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Millions wasted on poor property management – Opinion
In 2000 the Australian Department of Defence, one of the biggest asset owners in the country, embarked on a major program to reduce the significant costs of property maintenance for its portfolio of more than 30,000 properties.
Since then, under the Estate Upkeep program, Defence has reduced the number of contractors significantly by introducing Comprehensive Maintenance Contracts, outsourcing maintenance to three estate maintenance and operation support contractors across the country and investing significantly in developing system software to streamline work and gain cost efficiencies.
Fast forward to today and whilst there have been some benefits realised, there is still much room for improvement.
According to the 2016 annual report of the Department, estate upkeep sat at almost $1 billion – $999,115,000 to be exact. This was way up from the 2015 expenditure of $694,324,000.
While this may be partly due to Defence having legacy maintenance from years gone by, there is still further opportunity to restructure the procurement of maintenance services to reduce the burgeoning maintenance expense line.This includes the delivery of the new integrated IT system, the Garrison Estate Management System, which is expected to be delivered by the end of the year – five years late and $40 million over budget.
Opportunity to address cost overruns
While Defence is addressing reduction of its maintenance expenses through integration of services and innovation, there are many other publicly funded organisations that are not, and could benefit from doing so.
Take education for example.
A review of government annual reports shows that education departments across Australia hold a combined building portfolio valued at more than $55 billion, requiring an annual repair and maintenance bill of more than $1.2 billion a year.
The top ten universities in Australia spent about $442 million on repairing and maintaining their combined building portfolio of more than $12 billion.
In both these cases, and in many other government departments, the management of repairs and maintenance continues to rely on an old model that takes the traditional and costly split-trade, multi-contractor and individual-site approach.
The harsh reality is that publicly funded organisations such as universities, schools and hospitals could save millions of dollars by changing their approach to property maintenance to an integrated services model.
This would be a welcome step forward at a time when all levels of government are under constant budgetary pressure to remove public spending inefficiencies and identify program savings.
Sure, it may not be a headline grabbing approach to cost cutting, but it could certainly ensure taxes are put to better use.
Ans integrated services model can save millions
The split-trade, multi-contractor and individual-site model – the preferred operating model for most government related organisations – creates massive inefficiencies. For example, under this model a property manager of a government facility would get one tradie in to undertake a regular preventative maintenance audit that only requires 15 to 20 minutes of actual labour – yet because of some downtime between testing will be charged a minimum hourly rate.
Multiply that across numerous sites and the costs quickly blow out.
This is in stark contrast to corporate Australia which, over the past decade, has moved strongly to an integrated services model, whereby the remaining 40 to 45 minutes a tradie is on site is utilised for other preventative or proactive maintenance.
The model pioneered by Intact Group a decade ago, and replicated by a number of other maintenance companies in Australia, optimises the on-site time of tradies in the most cost-effective way. Many large corporates who have adopted the model report they enjoy economies of scale and immediate savings of up to 40 percent.
The integrated multi-trade services model, where a single company can deploy a diverse range of tradies to cover all utilities and solutions, also delivers consistency of quality.
Corporates with large property portfolios have realised the benefits this model delivers, not only in immediate cost savings on maintenance, but through reduced risks as the model includes vital preventative and proactive maintenance.
In one case, a potentially major plumbing issue of a large corporate was identified and resolved during an inspection being undertaken while the tradie was in between jobs. If it hadn’t been found, it would have resulted in millions of dollars of repairs, plus significant downtime for not only the company but another business operating on the floor below.
Now is the perfect time for government funded organisations to review and update their maintenance contracts by adopting an integrated services model, so they can also obtain cost-savings currently enjoyed by big corporates.
A NSW ICAC report in February 2017 said that, when government agencies understood the condition of their assets and associated maintenance services expenditure, reduced costs and improved contractor performances were likely to flow more easily.
At a time when governments are under increasing financial pressure, there’s an obvious benefit for publicly funded facilities to rethink their approach to repairs and maintenance. Based on the savings being enjoyed by big corporates, a rethink could deliver millions back into Government revenue to fund more important services.