Value engineering for the public sector estate

If you’re responsible for university, NHS, local authority or other public sector estate, there is always pressure to get as much value as possible. Here is a reminder of four key ways of doing this.

Whether you are responsible for university, NHS, local authority or other public sector estate, is the pressure constantly on to get the most value you can? Here is a reminder of four key ways of doing this.

PFI/PPP contract management

An authority responsible for PPP/PFI contracts should make sure that it has a comprehensive knowledge of the specifications, performance and payment mechanisms at the core of the contract. Often the project company or its sub-contractors “self-monitor” so the public sector needs to ensure this is being done and done correctly in order to encourage good performance. Making permitted deductions for non-availability or poor service can be a very effective way to incentivise performance. It is of course a balance between what the financial benefits are from better management against the resource time and cost required to manage the contracts tightly. One option could be to share such monitoring resource with other bodies with similar contracts to manage. We regularly provide contract performance workshops to assist the public sector and if this is of interest please contact us.

Energy efficiency

Public bodies should also consider the best ways to maximise their energy efficiency. One of the most popular ways of doing this is to enter into a long term energy performance contract with a specialist energy services company to save energy costs and at the same time reduce carbon emissions. We have seen a growth in these contracts which can provide for guaranteed energy savings. An example of this would be a contract for a new combined heat and power (CHP) plant. 

Insurance savings

Checking what insurance premiums are due on a property and the current-day relevance of policy terms is another key way savings can be made. The task of checking that the existing insured risks are actually required may result in substantial year-on-year savings. It is also worth checking that risks are not double insured – eg, by a public sector pooled insurance scheme and a commercial insurance policy. Insurance costs are usually “straight pass-through” costs so there is no reason why all such savings cannot pass-through too.

Refinancing/Buyouts/Finance costs?

In the press recently there has been much written about Northumbria Healthcare Foundation Trust borrowing £114 million from its local authority to pay off its original PFI borrowing. This is likely to be saving the Trust some substantial sums but it is not necessarily always the right way forward. For example it is important to check that the FM services provided as part of the PFI (if still required) can be procured at the same or a lower cost by the public sector. It also may not be feasible where local authorities are not able or willing to have access to those kind of sums. Given that financing arrangements for PFIs are designed to be sustainable for the entire life of the agreement, any authority or trust considering termination should also be aware of the funding costs in doing so as sometimes it can be expensive to pay off the original borrowing. Obligations to meet early repayment or other breakage costs should the original debt be refinanced are part of the original deals.

Greater savings for your estate!

Partnering: While this article may appear to be aimed primarily at our public sector readers, in light of the challenging financial position many public sector bodies find themselves in, and in the spirit of the voluntary code, we are certain that any ideas on the above or other savings from the independent sector will always be welcomed by public sector partners too.

If you would like any further information, please contact Emma Watson.

Our content explained

Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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