5 April 2013 – The facility management outsourcing business is worth about $7.2 billion a year to Australian business. Yet few people know how it works. In this report, The Fifth Estate interviews Jon McCormick, who heads up Brookfield Johnson Controls, a new entity merging Brookfield Multiplex Services and a division of Johnson Controls, for some insights into the industry that runs the complex systems behind the glossy facades and lobbies of our major buildings. Report by Tina Perinotto
In February this year, the world of facility management got a little smaller and little bigger at the same time, at least for one company.
It was in early February – the 1st, to be precise – when Brookfield Multiplex Services and the Australian and New Zealand business of Johnson Controls Global WorkPlace Solutions (GWS) dotted the final i and crossed the final t on an agreement to team up in Australia and New Zealand.
The new entity, Brookfield Johnson Controls, is headed by Jon McCormick, who’s been given the US-style title of president as well as that of managing director, the role he’d held previously at BM Services’ facility management operation.
According to McCormick, clients in the Asia-Pacific are increasingly global, and to pitch for that work, you need to be on a similar footing.
“In the past, Multiplex [Brookfield Multiplex Services] operated in Australia and New Zealand, but a lot of the tenders are these days coming out of the US and Asia and Europe,” McCormick says.
In Australia right now, there are 40 companies that sit in the world’s top 1000. “To pursue those, you need domestic capability … here in Australia and New Zealand.
“But you also need access to global capacity and capability.
“The big driver for us was to be the ability to gain access to those global tenders and Asia-Pacific regional tender.”
The merger has meant that Johnson Controls GWS will move out of its North Ryde premises, and Brookfield Multiplex Services staff will move out of its current King Street, Sydney premises and into new digs at World Square.
No longer will the two companies be separate businesses. The move to the same space will emphasise that. “It’s to develop a new business,” McCormick says. “The key is to get the two entities to work together as soon as possible.”
What will be different?
According to McCormick, Brookfield Multiplex Services brings a strong government focus to the mix, while Johnson Controls GWS adds strong technical skills and a largely private clientele.
“It’s about being able to offer a wider scope of service. Whether it’s technology-driven [which is Johnson Controls GWS’ strength] or what we bring: real-estate capability.”
There’s another skill, not widely known, that Brookfield Multiplex Services brings to the table: real-estate capability. That’s serious real estate: lease negotiations, even transactions.
“We’re effectively a tenant advocate. Not a lot of people know this,” says McCormick.
After the merger, the world of facilities management will rank this way: DTZ, which was merged with UGL but kept the DTZ name, will retain its ranking as number one in the public sphere, and second in the private sector, while Jones Lang LaSalle will be first in the private sector and second in the public.
(UGL recently flagged the potential to spin off its property services)
The merged Brookfield Johnson Controls entity will be third in both sectors but the company’s ambition is greater.
“Part of our drive is to become first,” McCormick says.
Boom times again
According to McCormick, the world of outsourcing is going through one of its periodic major overhauls. And right now, it’s in boom mode.
Typically, the industry goes through contraction and expansion cycles. When times are tough, clients outsource because they’ve trimmed staff to the bone. But when things start to move again, there is even more outsourcing activity, to enable clients to ramp up capacity without having to commit to more permanent staff.
“Companies just maintain status quo after the GFC and reduce numbers internally,” McCormick says, “but now, rather than build up teams again, they’re looking to outsource.
“I certainly haven’t seen this much outsourcing for a number of years. It’s a bit of a boom.”
McCormick estimates the market is worth about $18 billion and is growing by five per cent a year, with 40 per cent or so outsourced – say, around $7.2 billion worth of contract work a year.
“What we’re seeing now is renewal of existing outsourcing contracts, as well as a number of [them] going to market for the first time.”
Major clients are in the government sector, which tends to outsource most of its work – and the major banks, with the exception of the Commonwealth Bank of Australia, which traditionally keeps its FM and real estate services in-house.
ANZ has an “evergreen” contract with Jones Lang LaSalle and Westpac and NAB also uses DTZ’s services.
Among recent tenders have been a Sydney Water contract. “We just missed on that one; they had previously outsourced their FM, and now they’re looking to come to market with their real estate,” McCormick says.
Other tenders have included Essential Energy, Ergon Energy, and the Department of Defence, which has been re-tendering its garrison support contracts, currently held by a number of players. In the past, contracts were spread over 12 regions, but they will now be consolidated to five.
Government tenders tend to come up regularly, with contracts typically of three to five years duration but potentially up to 10 years, he says.
In the past, swapping providers has been a nightmare, with knowledge of the client embedded in the service provider – and, potentially, lost if the contract is awarded elsewhere, but McCormick says government contracts now make it much easier to swap FM services.
On previous occasions, Brookfield Multiplex Services has typically pitched for between $100 million and $150 million of work each year, in the fields of commercial building and infrastructure, education, health, justice and defence.
That’s from a total pool of about $250 million of new work each year.
“The discipline is what to chase and what not to chase.
“Last year was quiet in the first six months but we’ve probably seen record numbers of tenders and volumes, in terms of potential revenue, in the second half of 2012.
“And it certainly hasn’t abated in the first months of this year.”
The new entity makes it easier to chase the private work emerging in the space.
“One of the challenges is to be recognised as a provider in this space and Johnson Controls GWS has a good track record in the private sector as a provider, so the merger gives us a higher visibility.”
Sustainability and productivity
On sustainability, McCormick says the potential of green offices to provide more than an environmental benefit is starting to attract greater attention from financial analysts.
“Occupiers are asking how they can utilise the space more efficiently: How do we get more productivity from greener spaces?”
“Sustainability needs to be integrated right across what we do as an outsource provider. I think some parts of the market have expected it to come as a bolt-on, which is against my principles, because what a good facility manager does is sustainable.
“It needs to be part of what you do as an integrated service provider.”
“So we have seen a lot of companies employ sustainability managers, but I think the focus of those people should be not to sell sustainability solutions to clients but to get sustainable practices across what you do, day to day, in the business. Making sure what you do with your clients is sustainable.”
McCormick says the sustainability aspects of the business for Brookfield Johnson Controlswill be managed by national sustainability manager Luke Kewell, and it’s interesting to note that Johnson Controls GWS sits within the building efficiency division of the parent company.
“The name itself shows that sustainability is a key driver. It’s part of the company’s values.”
Technology and future trends
There is significant work underway on technology to better control buildings but McCormick says there’s still a way to go before it is perfected, with promises bound to exceed delivery in some cases.
Some contracts are offered with guaranteed energy savings but with tight constraints, these might be difficult to achieve, he says.
“Tenants just want to know they can get the temperature they want. They don’t care about the arrangement between the landlord and technology contractors.”
Over the next five years, McCormick predicts some big advances in building information modelling: “So being able to collect data from different types of sources, whether from the building, physically, or [from] the building-management controls that can pick up data from a sensor and bring back to a relational data base.”
The point is to be able to make “sensible decisions”, McCormick says, because a lot of decisions now are made without the appropriate data.
And he doesn’t mean only data that relates to the physical performance of the space.
The demand is increasingly for information such as on-lease data, occupancy per square metre, cost per square metre and average NABERS ratings across clients’ space.
“They’re looking for better information, and at ways to get that information [so as] to make better decisions,” McCormick says.
“Especially in Australia, a lot of people are focused on just getting the data, at this point, and not focusing on the next step – on using that to make better decisions.
Commissioning new buildings tougher than running old ones
Old buildings are easier to run because their facility managers have had time to fine-tune the way they work, leaving them time and energy to focus on stakeholder engagement, McCormick says.
New buildings are another ballpark altogether.
The problem with complex systems, such as those typically present in new buildings, is… the complexity.
“Someone can change one thing and it can have a big impact,” he notes.
“It comes down to the statement that it’s about understanding … if you’re going to change something in a building system, you need to fully understand the impact that has.”
Part of the problem lies in the disconnect between design and operation.
“Most buildings are commissioned for a designed state, not an operational state,” McCormick says.
A building, for instance, might be designed to house one person for every 10 square metres, but the reality can be quite different.
“Tenants move in and [to them,] it doesn’t matter what the design specification was,” he says. “A good system and a good FM will adjust for that.
“After commissioning, the people involved in the design and commissioning disappear. Very few people transfer from design and building to the management.”
High-level employee skills a rarity
What kind of skills do you need to run a good building?
That’s a tricky element and, if current trends continue, it’s one in which technology will need to come into greater play.
“Twenty years ago, you would employ a building engineer, but now there are only a couple involved in running these facilities,” McCormick says.
Fewer technical skills will be required, perhaps, but more people skills and better communications skills.
Of course, the cost differential in the pay scales has something to do with this trend.
Industry sources say qualified engineers can fetch up to $200,000-plus a year, while less qualified staff can be paid less than $50,000 a year.
“It depends on the roles and the qualifications, because there is no formal definition of what facilities management is.”
It’s one of the big issues facing FM, McCormick says. As a profession, it’s not recognised: “You can’t immigrate to Australia as a sponsored FM employee, for instance.”
For McCormick, that’s a problem, and a challenge that dedicated facility managers are addressing through their industry association. But for the hidden world of FM, it’s just one challenge among many.