The True Value of Outsourcing Portfolio Management: Opportunities and Obstacles

In the federal government today there is a potential conflict between two opposing needs: The need to hire or retain qualified real property professionals to staff portfolio management jobs, and the need to be more responsive to market conditions, streamlining operations wherever possible.

The trend in federal real property management increasingly is to reduce in-house staff, with leasing and other broker-related services outsourced. While this streamlines operations from the perspective of human capital, the total cost of leasing requires a closer look at the value of such “right-sizing.”

Here’s the rub. If the government eliminates some but not all real property portfolio management positions, it retains possibly most of the associated costs. If the government contracts out some management functions, it pays for those services, too. All of those costs in total get applied to the true cost of occupying building space. Therefore, in all likelihood, there will be duplicated costs – and it is possible that the total cost for management and oversight will rise.

This does not mean to imply that outsourcing real property portfolio management is a bad idea. Especially in transaction-based or repetitive work, the private sector often offers substantial value, speed and economies of scale that even the government can’t match. However, this work needs to be considered and measured on the basis of total contributed value relative to cost.

Some federal agencies use GSA exclusively and avoid having to staff supporting real property management functions internally. That works. It also works when an agency staffs to support contract oversight and then outsources the work to one or more private firms for support. The real question is one of balance. If there is a situation wherein a staff of government portfolio managers is managing a contractor staff of portfolio managers, there is probably some aspect of duplication or redundancy in work and, therefore, waste.

Some federal agencies have been granted the legal authority to commit to multi-year leases, whereas others are limited to only single-year commitments with optional years into the future. In the big picture, this doesn’t matter much because relative to commercial leasing, a federal government tenant is perceived as being very stable – a good tenant to have.

The only measure that makes good business sense is total cost to occupy, where an agency measures all of the additive costs for leases and then applies them to the lease value. When this happens, the delivered value of administrative checks and balances is more obvious, and agencies can then make value-based decisions.

What does this all mean? Whether you handle real property portfolio management through in-house labor, contracted services, or a combination of both, there’s no such thing as a free lunch. One way or the other, you will accrue some costs. Know what you’re paying for, including fees or duplicative costs, and make sure you factor that into your total cost to occupy.