Key Areas

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KEY AREAS

AMA Research have published the first edition of ‘The UK Contract Facilities Management Market 2000’ – incorporating original input and primary research it represents an up to date and comprehensive report on Facilities Management, with a focus on Multi-Service contracts.

Over 120 pages, the report covers:-

• UK Contract FM Market - size, trends and key influences.
• Focus on Multi-Service contracts - building/environmental, cleaning, catering, security etc.
• Key End-User Markets - size, growth forecasts and market penetration.
• Review of FM Contractors - major players, company profiles, areas of specialisation, new entrants, growth of consortia etc.

The multi-£ billion Contract Facilities Management market has been experiencing strong growth during the 1990s and is expected to show further growth over the next few years. Growth is primarily driven by increasing levels of outsourcing, the trend towards multi-service contracting, and key government initiatives, including Public - Private Sector Partnerships such as the Private Finance Initiative.

The sector is rapidly changing with established suppliers and new entrants offering specific services to meet the developing needs of different end-use sectors.

Areas of particular interest:-

• Market activity levels with forecasts to 2003.
• Trends in key end-user markets - growth sectors.
• Competitor analysis - general FM contractors, specialist contractors, new entrants, changing industry structure etc.

The report is targeted at FM contractors, specialist M & E, building, catering, cleaning contractors etc, financial institutions/consultants, and suppliers of equipment and building materials into the FM sector.

Key areas of coverage in the report include:-

THE MARKET

• FM Market overview – estimates of total market size in 1998/99 and forecasts 2000-2003.
• Overview of total outsourcing market - market size, shares, key sectors etc.
• Key Market drivers - diversification, growth in outsourcing of facilities management in key sectors, development of Public/Private Partnerships, trend towards 'one stop' multi-service contracts, 'best value'.
• Focus on building and environmental, cleaning/hygiene/waste, catering, office support services etc.
• Market structure - analysis of market for 'non-core' support services by service type - overall size of 'outsourcing' market, role of FM packages within sectors etc.

END-USE SECTORS

• In - depth analysis of facilities management market by end-user mix - Corporate, NHS, Local Authority, Infrastructure, Central Government.
• Estimates of market size for each sector in 1999 and forecasts for 2000 - 2003.
• Estimates of mix in each market between in-house provision and contracted services.
• 'Corporate sector' - 'Corporate PFI'. Key influencing factors/future trends.
• NHS sector - impact of PFI, trend towards delivery of multi-service contracts. Table indicating major projects including consortium details, concession length, capital cost - key providers. Key influencing factors/future trends.
• Infrastructure sector - review of airport, rail, road and utilities sub-sectors, Railtrack investment, airport development, roads investment, PPP for London Underground, outsourcing in Utilities sector. Key influencing factors/future trends.
• Local Authority sector - potential impact of 'Best Value', growth in PPP/PFI in secondary education, potential in Leisure sector, developments in University sector. Key influencing factors/future trends.
• Central Government - analysis by key department, 'Prime Contracting' by Ministry of Defence, Key projects, the PRIME Contract, STEPS Contract, etc. Key influencing factors/future trends.

FM CONTRACTOR ANALYSIS

• Origins of FM companies - 'spin offs', new start ups, consortia.
• Structure of supply - independent management contractors, service delivery contractors, assessment of types of service delivery contractors including 'soft' and 'hard' sources.
• Key trends - issues covered include new entrants, company re-organisation, polarisation, market re-positioning among major contractors, specialist consortia.
• Review of major contractors - size, areas of specialisation, trends etc.
• Up-to-date review of major contract developments up to end June 2000.
• Implication of FM trends on buying and specification processes for equipment and material suppliers.

This 120+ page report provides a comprehensive overview of this complex and fast-changing market, reviewing key market sizes, influencing factors, supply structure and future prospects.

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EXECUTIVE SUMMARY

Since the recession of the early 1990’s there has been substantial growth in companies and public sector organisations contracting out peripheral non-productive functions. The aim has been to minimise labour costs and management time on low-priority areas, and to obtain improved quality of service, provided by companies specialising in the management of ‘non-core’ service provision and the delivery of these services.

Facilities management (FM) outsourcing has undergone rapid growth during the 1990’s, far exceeding the average growth rate in the UK economy, although key sub-sectors of the market are still relatively immature. It is estimated that in 1999 the contract FM market was worth around £13.5 bn, and is expected to show strong underlying growth over the next three years.

The main ‘driving’ factors are:

• Forecast underlying growth in GDP until at least 2004.
• Commitment to substantial increases in spending in real terms in health, education, transport and other infrastructure.
• Developing private-public sector partnerships, resulting in increases in longer-term and high value contracts.
• Increasing levels of outsourcing in both the public and private sectors, with emphasis on growth in the utilities, healthcare and education sectors.
• Trend away from single to higher-value multi-service contracts.
• Impact of key pieces of Government legislation including ‘Best Value’ and Public-Private Partnerships (PPP) , the most important being the Private Finance Initiative (PFI)

As many major clients now prefer to negotiate with a single point of contact, demand for multi-service contracts is expected to grow at the expense of single service contracts.

In some end-user sectors, market potential for the outsourcing of ‘non-core’ services is already very mature, particularly commercial office, retail, transport and Central Government. It is anticipated that overall growth rates in these sectors will remain modest, although the shift from single service to multi-service provision under large ‘one stop’ FM contracts is anticipated to continue. Within the public sector, this is illustrated by the recent award of the PRIME contract to Trillium to run the DSS estate, and for the change in the provision of services in other key government departments, including’ Prime Contracting’ within the Minstry of Defence, the impending STEPS contract for the management of the combined Inland Revenue and HM Customs & Excise estate.

Where multi-service contracts already prevail, growth potential will largely depend upon increases in construction output, as demonstrated by the large number of large-scale developments at many airports throughout the UK and recent announcements of higher government spending on health, education and transport.

The main areas of growth in demand for outsourced FM services are expected to be the NHS, the utilities sector and key Local Government secondary education, sport and leisure services sectors. In the Local Authority sector, under Compulsory Competitive Tendering, the provision of ‘non-core’ services has largely remained with in-house teams. However, the introduction of ‘Best Value’ in early 2000 and the increasing volume of contracts being awarded under the Private Finance Initiative are anticipated to stimulate significant growth in demand for outsourced FM.

In terms of market structure, it anticipated that there will be further polarisation. As FM contracts within the public and corporate sectors become increasingly larger , encompassing increasingly diverse multi-disciplinary services, it will only be the larger FM companies able to compete for major contracts similar to the Department of Social Security’s PRIME initiative. This involved the transfer of the management and provision of service delivery for the DSS estate away from many single service contracts to one multi-service contract, managed by Trillium.

At the other end of the market spectrum there will still remain a large number of medium sized businesses and public sector organisations not awarding contracts of this magnitude, which should provide substantial opportunities for smaller FM providers.

The other key feature of the FM market is that it is highly dynamic, characterised by diversification, frequent acquisitions, re-organisation and re-positioning and low barriers to entry. Over the past few years, there has been a considerable number of new entrants to the market. Many of these have been ‘spin-offs’ from other companies, start up services within existing companies, or ‘new’ companies resulting from mergers or re-organisation.

Typically, most of the established FM companies have their origins in construction and engineering, but several of the larger players have recently redefined themselves as business support companies rather than construction firms, in a move away from the historically low-margin construction sector towards the higher margin business services market. Increasingly, newer companies are also emerging from other disciplines such as contract cleaning, catering services, security and property.

Among the leading providers of FM services within our market definition are Amey, Serco, Jarvis, Carillion Services, Aqumen, Drake and Scull Technical Services, Haden Building Management, and Building and Property Group, all of which generate annual turnovers of £100m+.

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Last updated by Paul Tucker 9th September 2000