Managing public property in a leaner and greener way

Cuts to local authority budgets are now daily parts of the news. The 2010 comprehensive spending review stated dramatic cuts of 26 per cent to local government funding over the next four years and the consequences are now being felt across the UK. Meanwhile, the changing nature of our environment means that the UK has committed itself to an arguably ambitious target, to reduce carbon emissions by 20 per cent by 2020.  

So can environmental efficiency and economic savings be made alongside one another? Moreover, is it possible for the public sector to make savings in both cash and carbon while maintaining the quality of services?

Potential for savings
In seeking answers to the questions above, we at the Westminster Sustainable Business Forum (WSBF) have spent six months studying public sector property management. Perhaps surprisingly, we found that the potential for efficiency savings, both environmental and economic, is immense.

For example, public sector property is currently valued at approximately £370 billion, and costs £25 billion to run every year. From this, local government property is valued at an incredible £250 million and typically represents one fifth of local governments’ annual expenditure. Downsizing such large outgoings through better facilities management and procurement could save billions of punds.

At the same time, public sector buildings in England are responsible for producing 19.5 million tonnes of carbon, representing about 8 per cent of total non-domestic carbon emissions. The size of this output again suggests the scope for increased efficiency.  

So there’s room for savings to be made. But crucial to our findings was the revelation that such focus on property management can not only deliver efficiency savings, but perhaps more importantly, improve the delivery of services for residents.

Leaner and greener property management
Eric Pickles, Secretary of State for Communities and Local Government, who launched the findings in February, said:
“Every council could save millions by managing their properties better, using the money to protect frontline services or keep council tax down.”

Matthew Hancock MP, chair of the Westminster Sustainable Business Forum research inquiry explained further: “Local government owns huge amounts of our towns and cities. On investigation, we often found poor use of that property, costing money and adding to carbon emissions. What we found surprising, is that where improvements have been made, the people working there told us that they had not just saved cost and saved carbon, but also improved services as a result.”

The inquiry found that while the concept of sharing property within and between public service providers may seem daunting to local authorities, it can be an effective way to combat traditional ‘silo-thinking’ and the belief that each department, service or authority must be kept separate. New ways of working in streamlined property and assets are likely have an additional positive impact: an improvement in services.

In light of the benefits to be achieved all round, it seems rational that the efficient property management should be prioritised.

We understand, however, that while the arguments for such changes are clear, how to make such changes is not. So to help illustrate the route to success, the report uses case studies of local authorities who have already moved to this way of thinking, and are already reaping the rewards. Some of these, alongside the report’s recommendations, are described below.

Saving space
As a part of Birmingham City Council’s Business Transformation programme, the council initiated an innovative efficiency programme, called ‘Working for the Future’, to streamline its core office estate and resolve the issue of its out-of-date and scattered office portfolio. From this, the council is now planning to transform the 55 buildings it uses for office space to eight, saving a colossal 50,000m2. One building in particular, the Lancaster Circus Council Building, has already merged 13 buildings into one, cutting 10,000m2 of floor space.

Moreover, through measures such as combined heat and power connection, high standard insulation, passive ventilation, power perfectors and an efficient lighting system, this building has concurrently delivered a 40 per cent reduction in carbon. Together, reducing space and energy efficient measures have generated savings of £3.5 million a year in running costs for one building alone – and £100 million a year for the entire project.  

The figures speak for themselves. Indeed, by following best practice examples of low cost, flexible working practices, local government could reduce the space it occupies by 20-30 per cent, with the potential to deliver savings in running costs of up to £7 billion a year.

Addressing the flexibility of both working practices and property can reduce the amount of space required even further, as a more flexible work force requires less desk space. This can be achieved, as demonstrated by Birmingham CC, through using modern technologies to facilitate remote working with the support of drop-in offices where staff from any agency can call in to use desks.

Councillor Randall Brew, cabinet member for Finance at Birmingham City Council, which has started implementing these changes, noted:
“Through a combination of these new buildings and work practices, and managing buildings more effectively, we’re already reaping the rewards and surpassing our expectations.”

Establishing central control
Centralising control over property within a single department is a vital step for every public sector organisation wishing to manage its estate efficiently.

Manchester City Council established a central Corporate Property Team, and then imposed a property embargo, meaning that all lease arrangements, disposals, facilities management contracts and IT requests needed to be approved centrally. Such centralisation has achieved significant economies of scale and allowed contracts to be renegotiated and the break-up of leases.

Indeed, the city council has been able to reduce its back-office operations properties from 34 to 13 and is expecting that by the time its property rationalisation programme ends, one third of council’s estate will be released, with significant financial and carbon savings.

Following this example, every local authority can achieve effective control over all of its property by establishing a ‘Central Property Unit’. This would act as a corporate landlord for service departments, while a designated property advisor within the unit could work with specific service providers, arranging their accommodation requests, building improvements, and funding a preventive maintenance regime.

In order to motivate Service Directorates to maximise their space utility even further, the corporate property team within Manchester City Council aims to introduce a notional space use charge. Such a move towards internal rent could enable every local authority to establish appropriate set of incentives for efficient space use.

Public sector property cooperation
The urge to deliver efficiency savings will encourage organisations to look beyond their own boundaries for solutions. Local government is no exception, and should seek to collaborate and cooperate with other public sector and voluntary partners.

Suffolk County Council demonstrates clearly how collaboration between public sector organisations can save wads of taxpayer’s money. Their work on property mapping started last year, and through exploring the co-location possibilities by 12 public sector partners – including borough and district councils, police and health, along with central government, they have been able to make significant, and valuable changes.

Through the project, 2,500 properties (excluding council housing), with a book value of £500 million, were identified. The mapping initiative primarily focused on the identification of locality based property solutions, with more than 80 potential projects being recognized. An initial ten priority projects were selected, which are now being actioned. The timelines of these projects vary; nevertheless, it is estimated that £1.6 million of annual property costs can be cut by the end of 2011.

Sharing property by different public sector service providers enhances the extent of efficiency savings by enlarging the size of the managed estate. Indeed, the co-location of front and back office services allows public sector organisations to generate economies of scale through the enlarged scope of the property facilities management and procurement contracts.

Pooling capital resources will also allow greater investment into joint property, improving the quality of the public sector estate. Joint property management will then deliver operational cost savings through enhanced efficiency of its property use, which will contribute towards the improvement of frontline services and customer satisfaction.

Joint property management
The report describes a variety of solutions for joint property management, ranging from a local public sector property management board, to a “pooled asset vehicle” for the combined estate of all local public service providers. As there are likely to be local sensitivities related to the transfer of control over assets to an independent body, local government and its public sector partners should look to establish mutual trust, by seeking out solutions that will be firmly based in their area and take such account of such sensitivities.

Although property cooperation across boundaries is generally considered more difficult due to constraining financial and contractual arrangements, such cooperation will now become crucial to local authorities operating with diminished budgets.

Launching findings of the report, Erick Pickles agreed: “A sensible use of public money demands that we do start to share public buildings and to offer better service to the public.”

Going green
Finally, partly because of the environmental imperative, and partly because of the financial savings available, environmental efficiency should be a priority for local government. The energy cost to produce a tonne of carbon emissions lies somewhere in the range of £150 to £200. The levy for every tonne of carbon emitted under the Carbon Reduction Commitment, introduced in April 2010, builds an extra £12 on this cost. Although this seems like a small charge, on doing the maths, an average participating organisation will find itself paying approximately £200,000 a year from 2012 onwards. The annual costs for one London Borough is estimated to run to £224,000, while for a Unitary Council, the total cost is approximately £162,000.

London Borough of Southwark has tackled this issue by relocating from 20 previously disparate buildings to a single, centrally located building. The new, central building has been built according to the BREEAM ‘Very Good’ standard, with 20 per cent of energy demands met by renewables. Measures to help achieve this include a biomass boiler that meets 50 per cent of heating needs, passive ventilation systems, power perfectors and IT technology to manage lightning, computers, kitchen appliances and other devices. This rationalisation exercise has not only achieved environmental efficiency savings of 1,781 tonnes of carbon dioxide emissions a year, but also, delivered operational cost savings of about £3 million per year.

Moreover, for those local authorities that cannot afford a complete overhaul, the Carbon Trust estimates that the first 10-15 per cent of carbon emissions can be effectively decreased through good housekeeping and low cost green solutions alone. A further 20-30 per cent of carbon can be shed through longer term Spend to Save measures like retrofitting existing buildings and efficient design of new buildings. Carbon reduction measures of this scope represent a cost reduction of a significant £650k for an average participant in the Carbon Reduction Commitment.

A strong business case
There is a strong business case for such sustainability measures that local government cannot afford to ignore. Our calculations suggest that 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 from lower energy spending. On the top of monetary savings, sustainability measures can deliver also deliver additional soft benefits, including improved productivity and reduced sickness, which are harder to quantify.

Richard Grass, head of Public Sector at Colliers International, commented: “These findings showing a strong business case for environmental efficiency when it comes to estate management are extremely valuable.”

We are in the time of economic difficulties, which while posing numerous challenges, also present the opportunity for change. Local authorities can grasp this opportunity, to change they way they work, simply though managing their property differently.  The rewards of a leaner and greener public sector estate are for the taking.

For more information:
Tel: 020 72028578
E-mail: sustainability@policyconnect.org.uk
Web: www.policyconnect.org.uk/wsbf