Creating Resilience

Infrastructure, Defense & Public Enterprise: Greater constraints require bigger solutions

Sector perspectives in Facilities Management Procurement

April 27, 2023 5 Minute Read

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The infrastructure, defense and public enterprise sector faces several challenges, particularly inflation, labor availability and rising costs. However, an outsourcing partner can provide leverage and scale, along with support for suppliers’ ESG targets.

Similar challenges, different constraints

The infrastructure, defense and public enterprise sector includes the federal government, utility companies and universities in the United States, as well as provincial governments in countries such as Canada.

The current challenges these enterprises are facing—inflation and labor costs, particularly minimum wage increases—are not unlike those of most sectors. A key difference from other sectors is that budgets are typically set annually and disclosed publicly, with little room for flexibility.

But the economy often exerts pressures that defy established budgets. Many contracts require some cost reductions on the baseline figures. Fortunately, some mitigation is permitted if inflation rises above a certain amount, allowing negotiation of reduced targets.

Statutory requirements come into play as well. Employers in Canada, for example, are now required to provide five additional days off each year. This naturally affects labor costs and supply chains. Fortunately, supply chain disruption has impacted government organizations less than private enterprises thanks to federal preplanning, although the same inflationary pressures still apply.

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Non-government enterprises can have more agility

Private sector companies that have these pressures have more latitude for change than public enterprises and are often able to make mid-year budget adjustments.

In many cases, direct negotiation can be helpful. In an inflationary climate, requests for proposals (RFPs) can be counterproductive. Working with existing suppliers and exploring contract extensions can be more effective solutions.

Technology is also allowing for greater financial flexibility: Introducing innovative tools to create more efficient operations can reduce labor costs. This is important for employees at all skill and cost levels.

Automation and innovation allow organizations to demonstrate long-term savings, particularly if the initial investment cost is high. Clients in this sector are demanding to see the return-on-investment figures, particularly with a recession forecast.

Scope 3 emissions and aging buildings challenge net-zero commitments

Environmental sustainability has risen to the top of the agenda in this sector. But having smart, energy-efficient buildings is its own challenge, since so many federal buildings are of considerable age. With the built environment accounting for around 40% of carbon emissions globally, the net-zero focus has expanded from procured energy, oil, gas and electricity to include buildings and their use.

Many infrastructure and public sector enterprises have set a net-zero emissions target in the next 5-10 years. With organizations in this sector managing portfolios of older, less-efficient buildings and a largely office-based workforce, hitting net-zero commitments poses a challenge.

In the U.S., however, the federal government has budgeted infrastructure funds for the construction of smarter, greener buildings and retrofitting of many older government buildings. In addition, public EV charging projects have become prevalent, as various government agencies begin installation of nationwide EV charging capability along travel routes.

At a time when many other sectors are consolidating their real estate footprints, infrastructure and public enterprise will experience growth.

Scope 3 indirect emissions include all companies across the supply chain and tend to be the largest part of a company’s carbon footprint. Attention to ESG initiatives creates an opportunity for FM procurement leaders to demonstrate leadership on achieving emissions reductions and supplier diversity targets. Scope 3 emissions reporting, greener sourcing and vetted supplier networks that align with ESG criteria are just a few of the ways FM procurement teams can deliver desired outcomes for their organization.

Procurement and corporate real estate (CRE) alignment

Business leaders are paying closer attention to their real estate portfolios because the built environment is increasingly recognized as instrumental for powering supply chains, achieving sustainability goals and driving cost savings. FM procurement is critical for achieving these objectives and maintaining operational efficiency.

Public enterprise companies often have less opportunity than other sectors to align procurement and real estate because so much is decided and audited centrally. FM procurement leaders who seek greater alignment with CRE clients must provide the subject matter expertise to re-design and optimize services, driving cost savings, quality and innovation.

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CBRE works with over 200 clients across 110 countries in Infrastructure, Defense and Public Enterprise and has over 1,500 professionals in sector-dedicated positions.

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