Cost Reduction Guide Issue 1 Property And Premises Costs
Is your business costing you?
ﬁnd extra proﬁt
A guide to reducing non-core operating costs
in the economic downturn
Issue 1: Property and Premises
Occupying, running and maintaining property is one of the largest
areas of expenditure for any business.
Whether you lease a state-of-the-art city It includes tips and advice on the
centre HQ, own a commercial unit on an out- following areas:
of-town business park or manage a multi-site
estate across the country, the cost of your • Energy and utilities – are you maximising
business premises will be a significant your chances of getting the best deal on
overhead. energy prices?
But the largest overheads can also offer the • Legal and finance – do you understand
most potential for savings. the terms under which you occupy your
property and are you up to speed with
As company directors come under increasing the latest tax developments?
pressure to reduce costs, this guide aims to
provide a range of practical advice, examples • Building, plant and facilities – are you
and market intelligence from experts in getting value for money from your
the field to help ensure your business is building services suppliers?
generating, not costing you, money when
it comes to property and premises.
Energy and Utilities
The dynamics of the utility markets present an ongoing challenge
to businesses large and small, says Neil Middleton, and there have
been fundamental changes in the way energy is bought and sold
in recent years. It is therefore essential that companies take a
focused approach to energy procurement.
1 Show me the money 3 Effective portfolio management
Whilst it is important to make sure suppliers One method of keeping better control of your
are not building excessive margins into their energy costs, as the markets fluctuate, is to
offers when negotiating energy deals, many take a proactive stance towards managing
clients are not aware that it is actually the your portfolio of contracts. Particularly
wholesale cost of the energy component important for clients with multiple sites, are
itself which now makes up 70 per cent of the simple initiatives such as ensuring that all
end price. With energy prices now fluctuating contract renewal dates are aligned and
on an hourly basis, constant monitoring of implementing a consistent contract across
the market and careful timing of renewals the estate which can reap benefits not just
is the key to making real savings. in terms of cost but also internal admin/
2 Timing is key
Traditionally, energy prices have been By checking and validating energy
negotiated in the weeks running up to bills to eliminate discrepancies as
a contract renewal. However, given the they are generated, Expense
volatility of the markets, the most Reduction Analysts can save
competitive rates are now seldom available between 3-5 per cent of your energy
just prior to contract renewal. In fact, it is costs. With Office of Government
now likely that your offer will increase in Commerce calculations estimating
price, or even be withdrawn, the closer the the average cost for a company to
deadline for acceptance comes. Clients process and pay an energy bill at
therefore need to time their renewals £65, this represents a saving of
carefully and be ready to make a quick between £1.95 - £3.25 per bill.
decision when the time is right.
Energy and Utilities 03
Legal and ﬁnance
“In testing economic times, both tenants and landlords have
much to gain from a review of the terms of commercial leases
and a creative approach to building occupation,” says Paul Giness.
1 Box Clever 2 It’s good to talk
Despite Government attempts to the It’s not just tenants that will be looking to
contrary, most commercial leases still provide achieve greater certainty and control over
for upwards-only rent reviews so tenants their finances; landlords will also want to
need to find creative solutions to their rental manage the risk of their tenants defaulting
commitments. This might include sub-letting or vacating a property. With rental values
part of the lease to generate an additional and overall demand falling, tenants are in a
income stream or reassigning the lease to strong position to negotiate an exchange of
another party, thereby transferring the goodwill with a landlord, which can deliver
obligation. benefits to both parties.
A client in Kent was reluctant to 3 Break out
move out of an inefficient, partly Break clauses allow parties the opportunity
used building because of potential to exit a long-term lease ahead of time.
dilapidations costs of £145,000. However, particularly in the current climate,
Through negotiation with the land- these can present a significant risk to land-
lord, Expense Reduction Analysts lords who suddenly find themselves saddled
were able to identify a no-cost exit with the liability of servicing, payment of
route based on the redevelopment empty rates and re-marketing a property
potential of the site, which reduced they thought would be occupied for some
the dilapidations to nil, allowed time. As a tenant, you can add value to a
closure of the office and secured landlord’s lease by suggesting the removal
wider business beneﬁts and cost of a break clause in return for a cash flow
savings for the client. advantage such as a rent-free period.
04 Legal and ﬁnance
“Expense Reduction Analysts estimates that the removal of a
break clause that’s effective within the next three years, over a
lease term of at least six years, could result in an offer in today’s
market of two - six months rent free occupation.”
4 Avoid Empty Rates 5 Check your rating assessment
Tax relief for commercial property owners The rateable value of your property is based
and occupiers with vacant units was on a 5-yearly revaluation by the Valuation
significantly reduced in April 2008 in the Office – but don’t feel you have to accept it
biggest shake-up to the system since 1990. without question. There’s every opportunity
However, there are still ways to mitigate to appeal your rating assessment if you
the additional cost of maintaining an believe it is incorrect and, if successful,
empty, or partially vacant, building. the saving could be backdated to 2005
Consider a short-term let to another with interest.
commercial tenant as this reduces
outgoings and, following the sub-tenant’s Expense Reduction Analysts recently
vacation, it may be possible to re-apply saved a national education provider
for further empty rates relief. Further over £750,000 over a retrospective
scope to avoid empty rates charges is three-year period through a review
possible through charitable occupations of their square footage, altering the
or by declaring that the building cannot basis of their valuation and merging
be occupied, perhaps because it is in rating assessments into a much
disrepair or is not yet complete. reduced rateable value.
Due to individual site circumstances, it is always recommended to take
professional advice before taking any action of this sort.
The Dynamics of the Utility Market 05
Building, plant and facilities
The scope of the FM function is ever-widening as regulatory demands
increase and budgets come under pressure. FM professionals are
having to do more with less, says Ian Morrison, and, as a consequence,
value for money from suppliers is the order of the day.
1 Knowledge is power 3 Get more for your money
Too often, management of the effectiveness Every building needs ongoing maintenance
of a company’s FM function relies on of one sort or another and there are savings
anecdotal evidence rather than hard facts to be made not only in the cost of materials
about supplier performance. It’s vital that themselves but also in the way they are
organisations implement comprehensive procured. To ensure you get best value,
and uniform systems for the measurement consider putting in place value-added
of supply chain effectiveness so that procurement solutions such as a centralised
accurate data can be collated and purchasing function for all sites, a supplier
meaningful decisions made about the consolidation programme or a Vendor
renewal of contracts. Managed Inventory (VMI) solution whereby
a supplier might set up shop at your
2 Shop around premises and take on responsibility for
Relationships with FM supply chain partners maintaining an agreed inventory of
are becoming increasingly complex as a materials on site.
result of the trend towards ‘one-stop-shops’
whereby various services are grouped In Expense Reduction Analysts’
together in one contract under the umbrella experience, only 30 per cent or
of a single managing agent. Whilst there are less of supply chain contracts are
immediate resource benefits in dealing with reviewed/renewed annually. This
a single point of contact, single source supply means that, in the majority of cases,
chains are not necessarily the panacea they suppliers are not being held to
seem and clients need to ensure they have account on a regular basis for their
full visibility of the costs and value of each performance and clients do not
individual service provided. have adequate visibility of the
value they are delivering.
06 Building, plant and facilities management
We were able to make savings of £175,000 per annum for an
agricultural client supplying fresh produce to Tesco and Sainsbury’s
through the introduction of a VMI solution. This involved
establishing local stores for vital engineering consumables at
each of their sites, ensuring spare machinery parts were always
available and thereby reducing plant downtime.
Expense Reduction Analysts is the world’s Expense Reduction Analysts has 150
largest cost management consultancy and consultants across the UK, specialising
focuses on reducing non-core operating in more than 100 non-core business
costs for private, not-for-profit and public expenditure categories.
Look out for future issues of these
Handling an annual supplier spend of cost reduction guides covering:
millions of pounds on behalf of clients
in all sectors, the consultants at Expense Issue 2 – Banking and Finance
Reduction Analysts use their significant Issue 3 – Back Office Functions
purchasing influence to achieve optimum
value from suppliers, often successfully For more information contact
retaining incumbents and using expert Expense Reduction Analysts
analysis and market intelligence to combat on: 02380 892 737
or visit our website at:
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