Value for money in block management: why we pay attention to the numbers

Managing service charge funds comes with a responsibility to make sure money is being spent properly.

For us, value for money isn’t about spending the least. It’s about understanding what we’re spending, why we’re spending it and whether the outcome represents good value for the people ultimately paying the bill.

That doesn’t necessarily mean choosing the cheapest contractor. Price matters, but so do competence, reliability, quality of work and the ability to build relationships with contractors who understand the properties we manage.

It does, however, mean paying attention to the numbers.

Blocks of residential flats

Example 1 — Challenging procurement costs

We recently obtained quotations for a number of compliance surveys across our managed portfolio.

The quotations came from a contractor we know, trust and whose work we like. However, when we compared the proposed costs against previous surveys, some of the increases were significantly higher than we expected.

Rather than simply approving the quotations, we reviewed the historic costs and went back to the contractor.

We shared the historic costs, explained why the increases concerned us and asked them to review the pricing across the properties as a whole.

They reviewed the quotations and offered revised pricing, including a portfolio discount. We were then happy to instruct the surveys.

Value for money isn’t about choosing the cheapest

There is an important distinction between obtaining value for money and simply buying the cheapest service available.

A contractor who knows a building, responds when needed, carries appropriate qualifications and insurance, produces good-quality reports and charges a fair price may represent substantially better value than the lowest quotation.

Equally, an established relationship shouldn’t mean that costs stop being scrutinised.

We think good management requires both.

In this case, a straightforward conversation resulted in better pricing for our clients while preserving a contractor relationship that we value.

It’s not a dramatic example of property management. But it’s exactly the kind of work that should be happening behind the scenes before service charge money is spent.

Example 2 — Looking beyond the invoice

Sometimes the problem isn’t the invoice — it’s the arrangement behind it.

At one development we recently took over, the communal electricity supply had relatively low annual consumption of approximately 700 kWh.

However, the inherited electricity tariff included a standing charge of approximately £1,500 per year - before a single unit of electricity had been consumed.

We reviewed the supply and moved the development to a more appropriate tariff, reducing the standing charge to approximately £300 per year, while also securing a lower unit rate.

Based on historic consumption, we expect the change to save the service charge approximately £1,200 each year.

There was nothing technically wrong with the old electricity invoices. They could simply have been processed and paid.

The saving only became apparent because we looked beyond the invoice and asked whether the arrangement behind it still made sense.

Example 3 — Sometimes the right number goes up. Sometimes it goes down.

Insurance is another area where focusing solely on price can produce the wrong outcome.

At one development we recently took over, the building had been insured based on a reinstatement value of approximately £1 million.

The inherited figure gave us cause for concern, so with our client’s approval, we commissioned a professional Insurance Reinstatement Cost Assessment (RCA) to establish an appropriate rebuilding cost for insurance purposes.

The assessment concluded that the appropriate reinstatement value was approximately £2 million - almost double the level at which it had previously been insured.

That meant increasing the level of cover and paying a higher insurance premium.

It wasn’t a saving, but it was the right outcome.

If a building is materially underinsured, the consequences following a major claim can be significant. Depending on the terms of the policy, underinsurance may result in an insurer reducing the amount it pays towards a claim, potentially leaving a substantial funding shortfall precisely when the building has suffered its most serious loss.

At another development, however, the same exercise produced the opposite result.

We commissioned another RCA which established that the appropriate reinstatement value was lower than the figure previously being used for insurance purposes.

The revised figure was then used at the following insurance renewal and the annual property insurance premium fell substantially, from approximately £2,500 to £1,500.

The important point is that neither outcome was driven by trying to make the insurance cheaper or more expensive.

It was about getting the number right.

At one building, that meant spending more to address a potentially significant underinsurance risk. At another, it meant reducing the insured value to the level supported by the professional assessment and achieving a substantial saving.

What value for money means to us

These are three different examples, but the principle behind them is the same.

Sometimes good management means challenging a quotation. Sometimes it means looking beyond an invoice and questioning the arrangement behind it. And sometimes it means recognising that more money needs to be spent to properly protect a building.

When we’re spending service charge funds, we treat every pound as if we’ll need to explain why it was spent.

That might mean obtaining competing quotations, benchmarking costs against previous expenditure or the wider market, or taking appropriate professional advice before making a decision.

The objective isn’t simply to spend less.

It’s to spend the right amount, for the right reason, and to be able to explain why.

Sometimes the numbers tell us we should spend less. Sometimes they tell us we need to spend more.

The important thing is that somebody is looking at them.

Property Black Box provides accountant-led block and estate management across Bournemouth, Christchurch and Poole.

If you’re a director of an RMC or RTM company and think your development would benefit from this approach to managing its service charge, we’d be happy to have a conversation.