Four-star chain reaction

April 19, 1996

Stephen Hoare on the United States's experience of contracting in and contracting out.

Students of the University of Tampa in Florida have every reason to be contented. They eat first-class meals served to a restaurant standard, they live in safe, clean, comfortable accommodation, they can browse in a well-stocked bookshop and enjoy the sports and leisure facilities of an attractive modern campus.

All of these services come courtesy of United States hotel and restaurant chain Marriott, a firm that recently won a contract to provide all the university's non-core services. And the service is noticably better than it has ever been before.

Marriott is what is known as a facilities management or FM company, one of a new breed of service providers that are coming to the rescue of cash-strapped colleges by taking over services the colleges can no longer afford to provide and running them at a profit.

Outsourcing of services to the private sector, usually on five to seven-year contracts, is the key to the Government's much vaunted Private Finance Initiative and the problems of under-investment facing colleges all over the US sounds frightening similar to the predicament Britain now finds itself in. And, as everyone knows, what happens in the US today will come to the UK tomorrow.

Of course, the British and US higher education systems have one key difference. In the US colleges can be either private or state-owned. The best known names - Ivy League colleges like Harvard, Vassar and Princeton - are private institutions supported by trust funds as well as fees charged at the market rate. But public and private alike, colleges are facing similar problems which no amount of state subsidy or clever finacial management or borrowing can mask.

Brian Hamman, president of Marriott Education Services, says: "A lot of US colleges have deferred major renovation programmes and are faced with escalating maintenance and labour costs while the public purse is dwindling. We can help them use their assets to provide an extra source of income rather than continue to be a drain on their resources."

In the US, FM companies regard colleges as a vast and largely untapped market. There are 3,219 colleges providing around $17 billion (Pounds 26 billion) worth of services most of which could be put out to private contract. Mr Hamman estimates his company has built up a 15 per cent share of this market since launching the FM subsidiary three years ago. It is one of the company's biggest growth areas.

Marriott's big rival, Servicemaster, has a similar share of the market while smaller local service companies take a tiny share of what is left. Last year Servicemaster entered the UK market to bid for the steady stream of PFI work coming out of NHS trusts, teaming up with construction giant Tarmac to create Tarmac Servicemaster. Mr Hamman has no immediate plans to enter the fray but has not ruled it out if future opportunities present themselves.

Marriott has been providing college catering services for the past 35 years but only branched out into facilities management three years ago in response to a growing demand from clients and a trend towards a separate FM provision in other sectors such as commerce, industry and healthcare.

Mr Hamman believes the success of FM depends on the private company forging a partnership with the college. Often part of huge service industry conglomerates, FM companies can achieve economies of scale beyond the grasp of a single academic institution.

A multi-billion dollar trans-American operation, Marriott has massive purchasing power and experience in managing service sector staff.

The company operates catering franchises in 450 US colleges as well as operating campus retail operations, book shops and conference facilities. Food for student restaurants is bought in bulk as part of Marriott's restaurant and hotels business and the students' bed linen gets sent to the laundries used by Marriott Hotels.

The company claims the services it offers to students are every bit as good as that to be found in other parts of the group. Ray Hamman, vice president, says: "The students are as much our clients as the college management and we try to satisfy both."

The company's policy is to integrate its staff into the college. There are no McDonald's style uniforms, no cliched greetings of the "have a nice day" variety. Instead, Marriott emphasises a professional approach and business efficiency and its management will often take over supervising a college's own directly employed staff.

Before Marriott takes over the FM provision, it usually conducts a survey of staffing patterns, maintenance programmes, plant and equipment, cleaning schedules, and energy consumption to help identify where economies can be made. The company's client database of similar-sized institutions and typical costs allows it to benchmark and helps in setting efficiency targets.

One big area of cost savings comes from energy management and colleges can often make significant savings by replacing outdated boilers with newer, more energy efficient plant. The FM company can sometimes help finance the purchase and installation over the period of their contract.

In undertaking to provide a service, the FM company is accepting the transfer of commercial risk from the college. The problem is not so much unforeseen maintenance costs as students using restaurants and other facilities falling below the minimum number needed to cover costs and break even.

Says Mr Hamman: "In nearly every case the risk is ours. If we make a profit we share it with the client; if we make a loss then that loss is ours and ours alone. We have the fixed cost of staff and we manage a budget to provide an agreed level of services."

Marriott charges a fee that is a percentage of the turnover of managed services. The more students and the more successful the college, the higher the income generated. In the FM company's interest to work with the college in providing a level of service that will attract and retain students.

In an academic system where the customer is king, US colleges compete fiercely for students and the funding they bring. Mr Hamman says: "First impressions are vital. An attractive, professionally managed campus is one of a college's strongest selling points and we are helping them improve enrolment and retention rates."

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