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BG Property

Client guide

Why read this

BG Property is one of the UK's most significant brownfield clients, with £262M to spend on site remediation in the next six years.

Parent company BG Group is diversifying rapidly, creating new work for Property, particularly in telecoms.

BG Property is aiming to capitalise on its experience and relationships with the remediation industry by selling its services outside the BG Group.

Nearly a decade on from the major restructuring of British Gas ushered in by privatisation and three years after supply business Centrica was split off, root and branch change is afoot once again. 'BG is demerging, ' explains BG Property general manager Phil Kirby.

BG Group, formerly British Gas, has operated since Centrica became an independent concern in 1997 through two subsidiary companies - BG Transco and BG Energy. Steady diversification and organic growth coupled with the desire to become more acquisitive means further restructuring is called for.

The oil and gas production activities and overseas interests are to be collected under the name BG International. Transco will continue to trade solely as the regulated pipelines business.

Meanwhile a raft of enterprises including energy services, development of new technology, leasing, asset management, car hire and an emerging telecoms business are to be grouped alongside BG Property under a new holding company.

'Property and Telecoms are being split out at the moment. A full demerger will take place in late autumn, ' Kirby says.

Growth and diversification across the group will make a corresponding impact on Property's activities.

Contact procurement manager Ian Stutchfield, (01256) 308765

Consultants and contractors say

'BG Property demands value for money. We have to prove we are innovating and driving costs down, ' reports one consultant. Working relationships have improved over time as client and consultant have come to know and understand one another better.

Clients and contractors alike, says BG Property, require flexibility and responsiveness.

Though projects sometimes move sluggishly through planning and approvals processes, contracts can equally 'come on stream over night'. BG Property's consultant shortlist and term contracting approach is well suited to its workload.

BG Property favours lump sum contracts and the removal of Clause 12, covering unforeseen ground conditions places risk squarely on its contractors.

However, it is willing and able to pay a premium to the contractor for taking the full burden. Property's experience in dealing with brownfield sites means potential hazards are well understood.

BG Property - what it does and its future workload BG Property was formed in 1994 as a stand alone company within BG Group to manage the sprawling estate of the former public utility.

'BG realised it had a lot of property but no expertise to run it, ' Kirby says.

BG Property acts as an agent for the rest of the group, with responsibility for maintaining and improving existing facilities - it spends more than £12M a year on maintenance and £20M on new build. It is also charged with selling and developing redundant land.

In addition to a geographically scattered and diverse portfolio, BG was saddled with 'a major contamination problem' - the legacy of nearly two centuries of gas production and distribution.

So far, BG Property has divested the group of more than 2,000 sites, but 1,800 remain on its hands. Kirby calculates that 'of the 1,800, we still have 600 to treat'.

He says that about 80% of BG's sites are 'challenging', mainly in terms of the level of contamination.

BG Property has 'risk-ranked' sites according to the threat posed by contamination to the environment and human health. To date it has been tackling those representing an immediate hazard alongside sites in the most desirable development locations.

The business claims to have removed the group's most immediate contamination liabilities through fast track clean up and at the same time has realised the development value of sites located in the UK's property hot spots. Over the last six years BG Property has sold £800M worth of assets.

Expenditure on site remediation has been up to £80M a year.

Spending has slowed, but Kirby anticipates at least £30M will be required each year to tackle the group's contaminated land legacy.

The company's last annual report shows provision for £262M worth of statutory decontamination up to 2006.

BG Property is one of the UK's largest brownfield clients and, with six years of intense activity under its belt, among its most experienced.

Kirby himself had clocked up impressive credentials as both a contractor and a client on brownfield rehabilitation projects before joining BG in 1991.

He has assembled a team of similarly track tested experts.

'It is pretty difficult to find more experienced people than us in dealing with contaminated land, ' Kirby states.

There are 51 sites lined up for, or undergoing remediation. BG Property has so far sold dirty as well as clean sites.

'The market has been very buoyant, ' Kirby says. Buyers and leaseholders have so far been keen to move on to BG sites.

However, BG Property has recently found the hitherto insatiable demand is weakening as the most desirable sites are developed.

'We have done very little development ourselves in the past few years. We are getting to the stage where we are dealing with our more disadvantaged sites and will have to do more development work to make them attractive.'

Kirby is also planning to put BG Property's services up for hire. The owners of a vast number of contaminated sites will be tackling remediation either for the first time, or on a one-off basis. Many will find the process of applying a risk based remediation solution, where the degree of clean up is matched to a site's intended end use, complex and confusing.

'We are a client. We know what clients need, ' he says.

However, where BG Property has in the main operated alone, it will increasingly look for opportunities to partner with other property specialists.

'I am very interested in doing joint ventures with specialists, sharing risk and reward, ' says Kirby.

'There are few other clients which can compete with us on preparing a site. But we can't compete with specialist retailers (in the development of retail schemes), for example. We want to develop relationships where we can share equity in the overall development.'

Alongside its ongoing remediation, development and maintenance projects Kirby sees a busy role for BG Property in managing infrastructure across the group's burgeoning businesses.

He is particularly excited about the opportunities offered by Telecoms.

BG has formed a joint venture with US based network operator SpectraSite to exploit and extend its existing network of telecoms masts. At the moment, BG Property is overseeing transactions for 700 sites. Another 1,500 are in the pipeline.

'The first phase involves about £1M of consultancy fees. At the end of the year we will have at least trebled that, ' Kirby says.

Meanwhile, cable infrastructure firm Fibreco is using Transco's way-leaves to create a 2,500km UK wide fibre optic web. Initial investment is £235M.

Culture & working relationships

Pragmatism is BG Property's watchword. Its approach to business is commercially tough and direct. Its core activity, managing BG's assets, is all about balancing the cost of remediating a site with the revenue that future development will bring.

It is this ethos that informs BG Property's relationship with consultants and contractors. BG Property is after value for money.

Kirby says: 'Cost is not the top priority. The key question is, are we getting a good job done, and is it being done on time?' And on contaminated sites it wants solutions that will guarantee a worry-free buyer.

For consultants this means designing remediation solutions that fit the site's intended use.

There is no advantage in overcleaning a site - Kirby and team have overseen enough to know how much clean up is needed and what methods are appropriate for the task. Consultants must also guarantee their work.

'We need consultants to put their covenant on the job and not to change it, ' he says. Tenants, purchasers and funders are given protection against defects through collateral warranties written into consultants' contracts.

BG Property has a panel of 12 consultants, selected through interview. They compete for work and are assessed annually. Kirby is loath to make sweeping changes, though. New names help keep the other players on the list sharp, but too many undermines loyalty.

Kirby says BG Property's experience is that smaller consultants offer higher levels of service than big firms. 'We need a high level of service and big consultants don't give you that.'

He expects the firms taken on to be proactive and innovative - BG Property prides itself on being in the vanguard of remediation. It carried out the UK's first bioremediation in 1993 and invests heavily in research so that it spots the commercially and technically suspect methods that consultants sometimes put forward.

Kirby insists on a close working relationships with consultants and contractors and in return promises to pay well and promptly, as well as offering continuity of work to those which perform.

BG Property has two contractors working under 12 month term agreements but, in the main, contracting work is bid competitively against a schedule of rates. On smaller value or short lived jobs, contracts are frequently rolled together to compensate the contractor for start up costs.

Kirby favours the ICE 6th contract form amended for contamination. New build work is predominantly carried out using construction management. Kirby claims that despite frequently difficult and unpredictable ground conditions he is seldom faced with claims.

BG Property has a reputation for driving a hard bargain, concedes Kirby. But he claims to be a fair player. 'We wouldn't go so far as screwing someone down. You get what you pay for and we won't place an order with a contractor who can't do the job for the price.'

Meanwhile, he adds, beating consultants down on price is counter productive. High level technical input at a project's outset is a relatively small part of the overall cost and can yield huge savings later on.

He concludes: 'There is no doubt that when you are a big, continuous buyer of services you can do things that would be impossible on a one-off basis. You can rely on people's integrity to keep things on a even keel. But you have to be very careful and make sure that the power of that position doesn't get abused.'

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