. This report highlights that carbon emissions savings of 20-40% are regularly possible within existing buildings through a combination of practical solutions. Cost-effective green solutions should be implemented as a priority, but longer term, Spend to Save options should also be considered for the delivery of longer term benefits.
Local government should, as a priority, implement simple low cost measures to reduce energy consumption, carbon emissions and operational costs.
Local government and its public sector partners need to explore Spend to Save projects, prioritising the retrofitting of existing space over new build, to deliver more extensive carbon reduction of its estate. Local government should seek support from specialised funding sources, such as Salix or the London Green Fund.
The report was launched on Wednesday 2nd February.
To download a copy of the report (11MB), click here.