Tennessee s Facility Management Outsourcing State of Tennessee Department of General Services
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1 State of Tennessee Department of General Services Robert E. Oglesby Commissioner of General Services 312 Rosa L. Parks Avenue 22 nd Floor Nashville, Tennessee
2 Summary The Tennessee Department of General Services (DGS) is responsible for approximately 10 million square feet of real estate in more than 550 locations, primarily consisting of administrative offices. Until July 1, 2013, the Department managed these facilities in-house, using State employees. An evaluation of these facilities in 2012 concluded that most were in very poor condition, building systems and equipment had not been properly maintained over the years, and that there was no preventive maintenance program in place. Further, it showed that operating costs were significantly higher than those for comparable private sector properties, and that there were no consistent work processes or documentation of work being performed. Finally, it showed that the facility maintenance teams were overstaffed but that few employees had the required level of technical expertise to perform most maintenance work. As a result, most such work was completed by outside contractors at considerable additional expense. In support of the Governor s goal of improving the effectiveness of government operations, the Department sought ways to improve the operation of State-owned facilities while significantly reducing costs. By outsourcing the management of Tennessee s facilities to a qualified, experienced, real estate management company, DGS has significantly reduced operating costs and improved facility operations in a very short time. Tennessee believes it is the first state in the nation to outsource its facility management, and believes that the positive results of the effort should be a strong signal to other states to consider similar steps.
3 1. What problem(s) is the program addressing? The in-house facility maintenance staff was not properly maintaining building mechanical systems, resulting in high operating costs and frequent equipment break-downs. Occupant comfort was also negatively affected because it was difficult to maintain a comfortable working environment in many State facilities. The State did not have the capability, expertise, systems, or current technology needed to correct these problems quickly. 2. When was the program implemented, and is it still operational? Facility operations were outsourced to a leading real estate services company, Jones Lang LaSalle, beginning July 1, The State signed a five-year outsourcing agreement, but expects the program to continue indefinitely. 3. How does the program result in dollar savings and/or efficiency for customers? For the owner agency? The program produced immediate cost savings. The payroll for facility maintenance staff was reduced by more than $1.7 million per year starting on July 1, because the outsource provider is managing the work with 48 fewer employees. In addition, they have already saved the State more than $3 million by performing work that was previously handled by third-party contractors, and have re-bid and consolidated service contracts to produce another $1+ million in annual savings. Overall, DGS expects to save more than $5 million during the first year of the program. Projected savings during the full five-year contract exceed $50 million. The Department s customers (State agencies and their employees) are also benefitting from the program. Prior to the outsourcing, State employees did not have an easy way to submit a request for services (heating/cooling repairs, light replacement, etc.). Jones Lang LaSalle
4 installed a computerized work order management system, which is connected to a call center staffed 24 hours a day. Now employees can submit a service request via the internet or by phoning the call center. The service request is automatically dispatched to a service technician, who receives it almost instantly through his iphone. The customer can then check on the progress of a service request through a web portal, and is notified automatically and sent a customer satisfaction survey by when the work is completed. During the first six months Jones Lang LaSalle documented and completed more than 14,000 service requests. DGS has also benefitted from the technology and reporting capabilities available through the new system. Jones Lang LaSalle delivers monthly reports showing the volume of work completed, the cost savings achieved, and the level of customer satisfaction with the completed work. Through the first six months, more than 80% of customers report being satisfied or highly satisfied. The Department can also zero in on specific data for each individual facility in the portfolio. 4. Is the program cost-effective? Be specific to benefits and costs and include the start-up and annual costs and efficiency. As mentioned above, the program has generated significant cost savings. The start-up implementation costs were $325,000. Annual cost savings have been achieved in the following key areas: Staff payroll cost savings $1,700,000 Savings by self-performing maintenance work 3,000,000 Strategic sourcing of subcontracted services 1,500,000 (Estimated) annual energy cost savings 1,000,000 Total Annual Savings $7,200,000
5 The contractor estimates that the outsourcing should save $50 million over the five-year contract term. As the contractor continues to pursue new cost savings initiatives each year, DGS expects that annual run-rate savings should eventually total approximately $12 million, which represents a 20% decrease from the previous years. 5. Who are the beneficiaries of the program? Several groups directly benefit from this outsourcing decision. First, Tennessee taxpayers benefit because reducing the cost of managing real estate allows the State to invest more money in education, health care, and other important programs. State employees benefit because they now have a much more robust system for requesting service from the facility management team. They also benefit because the State s buildings are much better maintained, so there are fewer interruptions due to mechanical system failure. Finally, DGS benefits because they now have the reporting tools they need to monitor the volume of work, measure customer satisfaction, and identify expense reductions at each facility. 6. What is the feasibility of the program being used by other states? This program could be used by any state willing to make a significant change from the status quo in managing its real estate. The Tennessee Department of General Services has already been contacted by many other states who are interested in the outcome of the program. We also understand that Missouri and Kentucky have already contacted the contractor to better understand how the program is working in Tennessee.
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