And why so many?
By Liam Spender
Liam Spender is an LKP trustee and a leaseholder at the St David’s Square estate referred to in the article, which is managed by FirstPort.
Leaseholders at a FirstPort managed site in London are horrified to discover they are paying FirstPort a 33% commission for temporary staff recruitment. Leaseholders are also billed by FirstPort every time it takes on a new permanent employee.
The site, St David’s Square, is a pleasant riverside development of nine buildings and around 470 flats and houses near London’s Canary Wharf. Over the past six years, leaseholders at the site have paid FirstPort a total of nearly £60,000 in temporary and permanent recruitment commissions.
The actual total bill for leaseholders is closer to £72,000, once VAT is considered. The figures are incomplete because FirstPort does not know how much it earned from temporary commissions at the site in 2015.
Leaseholders at the site already pay more than £150,000 a year to FirstPort in management fees, so why is it racking up these fees in addition? And why so many? FirstPort knew the site required staff when it took the instruction. Residents do not understand why FirstPort’s recruitment costs are not already included in the high management fees, which costs some leaseholders at the site up to £470 or more a year.
FirstPort refuses to disclose how much in total it has generated from these commissions from the 290,000 properties it claims to manage across 5,000 developments in the UK. It claims that this is “commercially sensitive information”.
Not all FirstPort sites have on-site staff. For those that do, if the £70,000 charge at St David’s Square site is any guide, these commissions may well amount to hundreds of thousands, if not millions, a year in income for FirstPort between 2015 and 2020. And the charges continue.
FirstPort is ultimately owned by Equistone, a London based private equity firm. FirstPort’s senior managers, including chief executive Nigel Howell and chief financial officer Ouda Saleh also have stakes. The FirstPort board is chaired by Paul Lester, who also chairs the board at retirement house builder McCarthy & Stone.
The commission charges were made by FirstPort Response, the company’s internal recruitment agency.
FirstPort points out that local managers have a choice of up to 40 different agencies other than FirstPort Response.
LKP understands that the St David’s Square site has only ever used four agencies between 2015 and 2020, including FirstPort Response. Only in one year, 2017, has Response taken less than 50% of the recruitment business from the site. In 2017 it still took 45% of the business.
On average over the period 2015 to 2020, FirstPort Response took 83% of the recruitment business from site, most years except 2017 taking more than 90% of the business.
The 33% commissions and other recruitment charges are invoiced through the FirstPort subsidiary FirstPort Property Services Limited. The same company also bills more than £150,000 a year in management fees at the St David’s Square site.
FirstPort Response’s recruitment commissions are in two forms. The first is a commission of £3.74 per hour included in a £15.16 hourly charge for temporary staff. This £3.74 commission is a 32.75% mark-up for FirstPort on the underlying £11.42 hourly cost.
The second form is an unspecified commission, a percentage of salary FirstPort claims is in “the low teens”, on permanent employee recruitment. FirstPort claims this percentage is less than the “mid-teens” it says other agencies charge for permanent placements.
Third-party recruitment agencies differ from FirstPort Response in that they are not part of a company that has some or all of its head office overheads paid via a separate management fee billed by FirstPort. The commissions paid to third-party recruitment agencies cover some or all of those overheads.
Documents seen by LKP show that in 2020 FirstPort billed leaseholders for both types of recruitment commission in respect of one employee.
FirstPort did not answer a question as to why both types of commission were charged for the same employee. FirstPort did not dispute that both types of commission are charged for the same employees moving from temporary to permanent positions.
First came the 33% commission on the hourly rate during a trial period of 2½ weeks in January 2020. FirstPort’s commission take totalled around £510 for this temporary work.
Leaseholders were then charged again when the same employee was immediately taken on as permanent employee. FirstPort Response charged a fee of £2,087.50, which is a “low teens” percentage of the employee’s new salary.
Putting both charges together saw FirstPort’s commission total £2,597.50 for this one employee. With VAT, the total charge to leaseholders was £3,117.
St David’s Square leaseholders are at a loss to understand what FirstPort Response does to earn its commissions. The invoices seen by the LKP show that some of the same temporary staff were used at different points throughout the same year.
“Does this just mean FirstPort Response kept a note of their telephone numbers?” one leaseholder asked.
FirstPort’s spokesman said that where a temporary employee is used more than four weeks since the last appointment references and Disclosure and Barring Service records are checked again, as are other screening and vetting checks.
The DBS website shows that employees who regularly move jobs can pay £13 a year for the Update service. Employers can then check a standard or enhanced DBS certificate for free. Otherwise the charge is £23 for each basic DBS check, most likely paid by the employee.
FirstPort Response also seems to do no extra work to justify charging a percentage of a permanent employee salary having already charged a 33% hourly commission while that employee was working a trial period.
FirstPort’s spokesman did not respond to the question of why both types are commission are charged for a temporary employee switched to a permanent position, instead giving details of what the permanent recruitment process entails.
Documents seen by LKP for the period 2015-2020 show that these permanent recruitment fees at St David’s Square reached as high as £4,600 for the year 2017, again before VAT.
There is no record of any permanent employee at St David’s Square between 2015 and 2020 being recruited other than through FirstPort Response.
In 2018, temporary recruitment fees netted FirstPort £18,476.66. That is part of a total £21,476.66 for both types of commission billed to leaseholders at the site during 2018. With VAT, leaseholders saw bills of £25,771.99 in total.
FirstPort’s spokesman said “our benchmarking indicates that our commissions are either comparable or lower than the market rates with other agencies.”
FirstPort Response’s £15.16 hourly rate is well above that charged by alternative suppliers for supplying temporary staff at St David’s Square.
Invoices seen by LKP show that between 2015 and 2020 competitors provided temporary employees at rates ranging between £11.85 and £13.29 per hour. That is between 14% and 28% less than FirstPort Response’s hourly charges.
Only in one year, 2015, were FirstPort Response’s charges less than its competitors. In 2015 FirstPort Response charged £10.75 per hour, less than its nearest competitor’s charge of £11.85 per hour.
Beginning in 2016, FirstPort Response increased its hourly charge rate for temporary staff from £10.75 to £15.16 per hour with effect from 2016, an increase of 41%.
According to a letter seen by LKP, FirstPort Response’s hourly rates have remained at £15.16 per hour since the start of 2016, being significantly ahead of competitor agencies over the period 2016 to 2020.
The separate recruitment charges come on top of additional fees charged by FirstPort. During 2020 some leaseholders at St David’s Square paid £470 or more in annual management fees, part of a total of £151,862 billed to leaseholders across the site during the year.
In addition to the management fees, the 2020 recruitment charges at the site totalled £6,824.80, including VAT. FirstPort billed leaseholders a further £7,606.43 in accounting fees, including VAT.
Insurance commissions generated another £1,114.72 for FirstPort. One policy, that for engineering insurance and inspection cover, saw FirstPort and the broker, Berkeley Insurance, collect commissions totalling 47% of the before tax and before commission premium.
The site’s freeholder, ARC Time Income Fund and its property manager, Freehold Managers PLC, charged leaseholders another £40,000 commission in respect of buildings and terrorism insurance at the site.
Leaseholders at other sites can learn from St David’s Square.
If you have staff at your development, write to FirstPort and ask it to disclose the amount of FirstPort Response commission earned over the last six years.
Leaseholders with managing agents other than FirstPort should try to use the RICS statutory Code of Practice to challenge their managing agents to disclose all their income.
FirstPort’s total 2020 earnings from St David’s Square amounted to £167,407.95 in 2020, including VAT. That is an average of around £380 per flat, although some leaseholders at the site pay far more because of the way the costs are apportioned.
Despite FirstPort’s 33% commission take, its spokesman confirms that not all staff in London are paid the London Living Wage.
FirstPort’s spokesman justifies this on the basis of market dynamics, saying:
“As a responsible employer we would be happy to see a move to London Living Wage for all roles, both inside and outside of the company, across London. But that has to be with the acceptance of wider society, and our customers in particular. If Response alone paid its staff London Living Wage (LLW) the residents would have a claim for unreasonable costs knowing that other agencies who do not pay LLW would be cheaper.”
There are rules requiring the amounts of managing agents’ commissions to be disclosed to leaseholders in residential service charge accounts. Paragraph 3.6 of the RICS statutory Code of Practice on residential service charges states:
All other sources of income and benefits to the managing agent arising out of the management should be declared to the client and to the leaseholders and should only be retained in return for a service of value. These may include insurance fees (including commissions). The amount of the income should be declared annually with the year-end service charge accounts. [emphasis added]
The full statutory Code of Practice is available here: https://www.rics.org/globalassets/rics-website/media/upholding-professional-standards/sector-standards/real-estate/service-charge-residential-management-code-3rd-edition-rics.pdf
Despite the clear requirements of the statutory Code of Practice, the service charge accounts for the St David’s Square site disclose only the amount of management fees and accounting fees earned by FirstPort. Even those amounts are only disclosed because they are listed in the accounts.
The accounts, seen by LKP, contain only a small print note at the very end stating that the recruitment commissions and insurance commissions exist, without declaring the amounts earned.
The statutory Code of Practice was of no assistance to leaseholders at St David’s Square in discovering the actual cash amounts of commission earned by FirstPort.
For more than three months in correspondence, the site manager and FirstPort’s regional manager refused to disclose any details of FirstPort’s commission earnings.
FirstPort disclosed the recruitment commission information only after leaseholders made a request to FirstPort’s chief executive, Nigel Howell. The request was copied to the co-chairs of the All Party Parliamentary Group on Commonhold and Leasehold Reform, the MPs Sir Peter Bottomley, Justin Madders and Daisy Cooper.
The letter in response to that request, seen by LKP, sees FirstPort offer no explanation for its departure from the statutory Code of Practice, or for its refusal to disclose the amounts of commission earned before the chief executive’s office became involved.
The St David’s Square development is no stranger to FirstPort charging multiple additional fees on top of its management fee.
Also in 2020, FirstPort billed leaseholders nearly £2,000 for making Building Safety Fund (“BSF”) applications, including in respect of four buildings that are ineligible for the fund, being not tall enough to qualify:
The unnecessary BSF applications led to FirstPort billing leaseholders nearly £5,000 for a surveyor to measure the buildings, after BSF officials challenged FirstPort’s height measurements.
Leaseholders at the site are angry at being billed to provide a further income stream for FirstPort. A group of 67 leaseholders is starting a service charge challenge at the First-tier Tribunal.
In addition to challenging the BSF fees and the recruitment commissions, leaseholders are also challenging nearly £5,000 spent on two cross-corridor fire doors and nearly £500 for a digital projector for the site manager’s office.
FirstPorts’ response in full
Residential sites with site staff, whoever they are managed by, will frequently need temporary or permanent site staff replacements. These will generally be recruited through recruitment agencies. Our experience is that these high street agencies can be good, but we have also found an in-house agency brings benefits specific to residential management, in terms of its in-depth knowledge of the business and the standard and quality of staff it can provide.
The staff that are appointed via Response are already inducted and trained using FirstPort systems and procedures, which saves additional training costs that can be incurred when using external agencies, and means a development continues to have a fully staffed and skilled workforce to care for their property.We have, for many years, offered the skills of an in-house agency, which we call Response, to our managers. Response is one of over 40 agencies that our managers have the choice of using.The efforts of the site staff are for the benefit of the site they work at.
It is therefore standard practice for the cost of site staff, including their direct wage cost and on-costs for recruitment, training, payroll, and some management matters, to be chargeable to sites under leases.All agencies, whether external or Response, charge a temporary fee for temp staff, and a permanent recruitment fee for permanent staff.
This is entirely normal market practice and Response operates consistent with that. In reality, we find Response agency fees are generally in the lower half of the market so, as well as our team knowing the specific needs of the site well to assess and induct candidates, the agency fee rate is often lower.The rate that site staff are paid, through whomever they are recruited, is a cost for residents and so we have to be mindful not to pay rates outside of market norms to avoid being accused of not charging reasonably. As a responsible employer we would be happy to see a move to London Living Wage for all roles, both inside and outside of the company, across London.
But that has to be with the acceptance of wider society, and our customers in particular. If Response alone paid its staff London Living Wage (LLW) the residents would have a claim for unreasonable costs knowing that other agencies who do not pay LLW would be cheaper. In comparison, Response pay rates are in the middle of the range of salary benchmarking other agencies that provide staffing to our developments.
We believe Response represents a free choice service that can represent good value to residents based on the specific needs of their site.
FirstPort answers to Mr Spender’s specific questions are as follows:
Does FirstPort pay all of its temporary and permanent staff in London the London Living Wage?
The salary bandings and benchmarks for all roles, both in and out of London, are based on a number of factors including the skills required for the role, location, market conditions and any site-specific or client requirements. This means that some roles do meet London Living Wage and others don’t at this time.
Why does FirstPort Response bill leaseholders for these commissions?
The efforts of the site staff are for the benefit of the site they work at. It is therefore standard practice for the cost of site staff, including their direct wage cost and on-costs for recruitment, training, payroll, and some management matters, to be chargeable to sites under leases.
Response is one of over 40 agencies that our managers have the choice of using. This would be a chargeable cost whichever agency used.
Can you please confirm the percentage rate of commission charged on permanent employee salaries? If there is a differential scale depending upon the salary, can you please confirm all points on that differential scale?
Our experience suggests many high street agencies charge a commission percentage rate in the mid-teens for recruiting and placing a permanent member of staff, whereas we charge a low teen percentage rate of commission.
Local sites may choose a high street agent instead of Response to, for example, secure a site worker who has worked at the site before and who is registered with that agency.
Why are FirstPort Response’s commissions so much higher than alternative agencies?
Our benchmarking indicates that our commissions are either comparable or lower than the market rates with other agencies.
We regularly benchmark and research our competitiveness of commission rates against other agencies. We undertake quarterly check in reviews on our rates of pay and margins, versus the business levels and cost to serve.
How much in total has FirstPort Response billed leaseholders at all FirstPort sites in respect of both types of commission since 2016?
This is commercially sensitive information; however, we are happy to share this data relating to the building you live in should you wish to see this.
Can you please explain why FirstPort collects both temporary and permanent recruitment commissions in respect of the engagement of the same employee?
If we place a temporary colleague to cover a gap in resource, we will charge the temporary rate. If the development then requires a more permanent staffing solution, they will request a full recruitment process to be undertaken. This requires advertising, screening candidates and interviewing. If the individual is successful at becoming a permanent employee, we will charge an agency fee for the work undertaken to source the permanent member of staff for that property.
FirstPort Response appears to provide the same temporary employees to the same site at different points throughout the year. Can you please explain what additional work FirstPort Response does to justify an additional fee when the same employee returns for further work?
This list below shows the work that Response completes every time a temporary member of staff is required by a development.
If more than four weeks has lapsed since their last role, information will need to be checked and verified again before we can place them in another development:
Regular referencing and DBS checking,
Right to work – proof of eligibility to work in the UK – this is regularly and periodically checked
Screening and vetting prior to placing them
Reviews and performance discussions
Support and training
A booking system that places the individual within 45 minutes of the request