Análisis microestructural (SEM)

The drive to embrace asset management practices in the UK has been driven by New Public Management (NPM) and various commissioned reports urging local authorities to adopt the concept. These reports and NPM initiatives are examined in this section.

2.6.3.1 New Public Management (NPM) and Asset Management Reforms

The identity and impact of NPM related initiatives on asset management development is examined in this section. The drive for asset management development in the UK has taken place as an integral element of the major externally driven changes that have affected the role of public sector organisations including local authorities. These changes, known as New Public Management (NPM), have emerged over the past three decades or so. According to Dawson and Dargie (1999) at the heart of NPM ideology is the belief thatpublic provision of services or goods is inefficient and often ineffective and therefore leads neither to cost containment, nor quality improvement.

Externally led reforms in property asset management that have influenced local authorities to adopt asset management as a framework for managing their property assets are said to firmly belong to New Public Management (NPM) (Organisation for Economic Cooperation and Development (OECD) 1995). Some of these external influences include: (a) budgetary pressures and recognition of the financial payoff to better asset management; (b) accounting reforms; and (c) central government policies (Kaganova et al., 2006). The impact of these influences on asset management development is examined in the remainder of this section.

(a) NPM: Budgetary Pressures and Property Management Implications

It has been a common feature in recent years that lower tiers of government, such as local authorities, have faced continued pressures on their budgets. The effect of such budgetary constraints has been to pressurise local authorities to examine better ways of managing

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property assets necessary to support service delivery functions and thereby raising revenue from their property assets. These budget constraints may be as a result of lower overall public sector revenues, sometimes induced by the deliberate choice to reduce taxes. On the other hand, they may also arise as a result of the devolution of service responsibilities from central government to lower levels of government, without commensurate transfers of revenue (Massey, 2005). Regardless of the source of these pressures, local authority services have to be provided within a constrained financial regime. The consequence of these budget constraints on local authorities has been to accelerate approaches for better management of property needed for public organisations to function and raise revenues from such assets. Councils have come to realise that there is a lot of wealth tied up in operational property assets (see section 2.7.3). Various studies have quantified that through effective and efficient management of property assets can free up resources which can be ploughed back to support core services (Lyons, 2004; Male, 2006; Audit Scotland, 2009).

(b) NPM: Accounting Practices

The reform of accounting practices in the local authority has been another external force that has strongly influenced infrastructure asset management in general and property asset management in particular. A move to accrual accounting and Generally Accepted Accounting Principles (GAAP) has spread across much of the developed world. These changes, as noted by Kaganova and Nayyar-Stone (2000), have had drastic implications for

the way real property assets are accounted for and the kind of information flows that are needed to comply with new adopted accounting standards. According to Kaganova (2010), accrual accounting and GAAP standards bring greater clarity to how property-related costs and property values are recognised and valued over time. Recognising and valuing public assets such as property, Grubisic, Nusinovic, and Roje (2009) argue that it provides better information about the management of public spending because it assures better management of public assets, liabilities and costs.

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(c) NPM: Government Policy and Asset Management Development in the UK

The UK central government and the Scottish Executive played significant roles in promoting asset management development in English and Scottish local authorities. For instance the wholesale adoption of asset management in English local government became a requirement under the Single Capital Pot regime introduced in 2001. Under this regime each local authority was required to submit their asset management plans to central government for assessment against defined criteria in the ‘Good Practice Guidelines’ issued by the DETR in March 2000. The government sought to encourage good asset management practice by offering monetary rewards.

Contrasting the situation in Scotland to that of England, the emergence and adoption of asset management by Scottish local authorities only took hold after 1997 following devolution and the setting up of the Scottish Parliament. A number of influences have contributed to asset management development in Scotland. According to CIPFA (2008) such influences include Prudential Code; publication of school asset management guidance by the Scottish Executive; the decision by Audit Scotland to give time to councils to prepare asset management plans; publication of ‚Value for Money in Local authority Corporate Services‛ by UK audit bodies; and statutory duty imposed on councils by the Scottish Executive to achieve Best Value.

In 2004 the Scottish Executive made it a statutory requirement for local authorities to have regard to a Code of investment practice known as the Prudential Code, when determining their capital expenditure (Section 35 of the Local Government in Scotland Act, 2003). The Code emphasised the importance of asset management planning requires local authorities to evaluate affordability of investment options by assessing the whole life cycle costs.

Asset management development in Scotland was further sparked by the need to secure Best Value from the newly created education assets (CIPFA, 2008). For instance in 1998 the Scottish Executive embarked on a massive programme of schools improvement, initially costing £530 million and rising to £1.2 billion by 2002. In order to ensure that these assets

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were created in a coordinated manner and the investment achieved Best Value, the Scottish Executive invested heavily in publicising best practice asset management techniques for the school estate in 2003 (Scottish Executive, 2003). According to CIPFA (2008) the Scottish Executive sought to support best practice in asset management by increasing financial resource allocation for the schools fund. This was in part used to produce asset management guidelines for the preparation of annual detailed asset management plans and an annual set of core facts. The asset management plan guidelines were aimed at ensuring that the developed school estate was effectively and efficiently managed (Scottish Executive, 2003). From 2003 local authorities were statutorily required to prepare and submit on an annual basis core facts relating to condition, suitability and sufficiency of the education property assets (Scottish Executive, 2003). Efforts to develop asset management practice in Scottish local authorities were further assisted by the decision of the statutory body, Audit Scotland. According to CIPFA (2008) Audit Scotland allowed local authorities some breathing space in the period 2005 – 2008 to put in place proper asset management and capital planning decision making frameworks. Instead of Audit Scotland undertaking an annual audit of such frameworks, the organisation came to an understanding with local authorities that a full audit of the frameworks will take place after 2008.

The development by the UK audit bodies of a publication entitled ‚Value for Money in Local authority Corporate Services‛ contributed to the development of asset management. According to CIPFA (2008) the document was intended to help local authorities and other local authorities to understand, compare and demonstrate the value for money performance of their corporate services. The publication contains a section on ‚Estate Management‛ that proposes a suite of high-level performance indicators.

The Scottish Executive took the view that it would embed Asset management practice in local authority by passing the ‚The Local authority in Scotland Act 2003‛ (Scottish Executive, 2004). The Act, amongst other matters, places on local authorities a duty to secure Best Value from property asset management by: keeping a considered and appropriate balance between cost, quality and price; ensure that management arrangements

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must secure continuous improvement; and ensure that asset management decisions contribute to sustainable development.

2.6.3.2 Role of Commissioned Reports on Asset Management

Early reports on property management practices in local authorities and other public sector organisations provided the initial stimulus to asset management in local government. Harris (2010) argues that the early 1980s can be regarded as the period in point at which the local authorities in the UK started recognising the importance of strategic approach to management of operational property assets. Such recognition was prompted by reports such as those by Davies (1982) on the NHS estate and Lord Gowrie (1985) on central government office accommodation highlighting the ineffectiveness in the management of operational property. The reports generated interest from the Audit Commission and the National Audit Office. The two public watchdog organisations carried out studies on the subject leading to the production of reports on asset management in local authorities. One such report was that which was produced by the Audit Commission (1988b) after carrying out a study of local authority strategic management of property assets in England and Wales.

The Audit Commission study also found that in the majority of local authorities property was considered to be ‚owned‛ by the individual service committees occupying them. The implication of this was that property which was surplus to requirements or under-utilised by one service could not readily be exploited by another. This is because there was no mechanism to encourage joint occupancy such as transferring property between committees. In addition, there was no mechanism to encourage the identification of surplus property for disposal. According to the study this fundamental weakness arose because such authorities failed to recognise the corporate aspects of property portfolio management or lacked a strategic approach to property management. The general conclusion of the Audit Commission report wasthat property was an under-managed resource and that the strategic function was underdeveloped.

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A research report commissioned by the Department of Transport, Environment and the Regions (DETR) on the state of asset management in local government reinforced the message contained in the original reports, especially that by Audit Commission. The research report, commissioned by the Department for Transport and the Regions and undertaken by DTZ Pieda Consulting (1999) identified several deficiencies in local government practice arguing that asset management was poorly developed across local authorities.