Trends in outsourcing (Part I)

Since the reversal of the outsourced arrangements at network rail, a turnaround of billions of pounds sterling of contracted work, many commentators have been predicting the demise of the outsourced maintenance market. Yet how likely is it that the outsource maintenance sector could diminish greatly?

Outsourcing in the world of maintenance or asset management is generally a way for asset owners to reduce direct costs of ownership, gain easy access to skills and off load the administrative burden of managing and maintaining a skilled workforce. Outsourced contracts take many forms within asset-intensive industry.

On one end of the scale are the large-scale long term contracts. Within the European markets these are often referred to as Public-private Partnerships, PPP, or Publicly Funded Initiatives, PFI. With the PFI contract segment of the market being by far the larger of the two. These contracts are typically infrastructure related, run for many years and are worth 10’s of millions if not billions of pounds.

Some examples in this area include the asset owner / asset manager split in the London Underground, where major PPP contracts are in place of the asset management function of differing segments of the London Underground network. Other examples include areas of street lighting, highways maintenance, and other local government responsibilities are let to an asset management and operations company for a period. (Often under the PFI framework)

A function of all of these top end contractual arrangements is the requirement to hand back the asset base in an agreed condition at the end of the contract. The reasoning behind this is to ensure that cost cutting does not happen at the cost of the asset owner. Or in other words, to ensure that when the asset owner gets their assets back they are not run into the ground through lack of adequate maintenance application.

On the other end of the scale are the supplier arrangements. A supplier arrangement is generally what is in place for the management of a specific asset group, function, or geographical location. Examples of this would include the maintenance contracts (Maintain and repair generally, although sometimes this does include operation as well) for pumping stations of water and wastewater companies, the MARC (Maintain And Repair Contracts) within the heavy mobile equipment markets of the mining industry.

So, despite many commentators prediction of its imminent demise, the outsourced maintenance market is alive and well and in rude health. The increasing profitability of companies such as Transfield in Australia and various major players in the United Kingdom is a testament to the ongoing strength in this sector.

What is needed is not questioning of whether outsourcing is here to stay, rather how can it be more effective, profitable, and better controlled!