National Audit Office Auditor General Keynote: A review and recommendations - Part 2
Asset Management - prevention is better than a cure
In this blog series we are exploring the five key areas of ‘financial opportunity’ laid out in the January keynote to Parliament from the Comptroller and Auditor General of the UK National Audit Office (NAO), Gareth Davies (the full transcript can be seen here.)
In our first blog we looked at the area of infrastructure and the need to recognise the need for a long term vision that is attractive to the private sector companies required to deliver it. In this next blog we tackle the subject of asset management. The second area of financial opportunity outlined by Davies.
Asset Management - prevention is better than a cure
Davies’ section of his speech on asset management highlights what he calls ‘the false economy’ of allowing maintenance backlogs to accumulate. While this unlocks a near term saving by not carrying out works, this can lead to more costly issues further down the line, and the need to replace assets such as boilers or air conditioning units earlier than might otherwise have been the case.
Prevention is better than the cure, and evenly profiling maintenance avoids causing significant cost pressures later on, as well as reducing the risks of:
operational disruption through the unavailability of key assets fundamental to the effective delivery of public services; and
disputes amongst the supply chain regarding responsibility for the need to replace assets or conduct emergency reactive works.
Much of the management of the public sector estate is contracted to private sector suppliers and a supporting supply chain. In models such as the Private Finance Initiative (PFI), maintenance of buildings and assets within them, as well as replacement of components at or very close to the end of their economic life, is baked into the overall payments made to suppliers. As such, the money is ring-fenced, cannot easily be utilised elsewhere or left unspent, and backlogs are significantly less likely to accumulate.
While PFI is no longer used for new Projects, this aspect of the model is something that could be adopted into other forms of Facilities Management contracts going forward, to improve the management of the public estate and significantly reduce the risk of backlogs accumulating, as they have done in the recent past.
In addition, where necessary, the definition of ‘saving’ used by public bodies should be updated to place greater emphasis on whole life cost, better reflecting the true impact of a short term decision. This should serve to discourage shorter term thinking that has, in part, led to the current maintenance backlog across the public estate.
HM Treasury’s Spending Review decisions should also be made with a much longer frame of reference in mind, ensuring that public bodies with responsibility for managing aspects of the public estate are not forced into making these short term decisions.
While PFI is no longer used for new Projects, this aspect of the model is something that could be adopted into other forms of Facilities Management contracts going forward, to improve the management of the public estate and significantly reduce the risk of backlogs accumulating, as they have done in the recent past.
In addition, where necessary, the definition of ‘saving’ used by public bodies should be updated to place greater emphasis on whole life cost, better reflecting the true impact of a short term decision. This should serve to discourage shorter term thinking that has, in part, led to the current maintenance backlog across the public estate.
HM Treasury’s Spending Review decisions should also be made with a much longer frame of reference in mind, ensuring that public bodies with responsibility for managing aspects of the public estate are not forced into making these short term decisions.