Forward Plan reference number: FP/272/11/18 Report title: Options for Property Management and Facilities Management Services Report to: Cabinet Report author: Paul Crick, Director for Capital Investment and Delivery Infrastructure and Environment Date: 18 December 2018 For: Decision Enquiries to: Paul Crick, Director for Capital Investment , Email: [email protected] Sarah Howard, Category and Supplier Relationship Specialist, Email: [email protected] County Divisions affected: All Essex Confidential Appendix This report has a confidential appendix which is not for publication as it includes exempt information falling within paragraph 3 of Part 1 of Schedule 12A of the Local Government Act 1972 as amended. 1. Purpose of Report 1.1 The Council has a contract with Mitie Ltd under which facilities management and property management services are provided. This report asks Cabinet to agree to extend the facilities management and property management services aspects of the contract for 5 years until 30 September 2026; and to delay the decision whether to extend the programme management office. 2. Recommendations 2.1 Agree to extend the contract for facilities management and property management services, with the exception of the programme management office function with the existing service provider (Mitie Ltd) for a period of five years until 30 September 2026 and to vary the contract price downward as set out in the confidential appendix with effect from 1 April 2019. 2.2 Agree with Mitie Ltd to vary the contract so that notice period for the extension of the programme management office function is changed to notice being given to Mitie Ltd by 30 September 2020, rather than by 31 January 2019 as currently provided for in the contract. 3. Summary of issue 3.1 ECC owns or rents significant land throughout Essex which includes approximately 300 non-school buildings. It needs access to facilities 1 management so that buildings are managed effectively and property advice to deal with property acquisitions and disposals. 3.2 ECC property and facilities management services are provided by Mitie Ltd. The contract is in year 8 of an initial 10 year term. The contract includes a provision allowing an extension for up to five years. The current contract for property and facilities management services includes Hard Facilities Management (which relates to the physical fabric of buildings such as heating, lighting and building maintenance) and Soft Facilities Management (for example cleaning, security and waste management). The contract allows flexibility to remove or add new properties and associated services. 3.3 Responsibility for the delivery of annual capital maintenance was incorporated into the contract in 2012. This covers project and asset management services for the core and school estates e.g. Special Educational Needs (SEN) modifications, Building Engineering Services such as heating and ventilation systems, electrical rewiring as well as building fabric maintenance such as roof replacement works. Responsibility for the programme management office (PMO) function, which supports the design and delivery of capital maintenance projects across ECC, was transferred from Atkins to Mitie Ltd in 2017 3.4 The annual spend on property and facilities management is variable based on ECC requirements. The 18/19 budget for core estates, schools budget and other ECC service areas (ad hoc) is forecast at £16.73m, excluding the PMO. Annual spend on the PMO function is not included in the above figure or any of the costings in this report because it is not proposed to extend that element of the contract. If Cabinet agrees the recommendations in this report then a further report will be submitted about the future of the PMO function following completion of a separate review. 3.5 If we wish to extend the contract past the initial 10 year term then notice must be given before 31 January 2019. If the contract is not extended, it will end on 30 September 2021. 3.6 A comprehensive review of the contract has been undertaken including reviewing business requirements, benchmarking costs, quality assurance, stakeholder feedback and market analysis. Key findings of the review are as follows: ECC is the tenth largest public sector customer in the FM Services market Mitie Ltd is the third largest provider to the public sector. ECC, as their fourth largest client, makes up 9.3% of their public sector revenue. Contract performance against current contractual KPIs is excellent. Benchmarking shows good value for money on all core services - as set out in the summary table below. The exception is value for money on overall expenditure on capital projects via the PMO; this is the principal reason why 2 it is not proposed that the PMO is extended at this time beyond 30 September 2021. Mitie Ltd have agreed that notice may be given by 30 September 2020 as to whether the PMO function will be extended. This will enable a further in- depth review and options appraisal of the PMO function which will in turn inform a recommendation to Cabinet. Services Cleaning Security Hard FM Project Surveyors hourly Benchmarked Business Management charge rates Services and Fees (spend on (property spend Landscaping capital projects) via LSH) Labour Rates Overview of Appears to be Manned Benchmarked Project LSH day rates Benchmarking within a typical response rates against CCS, management fees demonstrate good range and good are very 16 of the 18 appear to be high value for money value for favourable labour rates compared with based on money against were cheaper frameworks and benchmarked data benchmark. than the other internal Mobile security average. contracts, further control costs analysis is being fall within undertaken benchmark parameters. Performance KPI KPI KPI Feedback from KPI performance Performance is Performance is Performance is service areas has is good. No good good good been mixed evidence found to suggest LSH are underperforming. Value For Yes Yes Yes Under review Yes Money Assurance Mitie Ltd have subcontracted provision of Property Services to Lambert Smith Hampton. LSH are meeting targets and their charge rates benchmark well against market rates. ECC has been working for the last few years to make sure it maintains optimum availability of property and that its properties are used to best effect, including letting out ECC property. This requires flexibility to add and remove properties. The current contract provides this flexibility, with the option to add or remove assets and services as ECC require. The current contract is performing well and its terms are competitive. Given the current instability of the market, if the contract is retendered, there is a risk that costs may increase or there will be no bids. 3 4. Options 4.1 There are 5 options to consider: Option 1 – Extend the contract and delay extension of the PMO function - Recommended. Extend the contract, excluding the PMO, by 5 years from 1 October 2021 – 30 September 2026. Vary the notice period for the PMO to 30 September 2020, rather than 31 January 2019, to allow a full review of the PMO function to be completed. This option would provide a continuous and consistent service delivery based on known costs and delivery parameters already being experienced within ECC. The risk with this option is that the services have not been fully market tested since the original contract procurement. However, this has been mitigated by the contract review exercise described above at 3.6. Mitie Ltd have also offered discounts to the current fixed fee element of the contract along with contract management improvement activities during the extension. Mitie Ltd.’s knowledge and experience of holding the ECC contract for the past seven years is of benefit to ECC as it offers greater opportunity to develop the contract. The contract is good value to ECC and the extension includes savings which can be implemented immediately and during the proposed extension. These are contained in the confidential appendix This option allows ECC time to further assess options (including extension) relating to the PMO. Option 2 - Extend the contract including the PMO function. Extend the contract, including the PMO, with the existing supplier by 5 years from 1 October 2021 – 30 September 2026. As with option 1, this would provide a continuous and consistent service delivery based on known costs and delivery parameters already being experienced within ECC. The risk with this option is that the PMO is not currently demonstrating high value for money. The contract review exercise which has been undertaken highlights this as an area where ECC should consider all options, including the potential to deliver the service in-house. This option is therefore not recommended at this time. Option 3 - Do not extend the contract and procure a new contract for the service via open competition. 4 Procure the service delivery requirements via an open competition in accordance with prevailing legal compliance. This option would provide an actual market test but will require a procurement exercise to be undertaken, which is costly and resource intensive. The current service is achieving value for money. There is no guarantee that better value for money would be achieved by retendering the contract. The savings that Mitie Ltd have offered for years 9 and 10 of the contract will only apply in the context of an extension and would not be realised under this option. This option is not recommended as it is considered that Option 1 is most likely to achieve the best value for ECC. Option 4 - Do not extend the contract and procure new contracts for the services via multiple framework agreements. No one framework agreement covers everything within the current contract. To meet the requirement via available framework agreements, a minimum of three call off contracts would be required.