Rebuilding Jarvis' reputation

If you're a director of Jarvis, the past 18 months have been fairly forgettable.
Andrew Sutton, as chief executive of Jarvis Accommodation Services (essentially Jarvis' building side), hasn't been in the firing line as much as his colleagues on the infrastucture side.
But even so, there has been speculation that Jarvis' wider business interests may have been tainted in the wake of Potters Bar.
It's a possibility that Sutton is acutely aware of.
"I'd be lying if I said I didn't think it has had an impact," he admits. "Inevitably, if you're berated in the press, there's going to be a negative impact, though the extent of that is impossible to gauge. All we can do is get our heads down and work hard to counter that."
The Potters Bar rail crash in May 2002 saw the Jarvis share price plunge from more than 500p to less than 200p over the following six months, before rallying back up just above the 300p mark at the turn of the year, pretty much where it is at the moment.
The uncertainty in the rail sector was mainly responsible for that.
But over the last year, the building side of the business has also had its difficulties. Competition in some of its core markets has seen new names take contracts that would once have been regarded as Jarvis certs. Its heavy investment in bidding for the NHS LIFT programme has hitherto gone unrewarded; and there has been a series of complaints and scare stories about Jarvis-built PFI schools.
"We have received a lot of criticism, sometimes fairly, frequently unfairly," says Sutton. "Often it's been an issue of communication, though in the case of Varndean School in Brighton [CJ, 20 August], the head stated he couldn't get on with me - but he'd met me only once for five minutes! And while that school project attracted all the headlines, we recently attended a ceremony at Dorothy Stringer school 100 yards down the road at which the head was singing our praises."
Clearly though, as long as the bad news stories stick in people's minds, it's going to be a big challenge for Sutton to protect Jarvis Accommodation Services' position positively in its key markets. And one of the things he plans to stress particularly is the policy that helped make Jarvis one of the UK's leading PFI players - the importance of understanding and maintaining clear communication channels with the client.
"We've found that if you target a market, you have to be prepared to make the effort to understand that market. You can't expect the market to automatically understand you," Sutton explains. "So in the past, to help our education business, we employed former head teachers. We knew how to put up a school building, but they were able to tell us what environments suited good education.
"In health, we formed a jv with Sinclair Montrose, which has been developing doctors' surgeries for several years now - Michael Sinclair is a former doctor who understands their issues. And our business development director Jonathan Garnett is a former lieutenant colonel who has helped us with our MoD work."
Increasingly, he adds, the idea of consumerism is what is driving Jarvis' approach.
"With NHS LIFT projects, for instance, we would look to provide a one-stop shop for consumers, so that they could have meetings with consultants and access to pharmacies all in one building. It's about putting the consumer's needs first."
Sutton joined Jarvis in the early 1990s, following group chairman and former chief executive Paris Moayedi from Team Services. The experience gained there helped give Jarvis what Sutton describes as "prime mover advantage" when it came to breaking into the nascent PFI marketplace.
"At Team, we did a lot of work for universities at a time when they had severe funding constraints," he says. "So we thought about different ways of raising funding for them based on their projected revenue streams - and came up with what was basically an early form of PFI. That experience, both in terms of appreciating the clients' needs and gaining an understanding of structured finance, undoubtedly helped us when we came to target the PFI schools market a few years later."
Jarvis won approximately half of the first dozen or so schools that were procured via PFI, and remains the leading contractor in the market by some distance. But more recently other players have started to threaten its supremacy. Notably Kajima.
"Kajima nicked one of our PFI people actually," reveals Sutton, "and I think that says something about the way the market has developed. Initially, we started out in PFI with a really strong knowledge base, but over time that knowledge gets spread around other players - they want to get a position in your market, and one way to do so is to tap into your knowledge base. Compet-ition is inevitable in any market."
Kajima is building a strong reputation in the PFI schools market through the designs it employs, helped by its R&D facility in Japan. Sutton admits design is likely to be an important future battleground in PFI schools, and says it is an issue "we are looking at very closely", though he is reluctant to go into detail.
"We basically want the holy grail of a design which is desirable to the end user, satisfactory to the client, and affordable for us," he says.
He feels that the Schools for the Future initiative - 12 schools designs approved by the DfES to which procuring authorities will be expected to stick closely - will at least set down clearer guidelines regarding design. Perhaps, more significantly, it should also speed up the procurement.
"The process has been improving," Sutton says, "Colefax took nine to 12 months to get from preferred bidder to close; Salford was just 13 weeks. Standard documents have helped, as will the exemplar designs hopefully.
"But bid costs are still very high - the wasted bid costs on a typical bundled schools project would be enough to build another school."
Sutton's other big concern in the PFI schools market is refurbishment bundles. "There has to be more certainty in the scoping," he believes. "Asbestos is a classic example. School estates of a certain vintage have a lot of asbestos in them and removing it is quite an undertaking. It's not just disruptive for us, but also for the day-to-day life of the school.
"Schools communities need to understand that if they can scope these projects more tightly, it may save them the discomfort that can be caused by having the builders in during term time."
The other successful strand of Jarvis' education business is its work with universities, a continuation of the work Sutton was involved with at Team. The contractor manages 18,000 student rooms, many of which it has built, and has a war chest of £500m ready to tap further opportunities in the higher education market.
Last month Jarvis reached financial close on the UK's largest university accommodation pro-ject - a £124m scheme to build 3,405 student rooms for Lancaster University. A fourth phase would take the number to 4,426 rooms. The whole-life value of the deal is worth £339m to Jarvis over 30 years.
Sutton expresses mild surprise that, among contractors, "we are probably a unique player in this market".
Certainly there's no obvious reason why other PFI players don't appear to be interested in the work. It's a growing market and the assets themselves are relatively low risk.
"There are similarities with schools in terms of surveying and ascertaining what kind of shape the buildings are in," says Sutton - so looking after them isn't much of an issue.
The margins seem pretty good too, though Sutton will only say that operating margins are fairly consistent across all Jarvis Accommodation Services' business sectors at around 6% to 7%
"The risk we do take on though," he adds, "is demand risk. We have to be sure there will be sufficient demand from students over 25 years to fill the accommodation. And - coming back to the communication issue - we have to build relationships with the universities. They have to be happy that we cannot only provide students a bed to sleep in, but also help them offer students a life experience. Universities are in a very competitive market and want to give students an interesting living environment, so that means providing bars, cafeterias and so on."
Beyond education, Jarvis has also applied its building and facilities management expertise to contracts in defence, notably the Army Foundation College contract in Harrogate. The college is in the local authority sector, where Jarvis has recently taken on a 20-year, £270m outsourcing deal from Herefordshire County Council for services ranging from catering to highways maintenance, and health.
In the latter market, Jarvis is preferred bidder on three PFI hospitals, and the first-of-its-kind ambulatory care centre for outpatient-based clinical services at Sandwell, another PFI job. It has also been shortlisted for six of the Diagnostic and Treatment Centre framework packages through Jarvis Primary Health, its jv with Sinclair Montrose.
But Jarvis' big disappointment in health, to date anyway, has been its failure to land any NHS LIFT contracts. Shortlisted for 12, six have gone the way of other consortia. Sutton says the feedback he's received from clients on those unsuccessful bids have varied from pricing to design.
Significantly though, he adds: "One thing that has become clear with the LIFT contracts is that because the private sector is intrusive for longer, because they are working with the Primary Care Trust under the same roof, people have to feel they can do business with each other."
Communication and understanding clearly remain paramount when it comes to winning this kind of public sector work.
The question is, will that be enough to overcome any post-Potters Bar prejudice that Jarvis may be suffering from? <F0A8>