Public Sector Property Outsourcing: Why your contract isn’t adding value

The delivery of support services through third party providers is a well-established model for service delivery across all levels of government.

In fact, governments in Australia were some of the first organisations to recognise that specialist property providers can deliver services more efficiently.

When the federal government sold the Australian Property Group, a division of Finance and Administration at the time, it seeded the local property outsourcing industry.

Since then, with few exceptions, government departments have continued to leverage market capabilities for operational and transactional services to supplement their internal team’s strategic responsibilities.

State governments too have successfully outsourced facilities management, real estate and property management services.

So why isn’t your contract adding value? First, lets understand how outsourcing does add value.

The value you can expect from outsourcing

In the context of public sector property, the value provided by an outsourced provider is no different than for private sector organisations. The emphasis on the aspect of the service may differ however the overall value proposition is consistent and includes:

• scale economies – a specialist provider leverages scale to deliver at lower cost
• technology – providers are able to invest in the systems to better manage data and provide a single source of truth
• flexibility – an outsourced relationship provides greater flexibility to respond to change and surge requirements

More importantly than these operational benefits, outsourcing operational activities allows the internal team to focus on strategy and the needs of their clients. It is this focus on strategy where the most value is created.

Why property outsourcing always work

It’s not always a bed of roses and some relationships still go south. Having worked as a client and consulted to organisations on property outsourcing for over 20 years, I’ve seen the good, the bad and the ugly.

However, there are some consistent themes in all ‘problematic’ outsourced relationships:

• the contracting model – some organisations still get the contracting model wrong
• scoping and documentation – the scope of services, its’ link to price and performance expectations must be clearly articulated
• contract management – the failure to actively manage the contract and relationship is the single most common cause of a failure

In short, the strategy is generally sound. It’s the execution of the strategy that causes the issues.

Next steps to improve contract value

If outsourcing is going to continue to add value, clients and providers have to be prepared to revisit the model. Here’s a check list of what needs to be considered:

• revisit the ‘make or buy’ decision
• separate process from knowledge based tasks
• leverage internal expertise
• inject competitive tension
• realign the internal team
• assess the spread and range of your property
• understand how technology supports your property strategy