TWN News Summer 2014
In this issue: Voice of Experience Jaak Saarniit President of TWN: Focus On… Public Property Strategies in Western Cape Province South Africa: INDAABIN: A Renewed Look At The Use Of Federal Property: New Members: Annual Meeting 2014: GPU Update: Annual Survey Update: W4 2015: Subscription Renewal
The Voice of Experience: Jaak Saarniit- Chairman of Riigi Kinnisvara in Estonia
Here we aim to capture the wisdom of one of TWN's members. Every edition we focus on what's occupying their mind and time and how experience helps to guide their judgment. This month Jaak Saarniit reflects.
The annual conference of the members of the Workplace Network (TWN) will be taking place in the Estonian capital Tallinn in 2014.
The most important event on the network’s calendar, it’s being held in a small country – and in terms of Riigi Kinnisvara AS, under the guidance of a relatively small company – for the first time. For us as the organisers, this is a major and a very exciting challenge. We hope that with your help we’ll make a good go of it.
Riigi Kinnisvara AS (State Real Estate Ltd, Estonia; hereafter RKAS) has been a member of TWN since 2006. We’ve attended many of its annual conferences and have a good idea of the expectations connected to organising such an event.
So what experience do we have to talk of
RKAS is a young company. We haven’t been operating all that long – we were founded by the government in 2001 to administer and develop improved property in the possession of the state. Our clients range from public institutions to senior government, which is why we shoulder such responsibility and come under such intense scrutiny from the public in regard to what we do. In that sense we’re presumably not all that different from many other members of TWN.
But what makes us different? What makes us unique? What makes our experiences worth sharing?
First of all, in legal terms we’re an incorporated entity governed by private law – everything we do is on the basis of the Commercial Code. That comes with its risks, but also with opportunities to organise our operations in market-like conditions. That said, 100% of our shares belong to the state and are held by the Ministry of Finance.
Ever since we were founded we’ve valued the property transferred to us by the state on the basis of the current market price or its fair value. This takes place as non-monetary contributions or, on certain projects, as monetary contributions to our share capital. To this end the government grants the Ministry of Finance permission to emit shares to the relevant value.
In this way RKAS becomes the owner of the building in question, while the public institution using the premises becomes its tenant. In other words, a distinction is made between owner and user. This means that relationships in the state real estate sector are more or less the same in form and function as those in the real estate sector in the country generally. On the one hand this raises the state budget burden from a zero-rent position to new heights, but on the other our company benefits from the market-like relationships it enters into, earning revenue from rent that can be used to maintain and restore buildings throughout their lives. In the long term the use of the buildings by the state is optimised, the necessary assets obtain the investments they need, required repairs are carried out, the buildings are properly maintained and the overall burden on the state budget is reduced.
Naturally enough this isn’t a quick process – in many cases transition periods need to be set, or the workload is enormous.
By the end of our first year of operations we had 70 buildings on our books. Today we have almost 1100 – mostly office blocks, but also schools, museums, courts, police and rescue HQs, prisons and more. Given the nature of these buildings, fostering market-like relationships can be quite complicated, but our increasing experience means it’s far from impossible.
Secondly, the experience we do boast is connected to property management. In association with researchers and the Association of Estonian Facilities Administrators and Maintainers, RKAS has developed a unique standard and systematised, uniform and comparable methodology for the planning, organisation, financing and accounting of management and maintenance operations. All of this is described in detail, divided between primary and secondary activities, systematised, codified and unified – and the implementation of the standard is mandatory for everyone on the market. Depending on the needs and wishes of the client for the services that are set out, there’s also the option of implementing the standard in part. This doesn’t undermine the system as a whole, and the option of full implementation always remains. It would be impossible to describe the system in detail here, but we’ll try to give you some idea of how it works during the Tallinn conference.
Thirdly, our experience is related to the state’s real estate reforms in general and to their implementation. In 2007 the government approved the state’s real estate strategy and appointed RKAS to oversee its fulfilment. The challenge in recent years has been the transition from decentralised to centralised organisation of the state’s property management. The decentralised approach was a hangover from the early years of our restored independence. For a small country it’s unfeasible – it’s both overly bureaucratic and expensive. The role we’ve played in implementing reforms has been particularly active of late. The transition to centralised management required a lot of work to be put into the required systems, processes (centralisation of property, inventory, transfer to our company et al.), register development, information and accounting systems, personnel and models of cooperation. Based on our experience to date, the way we organise our work and the speed with which we’ve achieved what we have, we hope to have come up with a new real estate strategy by 2018.
Finally, we’ve gained valuable experience in making buildings more energy-efficient. The sale of emissions allowances enabled the state to invest almost 160 million euros in this, and it was RKAS that was entrusted with implementing the programme. Bringing 543 buildings into conformity in such a small country in such a short space of time was a real challenge, but one we handled with aplomb. The project only ended up taking two-and-a-half years from the signing of the financing agreement to its completion, during which we worked with almost 220 construction, 70 design and 40 owner supervision companies, carried out almost 1500 public procurements (as state-sector companies are required to do), created both a suitable electronic procurement environment and a unique information and accounting environment with the help of specialists, and more – all to ensure the project’s success. What we achieved reflected our ability as a company to take the lead on large-scale projects and to pool our efforts to fulfil clear objectives.
Of course, there’s not enough room in this piece to list everything we might boast about in terms of experience. But in spite of our relatively short history that list would certainly include these, too: creating and designing contemporary work places; managing major construction projects; carrying out public procurements as a recognised centre of competence at the national level; our electronic and digital practices; the implementation of the BIM model in building construction; designing of close to zero-energy buildings; and the remote monitoring of buildings.
As a member of TWN we’ve had the opportunity to learn from all of you, our colleagues, from so many different countries. Talking to one another within the network has enriched us all.
Focus on... Challenges and Opportunities in Public Sector Asset Management in the Western Cape Province, South Africa
Context and Background
South Africa’s shift from an apartheid state to a democracy is well known around the world within a political context. The country’s relatively peaceful transition to democracy stands out when compared to other states who have faced (or are still facing) similar conflicts. Much less prominently reported however, is how South Africa’s past has shaped the built environment. Inequalities of the past are visible the spatial spread of social infrastructure throughout South Africa. In my search for a topic, after Bridget Hardy asked me to write an article for the newsletter, my thoughts gravitated towards the philosophical; the ‘why’ of what we do. I reflected on what motivates me, together with so many other public sector officials in South Africa, to get up each morning and plough our trade in the public service within the property and infrastructure fields- often in the face of what can sometimes seem as insurmountable challenges. Through this reflection, I realised that the modest contribution we all make on a daily basis affects the lives of many thousands of people, particularly children - who ordinarily would not have had accessibility to a school or a hospital or a clinic. This helps to keep perspective and motivation in steady supply. What follows is a very brief synopsis of some of the issues affecting the Western Cape Government, and some of our initiatives, particularly within the property and infrastructure fields, though occasionally, I will wander into issues affecting the national and local government spheres as well.
Public Sector Asset Management in South Africa
The Government Immovable Asset Management Act (2007) and Western Cape Land Administration Act (1998)
The formalisation of public sector asset management in South Africa is still quite recent; the Government Immovable Asset Management Act (GIAMA), promulgated in 2007, provided an asset management framework to differentiate between the responsibilities of “users” and “custodians”, and was implemented within National and Provincial spheres of government. Local government implementation is expected within the next few years, once the Act is sufficiently embedded at National and Provincial level. At a regional (provincial) level, the Western Cape Government’s (WCG) use and management of property assets is governed by the Western Cape Land Administration Act (WCLAA) together with GIAMA. The WCLAA was promulgated just short of a decade before GIAMA and as such, there is a disjuncture between the two pieces of legislation to the extent that the full exercise of our custodial role in property is often compromised.
GIAMA requires that all disposals of property assets (whether through outright sale or lease) are done on the basis of “best value”. I emphasise disposals specifically to illustrate the disjuncture, since the WCLAA requires all disposals to be at “market value”. This legislative disjuncture, which creates difficulties in transacting below market value with social delivery entities such as non-governmental organisations, is currently being addressed, with the repealing and re-drafting of the WCLAA to align to GIAMA.. Alignment of legislation will enable greater exercising of our custodial responsibilities in this regard.
The concept of ‘best value’ incorporates economic and social considerations and also the requirements of other spheres of government. Furthermore, it requires due consideration to land reform - in reparation and correction of apartheid spatial programmes (in terms of the former Group Areas Act) of dispossession of land from people and their relocation whether willing or not.
From reactive property management to proactive asset management
Effective implementation of GIAMA is synonymous with the shift from reactive property management to proactive asset management. It required(s) changes in organisational culture, organisational strategy, operating procedures, human resource capacity, information system capacity, and brought with it a larger requirement on accurate information, which also requires capacitation. Within Western Cape Government, active programmes are running in each of these areas.
Given the inherent imbalance in emerging economies between the quantum of social requirements and the envelope of available funds, there is a responsibility on government to seek other ways to improve efficiencies. Governments typically own significant property asset portfolios, and within those portfolios lie both tremendous unlocked value and hidden costs. The “cost” of utilising assets inefficiently cannot be known in relative terms unless a solid foundation of benchmarks is established. The “cost” is then measurable against the benchmark, and also provides a comparator for assessing the performance of one property against another. To this end, the Western Cape Government in 2012 embarked upon a project to measure its office portfolio utilisation against corporate benchmarks, which is summarised in an annual Property Efficiency Report.
The Property Efficiency Report was based on a similar model to the UK government’s State of the Estate report, which was the inspiration for us to embark on the project. Though this may be quite standard in developed countries, it was the first time that any such report was released by any government department in South Africa. The release of the report was a quantum leap forward in terms of fostering transparency and accountability with the public on property assets and simultaneously provided another managerial decision making resource for the effective management of state assets. The scope is currently limited to office accommodation, but will eventually expand to include all asset types.
Building the right foundation of data and information
Comprehension of ownership in a portfolio is the first logical step towards embarking on further initiatives to improve on that portfolio’s performance. From 2011, the WCG initiated a project to physically validate and verify the asset base, ensuring that each property is adequately identified and reflected in the asset register. This time consuming project for WCG has reached its end. However, because government in South Africa (across all three spheres, National, Provincial and Local), has had to restructure several times since 1994 to align service delivery to a newly democratic South Africa; ownership clarification and verification, as they pertain to the vesting of properties between the three spheres is on-going. This process is expected to be completed by end Mar 2016.
In addition to the simple identification and verification of properties, the WCG also embarked on a project to determine the condition of all buildings within its portfolio. This ongoing project will enable WCG to understand its maintenance requirements (current and backlog) more accurately, on the basis of technical condition assessment information.
Some operational initiatives of Western Cape Government
The drive towards effective utilisation has given rise to many other programmes and projects aimed towards this goal. Our Modernization Programme aims to reduce WCG’s average office space utilisation per FTE (full time equivalent) from 28 square meters to 14.2sqm per FTE- the South African corporate office benchmark.
Our 13 Dorp Street initiative will see development of an office block of approximately 20,000sqm usable space in the Cape Town inner city. This will realise significant savings on leasing costs in the long term. Furthermore, we are focusing on other strategic acquisitions across the Western Cape for purposes of reducing the leased portfolio.
Our Regeneration Programme is at an advanced stage of concept for a select batch of strategic sites (and which will inform tender specification), where WCG retains ownership of the land and buildings and enters into either long term lease or a public private partnership with private sector developers and investors.
All derelict and vacated sites are each being given priority attention, firstly from a safety and security point of view and secondly, to consider all options for utilisation, whether internally by WCG or externally to any other government sphere or the private sector.
The costs of derelict and vacated sites become abundantly apparent when witnessing some of the social ills which these sites can induce. The deterioration of these sites arose due to inadequate processes of relinquishment from the ‘users’ to the ‘custodian’, and where, in the space between relinquishment and re-allocation or disposal of the asset, effective control over the asset is lost and deterioration sped up exponentially. In pre-GIAMA days, the lines between the roles of ‘custodian’ and ‘user’ were often blurred. The implementation of GIAMA has helped to arrest the significant societal costs of derelict or abandoned assets, especially to the compromised safety and security of communities in which these assets lie fallow.
All of these initiatives work in tandem towards the common goal of driving inefficiencies out of the portfolio. Longer term goals include having budgets devolved to user departments to foster accountability.
What does the future hold?
Whether the issue is redressing apartheid inequality through land reform, or the provisioning of social infrastructure aligned to the needs of South Africa’s communities, public sector immovable asset management and infrastructure provision in South Africa is fraught with challenges. Everything we do is done within the context of a very limited budget (South Africa has around 6 million active tax payers out of a population of around 50 million people) – yet our citizens are desperately in need of services, from basic sanitation, to schooling, to healthcare, amongst others.
This point highlights that within each sphere of government in South Africa, the effective and efficient use of state assets, is of paramount importance. In the absence of growing revenue to deliver services, it is incumbent on governments to drive efficiencies and costs savings and increase the spending envelope through effective asset management.
In summary, despite these challenges, we wake up every morning because we know that no challenge is insurmountable. With each new pupil intake at a newly constructed school, with each set of patients admitted to a newly constructed hospital, we provide each person the platform to become growing contributors to their communities, the economy and society at large. Being able to contribute each day to correcting the spatial inequalities of the past – could there be any greater honour than this? To quote Mr Mandela himself, “It always seems impossible until it’s done”.
For further information, contact Shaheen Adams at Shaheen.firstname.lastname@example.org
A new look for federal workspace in Mexico
Despite being the organization charged with managing the usage of federal buildings in Mexico, for almost twenty years INDAABIN was leasing the federal building it used as main office.
One of the first tasks given to the administration for INDAABIN, was to consolidate the replacement of its headquarters, by leasing a building owned by the federal government itself, and taking the ownership of the new building as an advantage, enabling improvement of workspace conditions. Thus, starting from March on 2014, main office was moved to a federal property, which allowed it to save more than 42,000 USD per month in public resources.
This move also allowed INDAABIN to concentrate previously dispersed areas of government, such as offices for public servants, into one place. Other, previously several areas were also able to be linked as a consequence of this move. This brand new building is smoke free, universally accessible and has a lunch room and center of geographic systems information (GIS). It also embraces gender equality, providing a breast-feeding care room.
In order to continue improving the usage of federal property, INDAABIN faces more tasks. For example, updating the occupational parameters for public servants (maximum occupancy area by institution), creating an approved institutional image, and establishing new goals for all the federal institutions in property occupation.
The next edition of TWN News will be published in the Autumn. Please give us your feedback on this edition and ideas for the next on email@example.com