What you need to know

Facilities management covers a very broad range of contracted-out services. There is no single comprehensive definition, though it typically covers both hard and soft services. Effectively the definition could include any sub-contracted service, but there also tends to be a client base definition. Public sector contracts form an important element of the market for some companies, and there are major providers who specialise in this client base. Private enterprises also form an important client base, though typically services offered to SMEs are not considered facilities management even though the services could be the same as those offered to large companies. The provision of serviced offices therefore tends to be excluded from the definition (though these too sometimes draw a client base from large enterprises). Typical services include M&E repair and maintenance, landscaping, office services, cleaning, catering and building fabric maintenance. There is also a major sector including the various forms of PFI, where long-term revenues continue from past contracts, despite the current government not pursuing such contracts. The situation could, however, change after the general election if the Labour Party gains power.

The size of contracts can be very significant, and many PFI contracts involve huge capital investments by facilities management companies. This has led to the widely publicised demise of Carillion and more recently the difficulties of Interserve.

Margins in labour-intensive sectors tend to be low, reflecting the initial purchase criterion of reducing cost, as well as recent cost increases from minimum wage legislation, the apprenticeship levy and workplace pensions. Facilities management companies are looking to technology to change the margin structure, partly by reducing staffing levels through automation, but more recently through gaining and using information to promote productivity and tenant wellbeing. Technology is also increasingly being used to add value to contracting out services, and to differentiate offerings from what clients could achieve by undertaking service themselves.

The UK has a strong heritage of contracting out services as companies have looked to concentrate on core activities. For this reason the UK has a major facilities management market compared with other European countries. However, MBD estimates that 65% of the £134.8 billion potential market in 2019 comprises activities that are currently contracted out, with the remaining £46.7 billion yet to be converted to a contracted-out service. Many of the services contracted out are single contract services or bundled services (a small collection of services), and the recent trend has been for the conversion of single service contracts to the bundling of multiple services. There is also a trend for bundled services to become full facilities management contracts to incorporate many services.

Covered in this Report

For the purpose of this report, the potential facilities management market includes work contracted to third parties, including total facilities management (TFM) contracts (also often called integrated facilities management or IFM), and the value of projects undertaken in-house.

The market is segmented into the following sectors:

  • TFM, where the full responsibility for undertaking and organising facilities management services is contracted to a third-party company who undertakes the work or sub-contracts the work to other companies

  • Contracted-out projects, where ancillary services are contracted out to third-party companies on an individual contract basis. This allows the client company to retain strategic control over facilities management and budgeting. The value for contracted-out services stated in this report includes contracts by single service providers and facilities management companies

  • In-house projects, where ancillary services are undertaken by in-house staff. These non-core activities represent the remainder of the potential market for facilities management companies

The value of the market includes manpower costs, operational management and strategic management, including services, consultancy and training.

The sector includes a broad range of ancillary services provided by single service contractors and facilities management companies. These are conventionally split into soft facilities management and hard facilities management services. The former group include activities that support the operation of a facility, such as:

  • security services

  • cleaning services

  • catering services

  • postal services

  • secretarial services

Hard facilities management services refer to activities that support the maintenance of a facility, such as:

  • gardening and landscaping

  • building fabric maintenance

  • lift and escalator maintenance

  • lighting

  • building design

  • plant replacement

  • construction management

  • energy and environmental management

However, as the market has matured and developed, different companies are taking a broader view of the market, which can have few limitations. Some companies either specialise or target public service provision, extending the market to a vast range of services, such as the provision of homes for the elderly/care centres. Other companies have identified the prevalence of provision to enterprises, and have looked to extend the market to smaller companies by entering the serviced office sector (typically serving new start-ups). Many are now looking to technology to leverage a position based on information and efficiency to move away from the price pressures of certain parts of the industry.

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