Performance, Benchmarking & Monitoring in Property 2016 RPIC Real Property National Workshop 16 November, 2016 Presented by Paul Hughes, Senior Director Altus Group Limited

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Introduction to Altus Group

Altus Group Limited

Altus Infrastructure Research,

Valuation & Advisory

Realty Tax Consulting

ARGUS Software Geomatics

ALTUS OVERVIEW

2,500 staff globally

75 offices worldwide

Headquarters in Toronto

Revenue CIRCA $500m (2016)

300 Cost & Project Infrastructure Management staff globally – 150 in the Americas

Market Capitalization $1.05bn (Nov 2016)

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Comprehensive Value to Clients

Construction Cost Guide

RealNet

InSite Voyanta

ARGUS AE

ARGUS Developer

AltusSphere Dashboard *

Due Diligence

Economic Consulting

Valuation & Advisory

Property Tax & Operational Efficiency

Feasibility/LEED Consulting

Development & Cost Management

Technical/Facilities Management

Life Cycle Optimization

Argus Express

Market Research

Risk Metrics *

Assessment

Best Insights

Executive Support

Cost/Revenue Analysis

Industry Trending

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Paul  Hughes  –  Senior  Director  Head  of  Infrastructure  &  Contract  Solu3ons  Group  in  PPP;  currently  working  on  $20bn  of  projects  across  Canada  and  the  US  in  Transit,  Highway,  Accommoda3on  (Hospital,  Schools)  and  Power,  Paul  has  over  30  years  experience  in  the  UK,  Canada  &  US  for  contractors,  developers,  outsourcing  businesses,  and  M+E  Contractor.    Chartered  Surveyor  and  Chartered  Arbitrator  M.Sc.,  Project  Management,  University  of  Reading  

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Agenda

1.  Corporate Real Estate Process & Performance Management.

2.  Why Performance Manage?

3.  PPP’s & Performance Management.

4.  Payment Mechanism Explained.

5.  Cost, Risk & Quality.

6.  Other Areas & Incentivization.

7.  The PMS Process & Technology.

8.  Practical Commercial Consideration.

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Public Sector Asset Management Report RICS

Push Toward:

§  More data intelligence.

§  Push to reduce floor space.

§  Sustainability.

§  Create visibility and improved decision making through analytics.

Corporate Real

Estate

Consolidated Data Analytics

Business Process

Automation

Human

Resources

IT

Energy &

Sustainability

Finance

Continued Facilities

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1- Corporate Real Estate Process

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2 - Why Performance Manage

“What gets measured gets done”

Performance Management helps;

1.  Define issues that are crucial to organizational success.

2.  Defines issues that are critical to delivery of functions & operations within organizations.

3.  Kaizen – Continuous improvement.

4.  Provides objective assessment as to performance.

5.  Identifies areas of success & weaknesses.

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The PMS Benefits

PMS

Continuous

Improvement Effective

Use of Resources

Organizational Goal Alignment

Organizational Standards

Across Portfolio

To Manage Performance &

Non Performance

Incentive

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The Benefits of Performance Measurement

•  Streamline processes. •  Minimize waste. •  Accelerate delivery of services. •  Enhance quality of services. •  Lower cost of compliance. •  Optimize use of Resources

•  Encourage process innovation. •  Optimizes staff potential. •  Promotes exchange and knowledge. •  Accelerates spread of innovation. •  Creates a framework for creativity. •  Enables continuous improvement.

•  Optimizes global supply chain. •  Improves transparency. •  Shared learning and techniques. •  Standards.

Ø  Productivity

Ø  Innovation

Ø  Globalization

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What to measure (KPI’s)

§  Measure what improves organizational performance and that also can be also about staff moral or customer experience.

§  IT- Data network availability.

§  Elevator functioning.

§  Security and provision.

§  Delay / wait time at car parking / security.

§  Photocopier availability.

§  Washroom cleanliness.

§  Food / canteen options.

§  Customer feedback forms.

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PPP’s Performance Management – PPP Contract Structure

Client

Lenders SPV Developer

Equity

DB Contractor

FM Provider

Lifecycle Capital

Replacement

Project Agreement Credit Agreement

DB Sub - Contract Facility Sub - Contract

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Typical PPP Performance Measurements & Payment Regime

Features §  30 YR “Availability Based” Payment; “fixed” and paid monthly to repay capital and provide

services.

§  Certain Adjustment Factors to “Fixed” Payments.

§  Facility availability conditions and maintenance [PMS].

§  Certain indexed issues; insurance, Labor costs, lifecycle typically.

§  Energy risk.

§  Building handback conditions; commences YR 23 typically.

§  Obviously there needs to be a change mechanism.

§  Contract triggers. For Sub Par Performance and may be some upside for FM operator.

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4 – Payment Mechanism & PMS Explained

1- Monthly Service Payment

MSP = (ASPn/12) - ∑D + GS – PS

2- Annual Service Payment

ASPn = (ASPXo x (1-PESC)) + (ASPXo x PESC x ESCn) + (LCPn x ESCn) +IA

3- Deductions

D= (ASPn/(Nyx6)) x AW x UW x DP

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Availability

The concept that each functional unit/area. Has to meet Accessible Condition, Safety Condition

and meets Use Condition criteria & parameters. A failure to maintain leads to $ deductions and

failure points; see table of weightings. Example.

Functional

Unit Reference

Functional Area

Functional Unit Description

Area Weight (AW)

Unit Weight (UW)

Functional Unit

Category

02.001.01 Critical Care Unit Reception/Volunteer workstation 22.49% 0.39% Category 2

02.002.01 Critical Care Unit Visitor's lounge/Waiting Area 22.49% 1.17% Category 2

02.003.01 Critical Care Unit Washroom public, 2-pc. 22.49% 1.17% Category 2

02.004.01 Critical Care Unit Quite/Family room 22.49% 3.92% Category 1

02.005.01 Critical Care Unit Family Consultation room 22.49% 1.17% Category 2

Ø  Building Functional Areas pre- scribed weightings allocated relative to importance. Ø  Note the concept of “gearing”; sum of AW’s = 300% or other.

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Service Failure – Responses & Rectification

Service Failures

A failure to provide the PCo services in accordance with performance measures in accordance with response and rectification times. Concept of minor, medium and major and [$10 to $100 fine] routine, urgent and emergency per event.

Response and Rectification Times

Category

Definition

Response Time All Areas

Rectification Time Availability Conditions

BREACHED Availability Conditions

NON BREACHED Category 1

Functional Units Category 2

Functional Units Category 1

Functional Units

Category 2 Functional Units

Emergency

Urgent

Routine

Any event that is, at discretion, a life safety issue or serious enough to cause significant operational disruption, economic or environmental damage, injury or death.

Means any Event that shall cause operational problems if not attended to quickly, or which may develop into an Emergency if not remedied or an AD Hoc Service Request which requires attendance quickly to avoid operational problems or an Emergency if not remedied.

Any Event that is not seen as immediately detrimental and not causing significant operational problems

15 minutes

The longer of 30 minutes or

prior to resumption of Core Hours

The longer of 2 hours or prior to the

resumption of Core Hours.

4 hours

4 hours

4 hours

4 hours

The longer of 4 Hours or prior to the resumption of

Core Hours

The longer of 24 hors or prior to

the resumption of Core Hours

The longer of 24 Hours or prior to the resumption of

Core Hours

For trending purposes

3 days

For trending purposes

The longer of 24 Hours or prior to the resumption of

Core Hours

The lesser of the time agreed to

with the User or 3 days

For tending purposes

7 days

7 days

For trending purposes

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Quality Failures A fixed fee deduction. $50 to $500 for “minor” to “major” QF’s. these tend to be measured at defined intervals for qualitative issues e.g. A failure to produce the monthly performance report within a timeframe.

Ref Parameter Failure Type

Category Acknow./Re Sp.Time

Rect. Time

Recording Frequency

Application (Maximum Project Co exposure

GM12d % satisfaction score on the annual average of the Transaction Surveys no more than 5% lower than previous Baseline Transaction Survey score.

QF Major N/A N/A A One QF per Contract Year per service

Periodic Reporting

GM12e Project Co Shall Prepare a Performance Monitoring Report and deliver it to Osler within 5 Business Days after the end of each month.

QF Major N/A N/A M One QF per Contract Month

Rectification

GM12f Emergency requests for Services are rectified in the Rectification Time for any Services

SF Major N/A Per Table 1 Section

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PE One SF per non-compliance

Manual, Policy, Procedure & Plan

GM13 Each manual, policy, procedure or plan required in these Output Specifications is delivered initially and then on an annual basis in accordance with the sooner of March 1st or the date agreed to in writing by Osler.

QF Major N/A N/A A One QF per manual, Policy, procedure or plan tat is submitted late

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Elevator Failures

A sub set of the availability concept structured around the elevator availability.

Note – Flow down of risk to elevator contractors is a challenge

Number of Elevators Unavailable

(at any one time) DP (EAF)

1 25%

2 50%

3 100%

4 100%

* Note the concept is that all rooms not served on a floor, sum of AW x DP = Deduction Percentage

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Failure Points

See table below

Category FPs Application

Minor Quality Failure 2

Per Quality Failure Medium Quality Failure 6

Major Quality Failure 20

Minor Service Failure 2 Per service Failure and if applicable, per Functional Unit affected by the Service Failure Medium Service Failure 6

Major Service Failure 20

Availability Failure (for the avoidance of doubt, this applies whether or not HHS continues to make use of the relevant Functional Part)

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Per Functional Unit affected by the Availability Failure

This provides a “tool” to address a repeating or systematic failure on part of service provider with an escalation process in the project management;

•  Remedial rights monitoring, self performance

•  FM provider replacement

•  PCo termination

*See Lender rights and step in-remedy

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Other Contract Mechanisms

Excusing Causes - exempt deductions and failure points, there are 11 issues typically &

compensation payable e.g.

•  Variation Implementation. •  Negligent act by client.

•  Obstruction by client. •  Performing schedule maintenance.

Relief Events - Typically matters for which there is insurance, which is prescribed by the project

for matters such as; Relief from failure points & termination.

•  Fire, explosion, lightning, storm, etc. •  Failure by a utility. •  Blockade or embargo.

•  Unofficial or official strike. * Note – Physical damage to trigger insurance.

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Other Contract Mechanisms

Force Majeure - Gives relief from failure points and there is compensation payable e.g.

•  War, civil war, armed conflict etc.

•  Criminal or biological contamination. •  Discovery of fossils , archeological finds. •  Pressure waves by devices [travelling at supersonic speeds].

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5 – Cost, Risk & Quality

§  Bidders cost is related to quality requirements (Response / Rectification / Measures) and perceived risk transfer.

§  60-70% of operator price is people, therefore higher demands, response/Rectification = more resource + more $.

§  Higher level of deductions = higher risk = more risk $

§  See excusing causes and compensation regime.

Cost

Quality Risk

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6 - Other Areas for Possible Incentivization

§  Energy – volume risk tariff risk; protocol required for user / tenant Management.

§  Insurance – Big part of risk management, see business interruption. Benchmarking of cost.

§  CO2 Emissions – See move toward Carbon pricing.

§  Contract Duration – 5/10 years? Evergreen. Price review? Benchmarking and market

testing.

§  What other policy matters require incentivization; LEED? Sustainability / Recycling etc.;

Public transit.

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7 - The Performance Management Process

Event Occurs

[Session]

User Call

Helpdesk Reply &

Info Assessed

Helpdesk Task

Allocation

FM Response

FM Rectification

Monthly Reports

Failure Deduction

Points

Agree Monthly Reports

Monthly Payment & PMS

Adjustment

Call Priority?

Emergency Urgent Routine

Call Response Response

Time Rectification

Time

Failure to

Report

Made a Month in Advance

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8 - Practical Commercial Issues

Things I’ve learnt;

§  Education of staff – consensus building.

§  IT Infrastructure –Understand process & Technology.

§  Invest time early in relationships.

§  People Manage Contracts.

§  Flexibility & working together – long term.

§  Contracts are never perfect & complexity adds cost.

§  People change brings risk.

§  Building function & organizations change – so must the approach.

§  Measure the right things.

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To Summarize

q Real benefits to organizational goals can be shaped by performance

measurement of the “right” performance measures.

q  It can lead to more efficient and targeted use of resources.

q Performance Measurement allows you to objectively measure across an

organization a buildings performance, a contractors performance or other.

q Too much complexity is costly & counterproductive.

q  “What gets measured gets done”.