There is a real commercial challenge in the Facilities Management market at the moment and it deeply concerns me. Basically when you buy a service, be it Catering, Cleaning, Maintenance, Security, Grounds Maintenance or other FM services, you may not end up being delivered what you specified and were sold.
In all the markets we work in we are currently seeing companies bidding ‘tight’ on the premise that a potential tenderer has greater customer engagement than others, lower cost to sales ratios or slicker processes. Some of this is true ‘on paper’ and we have seen some significant reductions on current budgets – as much as 25% with one recent multi-million pound total FM deal. However, in that case implementing the solution was not as straightforward once the operational team realised that sales have gone in too tight.
Producing great savings is music to the ears for many clients. Also in return for longer contract periods suppliers will put up capital. This might be used for a new building, replacement plant asset, restaurant facility and so on. Caution here as there are providers who offer money to build your much needed reception building funding it with retail revenues from cafes and shops over a 15 – 20 year period. The client gets the building but has no control of the offer mix whilst the investor is earning significant profits.
The structure of the client side organisation is critical. If it is too heavy handed with contractors (typified by constant monitoring, a high deduction culture and undue interference) bidders indemnify themselves with risk premiums. Sometimes contractors will rather risk a deduction because it is cheaper than doing an under-costed job.
Where the client organisation is at a too high level (or ‘intelligent client’) this opens up opportunities for suppliers to ‘milk’ the system. We have undertaken a number of audits with various organisations and discovered, literally, millions being unnecessarily spent on consumables, projects and services because the price hadn’t been locked down. Worse still where the contractor is so strong the client’s designated manager ends up little more than a marionette.
Where bidders have ‘bought’ the contract, if unchecked, various aspects of the service start to decline, typical symptoms can be reduced cleaning frequencies, lower quality food produce or ‘run to fail’ maintenance. Or more invoices go out which do not necessarily relate to the specified service scope – echoes of the much publicised Serco & G4S debacle on Government contracts a couple of years back. There is selective amnesia because you find suppliers try to unduly recoup their earlier losses usually where there’s weak contract management and then embarrassment, backtracking and lost trust when discovered usually in an external audit.
So what starts out to be an exercise in improving quality and generating value, can quickly turn sour if the right steps aren’t taken. I have highlighted some of the pitfalls here but they are avoidable and properly planned outsourcing can be a good move.
To start with, any organisation needs to envision its strategy and:
- Work out what does it want to do e.g. have or not have employee dining, open plan or cellular offices, car parking for all or some and many others
- Identify what others doing not only in your marketplace but in others
- Draw up a number of options and cost them
- Engage with the customers, employees and other stakeholders
Having a pre-costed plan helps frame a client’s decision. By modelling the proposed service solution you are more likely to go to the market with an affordable bid, if then, bidders decide to ‘undercut’ there is something to measure them against. There will be some competitive tension but there may be innovation, improved processes or procurement efficiencies which are viable. At the same time you shut the back door on ‘extra-overs’ by fixing unit prices. Equally any ‘windfall’ savings can be reinvested in service improvements.
Over the next few years FM & Hospitality outsourcing will increase particularly in the public sector. Internal procurement teams are good but they may lack the specific expertise or operational experience. Also many firms have let their internal specialists go in various efficiency drives. Technical Advisors and Consultants now fill the breach and are strongly recommended where strategic development, negotiation and transitional change is needed.
Globally ISS predict that FM will grow from $959.2 billion in 2012 to $1.314 trillion in 2018. According to research by AMA the market for the UK’s outsourcing bundled and total facilities management services was valued at almost £19.5 billion and is forecast to reach £23.2 billion by 2018.