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Logue Corporate Security Analysis 2010/11

Bobby Logue

From 2011 Logue Corporate will publish their annual analysis of the regulated security sector in September of each year in order to capture the current Security Industry Authority’s (SIA) Annual Report in the current review, writes Infologue.com Editor, Bobby Logue. Therefore, this current review will run from January 2010 until the end of August 2011. The four most significant events that have impacted on the licensable private security sector during this period were:

  • The ideological decision by the Con – Lib Coalition Government to abolish the SIA as part of the Bonfire of the Quangos,
  • The robust response from the private security industry to the proposed demise of the regulation of the private security industry,
  • Greater consolidation of the licensable private security sector, especially within the top 20 companies, with managed or bundled service providers gaining significant market share, and;
  • A continuing erosion of operating margins.

The Bonfire of the Quangos – The Planned Demise of the Security Industry Authority

On the 6th of July 2009, the then leader of the opposition, David Cameron delivered a speech, People Power – Reforming Quangos[i]which become known as the Bonfire of the Quangos. It was clear to industry commentators[ii] that the SIA was a likely target due to the negative publicity it had received since inception. It was not unexpected that on the 14th June 2010, the Chairman of the SIA, Baroness Ruth Henig, in her “Let’s build the industry together”[iii] speech, suggested at their annual conference (SIA) that the industry should move towards a lighter touch style of regulation in the licensable private security sector, which became known as the “Change Blueprint”. Clearly, what the Baroness set out would negate the need for the SIA to be abolished. On the 22nd August 2010 the BBC claimed to have seen a leaked report in which the Government planned to abolish the SIA and other Quangos[iv]. The Government at no stage denied that the leak was not true.

The Robust Response of the Private Security Industry

The security industry led by key bodies, the British Security Industry Association (BSIA), the International Professional Security Association (IPSA), The Security Institute and ASIS reacted emphatically and wrote to the Home Secretary imploring her to retain the SIA and suggested that the “Change Blueprint” be implemented. The Government backed down and announced on the 14th October 2010 that “the regulation of the private security industry should no longer be the responsibility of a Non-Departmental Public Body (NDPB) and that there should be a phased transition to a new regulatory regime.” This announcement created confusion in the security industry resulting in continued lobbying of the Government by the security industry. On the 22nd of October 2010 the key industry bodies formed a single issue coalition which became known as the Security Alliance.

On the 23rd of March 2011, the Government announced in the House of Lords that it had accepted a proposed amendment to the Public Bodies Bill and had withdrawn the Security Industry Authority from the list of organization’s that would be abolished by way of secondary legislation. The security minister at that time, Baroness Pauline Neville-Jones, told the Lords that it remained the coalition Government’s intention “to abolish the Security Industry Authority in its present form.” The Government had decided that it would achieve its aim through a different piece of primary legislation.

Ruth Henig Bill ButlerIn the latest SIA Annual Report 2010/11, the Chairman, Ruth Henig and the Chief Executive, Bill Butler wrote in their joint statement “We had already announced at our conference in June 2010 that we wanted to develop a new approach to regulation – our “Change Blueprint”. This proposed greater responsibility for the industry in respect of individuals, supported by a system of compulsory business registration. Following the Government’s announcement, we received strong support from across the industry for the Change Blueprint approach and the continuation of a robust regulatory regime. The devolved governments in Scotland and Northern Ireland expressed strong support for the continuation of effective regulation. Working with the industry and government, we have proposed arrangements for a new regulatory regime which would be the responsibility of a new body, outside the NDPB sector, and which would involve the licensing of private security businesses and the registration of individuals, supported by robust compliance arrangements. The Government accepted these proposals and has asked us to lead the development of detailed proposals with the industry, and has indicated that it will now bring forward legislation in the next Parliamentary session to create the new regime. “

“The willingness of many in the industry, suppliers, buyers and those who use and rely on private security, to work with us to create a new approach to regulation has been a key element in allowing us to develop the Change Blueprint. We are grateful to all those involved and are looking forward to continuing this partnership as we address the Government’s aim to bring forward a new regime by the end of 2013. ”[v]

The SIA, the Security Alliance and other industry stakeholders have worked closely since October 2010 in formulating, discussing, and agreeing the way forward based on the Change Blueprint.

Speaking at the BSIA Annual lunch on 13 July 2011, Lynne Featherstone, the parliamentary under-secretary of state for equalities, criminal information and responsible for overseeing the SIA said “Work is continuing on the details of the new regulatory regime, but certain key features have already been agreed:

  • Regulation will be a primary focus through the licensing of businesses that will in turn have to adhere to stringent conditions set by the new regulator.
  • Licensed businesses will be responsible for the registration and management of the individuals who work for them.
  • The new regulator will be able to impose sanctions up to and including the removal of the right to trade from businesses that are not compliant.

The Government is grateful for the joined-up and positive approach taken by the industry in working closely with the SIA to develop these proposals through the Security Alliance.”

Infologue.com understands that the broad principles of the Security Alliance were used by the SIA in recommendations the Home Office Minister before the Parliamentary recess.

The Business End of the Security Review

Analysis of the UK outsourced licensed private security services market The current annualised turnover of the regulated security industry is estimated to have remained flat in the region of ?3.3 billion. There are in excess of 7000 businesses operating with the security sector of which it is conservatively estimated that there are more than 2522 businesses operating within the regulated security industry. These figures are consistent with data held by both the Security Industry Authority (SIA) and the British Security Industry Association (BSIA).It is, however believed that there could be up to 25 % more businesses operating in regulated security industry than calculated in this analysis due to individual businesses operating in multiple sub sectors as outlined below:-

  • 575 operate in the regulated CCTV sector,
  • 357 operate in the regulated Close Protection sector,
  • 44 operate in the regulated CVIT sector,
  • 617 operate in the regulated Door Supervision sector,
  • 919 operate in the regulated Key Holding sector,
  • 1915 operate in the regulated Security Guarding sector,
  • 279 operate in the regulated Vehicle Immobilisation sector.

These assumptions are based on a 2009 study and anecdotal views of the current industry conditions. The regulated security industry has “long tail” with only approximately 25% of the regulated security businesses having some form of industry recognised quality accreditation, principally the ACS.  This highlights the need for compulsory company registration in the regulated security industry to fully understand the nature of the businesses currently operating outside the scope of accredited quality frameworks. There are regulatory changes due to affect the licensable security sector in 2013 when the emphasis on licensing will shift from licensing of individuals to licensing businesses.  Fit and proper criteria will be introduced and security businesses will have to meet these in order to operate These criteria are expected to include:

  • Identity and legal status
  • Financial probity
  • Integrity
  • Competence which is expected to include conformance to the relevant sector specific standards such BS 7499 – Security Guarding, BS 7984 – Key Holding and  BS 7858 – Vetting

The new regulatory regime is likely to impact on businesses that do not comply with basic standards and those who lack infrastructure.

There are currently over 365,000 licensed individuals in the regulated security sector. There are approximately 35 security businesses turning over more than ?7 million annually.  The top 20 companies in the UK regulated security sector represent 77.73 % (?2.56 Billion) of the ?3.3 billion annual turnover in the market.  Bundled or outsourced services companies represent 54% of the turnover of the security sector.

There was further consolidation of the Infologue.com Top 20 companies in the licensable security sector with bundled service providers, Compass and Initial Facility Services significantly improving their stakes in the licensable private security sector. Compass acquired VSG (Vision Security Group)[vi] and Initial Facilities Services acquired Knightsbridge Guarding Limited . In addition the bundled service provider OCS increased their presence with the acquisition of the business of Legion Group. The focused security services provider Securitas Security Services UK acquired the business of Reliance Security Services[vii] as well as Chubb Security Personnel[ix]. The Securitas acquisitions moved the company from 7th in the Infologue.com Top 20 2009[x] to 2nd in the Infologue.com Top 20 2010[xi]. The current annualised turnover of Securitas in the UK is estimated at ?385 million.

Security specialists or Bundled service Providers?

Bob ForsythAlf GoranssonSuch was the movement globally towards managed services that the Securitas AB President and CEO, Alf Goransson commented as he introduced the 2010 Securitas Annual Report on the 13th April 2011 “If you had a serious heart problem – who would you see? A cardiologist or your family doctor? If you had serious security concerns, I would strongly recommend seeing a security specialist rather than a service bundler. We believe in specialization, not diversification.” It is no surprise that 54% of security services in the Infologue.com Top 20 are now supplied by managed services companies. There is an emerging trend where end users are requiring a security specialism within the managed services offering. Bob Forsyth, Managing Director at MITIE Total Security Management , who announced a more security focussed approach earlier this year, commented; “We take a risk-based approach to security through our Risk and Resilience team. Security services are critical to business continuity and shouldn’t be treated as a commoditised service and should be delivered by a provider with specialist knowledge; if that provider is part of a group with other specialisms then total facilities management works well.”

The Constant Spiral of Eroding Margins

Whilst there is no empirical evidence to reinforce the anecdotal assumption, it appears common cause that margin continues to travel southwards. As the managed services providers can offer services over a greater spectrum the overhead costs can be more efficiently spread. Recently the Managing Director of a UK Top 10 Security Guarding Company commented; “The economy continues to underperform the governments growth targets, it is of little surprise therefore that the latest survey by the company restructuring expert BegbiesTraynor found in Q1 2011 a 46% year on year increase in the number of support service companies experiencing greater financial distress. Taking all business sectors together the increase was 15%.

“A recent mail shot from a ‘fully BSIA compliant (Whatever that means)’, ‘SIA Approved Contractor’ offered to supply guards in London on a charge rate of ?8 per hour. The current London living wage is ?8.30 per hour, the minimum wage is ?5.93. Inadequate pay with an inadequate gross margin makes a classic ‘lose/lose’ contract. Does this portend a return to the ‘dark ages’? Many guarding companies entered the recession with weak balance sheets and then suffered higher employment costs – notably the 17% hike in statutory holidays. A significant number rely on certain aspects of the current fiscal arrangements to reduce cash operating costs – not a structurally sound strategy for the long term.

“Industry practitioners know that contract margins are inadequate, this ought to lead procurers to query their own risk analysis metrics when discussing pricing with suppliers. Similarly, guarding companies need to be honest with their clients about the real cost of operating a sound and sustainable contract (company).

“And all this while the current threat level for Great Britain is ‘substantial’.”

The Regulated Security Industry in 2010/11

Whilst there was significant contract promiscuity and consolidation within the licensable sector, there was no empirical evidence to suggest any growth during the period of analysis.  The annual turnover of the regulated security industry is estimated to be in the region of ?3.3 billion. There are in excess of 7000 businesses operating with the security sector of which it is conservatively estimated that there are more than 2522 businesses operating within the regulated security industry. It is believed that there could be up to 25 % more businesses operating in regulated security industry than calculated in this analysis. These figures are consistent with data held in late 2009 by both the Security Industry Authority (SIA) and the British Security Industry Association (BSIA). There has been no new sectorial analysis of businesses operating in the regulated security industry since the 2009 analysis save to say anecdotal evidence suggests the figures set out below reveal cross over with businesses operating in multiple sectors;

  • 575 operate in the regulated CCTV sector,
  • 357 operate in the regulated Close Protection sector,
  • 44 operate in the regulated CVIT sector,
  • 617 operate in the regulated Door Supervision sector,
  • 919 operate in the regulated Key Holding sector,
  • 1915 operate in the regulated Security Guarding sector,
  • 279 operate in the regulated Vehicle Immobilisation sector.

This analysis highlights that the regulated security industry has “long tail” with only approximately 28% (25% – 2009) of the regulated security businesses having some form of industry recognised quality accreditation, principally the ACS. These statistics reveal the need for compulsory company registration in the regulated security industry to fully understand the nature of the businesses operating outside the scope of accredited quality frameworks. As suggested earlier, regulation in 2013/14 is likely to require all security businesses in the licensable sector to be licensed. This should provide more accurate data.[xii]

Regulatory Analysis

The regulatory process of the SIA continued to be robust during the reporting period of January 2010 until the 20th of September 2011. Whilst there was only an increase in the overall number of active licences of 13.10% from 2009 there was a marked increase in the number of revoked licences (27.67%), in refusals to issue licenses(31.38%) and in qualifications (20.91%) The full analysis of the SIA licensing statistics[xiii] are set out in the table below;

Regulated Sectors Active Revoked Total Qualifications Refusals
Door Supervision 206,598 13,194 219,792 444,576 17,316
Security Guarding 106,158 8,655 114,813 212,283 6,094
PSS CCTV 32,041 548 32,589 59,796 645
CVIT 11,058 67 11,125 15,677 136
Close Protection 7,627 92 7,719 11,903 299
Vehicle Immobilisation 1,457 33 1,490 6,939 325
Key Holding 214 6 220 N/A 7
Total 365,153 22,595 387,748 751,174 24,822

The Long Arm of the SIA

SIA Enforcement Activity The SIA has a range of sanctions available whilst falling short of criminal proceedings they believe are effective in ensuring increased compliance quickly whilst avoiding costly formal proceedings. The sanctions include the issuing of written warnings and improvement notices for non-compliance, and the revocation or suspension of licences.

The table set out below details statistics of enforcement activity for the periods 1 April 2010 to 31 March 2011 (12 Months) and 1 April to 31 August 2011 (5 Months)

This Financial Year (2011-2012) (5 Months)

Written Warnings Issued 109
Improvement Notices Issued 23
Licence Revocations 1,684

Previous Financial Year (2010-2011) (12 Months)

Written Warnings Issued 307
Improvement Notices Issued 43
Licence Revocations 3,662

Please visit the SIA Website for full descriptions on the types of sanctions and updated statistics

SIA Prosecutions

Due to considerations which range from data protection issues, prosecutions by police forces and other government agencies, to commercial considerations the majority of the Private Security Industry Act enforcement activity goes unreported. As successful prosecutions are a matter of public record all the SIA activity is reported on their website. In the 12 months to the 9th of September 2011 there were ten successful prosecutions (2 businesses and 8 individuals.) For further details please visit the prosecutions section on the SIA website.

The Security Industry Authority – Approved Contractors Scheme (ACS)[xiv]

Number of Approved Contractors

The number of contractors in the Approved Contractors Scheme (ACS) of the Security Industry Authority (SIA) increased by 8.3% (656 to 711), during the period of analysis. It is likely, based on current industry thinking that the ACS could be transferred to anindustry run hallmark type scheme under the planned new licensing regime in 2013.

Key statistics for the ACS as of 31 August 2011 are;

  • the total number of approved contractors was 711;
  • more than 129,000 licensed operatives were working for these companies.

In terms of the ACS rules, approved contractors must re-register and undergo assessment every year to maintain their approval. 91% of ACS approved contractors have successfully re-registered since March 2011.

Types of Organisations Represented

Type of Organisation Number in ACS % of Total
Micro (1-10 employees) 191 27%
Small (11-25 employees) 210 30%
Medium (26-250 employees) 250 35%
Large (>250 employees) 60 8%

Approvals by Sector[xv]

Sector Number of Approvals
Cash & Valuables in Transit 17
Close Protection 28
Door Supervisors 195
Key Holding 289
Public Space Surveillance (CCTV) 117
Security Guarding 656
Vehicle Immobilisers 10

[i] People Power – Reforming Quangos – www.conservatives.com – 6th July 2009 [ii] IPSA AGM 2010: Logue energises strong debate on guarding industry structure – www.info4security.com – 11 June 2010 [iii] Building the security industry together – Baroness Ruth Henig – www.infologue.com – 14th June 2010 [iv] SIA to be scrapped? – www.infologue.com – 22nd September 2010 [v] SIA Annual Report 2010/11 – Security Industry Authority – July 2011 [vi] Leading independent security services provider, VSG joins Compass Group – www.Infologue.com- 24th August 2010 [vii] Rentokil Initial Acquire Knightsbridge – www.Infologue.com– 28 June 2010 [viii] Securitas to acquire Reliance Security Services – www.Infologue.com– 30 September 2010 [ix] Securitas to acquire Chubb Security Personnel in the UK – www.Infologue.com – 14 January 2011 [x] Infologue.com Top 20 2009 – www.Infologue.com–29 March 2009 [xi] Infologue.com Top 20 2010 – www.Infologue.com25 November 2010 [xii] Logue Corporate Anecdotal Data after discussions in 2010 with the SIA and the BSIA. [xiii] Statistics obtained from the Security Industry Authority Website – 25 September 2011 [xiv] Statistics obtained from the Security Industry Authority Website – 25 September 2011 [xv] Approved contractors may be approved in more than one sector.