When Customers’ publish a Facilities Management tender, it often includes poor or insufficient information upon which to submit a meaningful price. This leads to frustration, recriminations, wasted effort on both sides and potentially a failed tender process. This is especially the case where the Customer wants to secure a fixed price for the management of their facilities. In this post, I set out an alternative process that is a win-win for all parties.
A large number of companies are waking up to the value that can be realised from their asset base by outsourcing their facilities management to specialist FM Providers. To try and reduce risk and achieve a level of cost certainty in this exercise is understandable and desirable but procurement departments are publishing tenders without fully understanding the information that is required by a supplier in order to achieve the fixed price they desire.
BS 8572:2011 is the British Standard that guides the procurement of facility related services. In the standard, it sets out a minimum list of requirements from the Customer as follows.
- business objectives;
- main drivers and constraints;
- the scope of services;
- stakeholder engagement and communication;
- end-user needs;
- portfolio and space;
- current arrangement for the provision of services;
- the market for services;
- risks and opportunities;
- options for service provision;
- criteria for evaluating options;
- outsourcing policy; and
This list is not intended to be exhaustive and does not represent the full extent of information that would be required by a supplier for them to be able to enter into a fixed-price contract. To do so the supplier would need additional information in the form of a complete asset list, asset condition information together with the full maintenance history and all maintenance manuals, to name but a couple. This information is required so that the FM Provider can understand the risks associated with the transferring of the operational risk in the form of a fixed-price for this work.
I am sure most of you would understand the need for this level of information yet I have been involved in contracts where we have taken control of a Customer’s portfolio of over 7000 facilities measuring in excess of 2.5 million m2 where there has not been so much as an accurate list of addresses let alone an asset register. I have even encountered situations where Customers did not even know what they owned. In one memorable example, we discovered that the Customer owned a golf course in a foreign country. Needless to say, it was sold before I got to play it.
Gathering this information is an extremely onerous task and one fraught with issues around data quality and data integrity. So what is the answer?
Unfortunately, the answer is not to appoint your procurement team to publish a tender based on price alone, and hope that a supplier will accept the transfer of risk. Facilities Management embraces a wide spectrum of services which are very difficult to define or specify with the accuracy that would enable a Customer to draft a comprehensive tender that could be compared on price alone.
If this were the approach to be adopted then a detailed asset list and documentation specifying all the facilities, plant, equipment and assets would be required for pricing purposes. This would be something akin to a detailed Bill of Quantities that is produced in the construction industry for a Building Contractor to submit his price on.
Price competitive tendering also requires that the Customer has a degree of knowledge of FM in order to be able to define the maintenance philosophy, specification and service methodology, i.e. the inputs to a service.
Unless this information is provided, tendering and the subsequent adjudication of pricing becomes a lottery. If pricing is a lottery, then such tenderers who choose to follow the process will mitigate their risks/cost by not committing the maximum effort to the development of a proposal and realistic prices. The quality of the proposals received will be a reflection of the limited effort that goes into it. Long tender lists and shorter response times serve to exacerbate the situation whereby the prices submitted will include a disproportional risk management factor.
If the Customer controls the inputs to a service then they cannot pass on accountability to the supplier for overall performance, value for money and cost savings. The Customer effectively retains such accountability as that responsibility goes with the input decisions that determine the end result.
In such circumstances, it would mean that the Customer would have to retain a large team in-house in order to provide the management and control of the inputs, which would defeat the objective of outsourcing. The Customer would also have to retain the ultimate accountability for FM performance in-house.
The focus has to be on the outputs or deliverables agreed to between the parties which are governed by KPI/SLA’s. In addition, if staff members are being outsourced it is important to realise that price competitive tendering should not be the focus but one of sustainability and value improvement.
Radical new agenda
As we have stated, price competitive tendering requires that the Customer has the strategic knowledge of FM and has the ability to define the need, specification and methodology. If the Customer really has that expertise and wishes to retain in-house the accountability for FM performance, then perhaps a price-competitive tender is the way to go. This being the case then they can select an FM contractor. However, those companies who wish to be an FM Partner and who see their value to their Customer and competitive edge in this role are likely to refrain from tendering.
In the event that a Customer really wishes to optimise costs along with achieving the other business benefits listed below, then there is a need to drive a collaborative relationship with a partner who has an extensive and successful track record in the FM arena. This will mean a change in how the services of the provider are to be secured and this cannot be achieved without a radical new agenda. Without this, the Customer stands little chance of achieving the results they’re after.
There needs to be a ‘breakout’ mentality which shakes off the shackles and strategic ruts of the past and taps into new sources of value. The application of Key Value Drivers (KVD’s) all adds up to a new ‘strategic equation’ which can be designed to implement the strategy at an accelerated pace. Far quicker in fact than a traditional procurement cycle. In order to do this, the provider and Customer need to develop a compelling set of strategic imperatives and then use the outsourcing to implement it rapidly.
Outsourcing is a business related decision.
The delivery model of FM remains controversial as to which is best, outsourced or insourced? The simple answer is that ‘it depends’, but not necessarily on factors that relate to the facilities or the services required. Outsourcing is not a facilities related decision. Outsourcing is a business related decision.
The fact is that in-house teams are generally viewed as non-core by their own organisation and as such, there is a tendency to sell them short in terms of investment and development. The outsourced provision of facilities management services is core business to that particular service provider. Accordingly, there are many advantages available to the outsource provider.
I have written about the advantages of outsourcing over an in-house provision previously in my posts 6 Reasons to Outsource Facilities Management for Radical Productivity as well as The 7 Levers of Transformational Outsourcing so I will not go into that here.
In addition to the advantages that outsourced providers have at their disposal there have been numerous studies that suggest outsourcing is also used as a strategy to achieve;
- Access to specialist skills to address process improvement and service quality
- Simplifying the management agenda, and allowing greater concentration on core activities
- Greater flexibility through liberation of resources
- The move from fixed costs to variable costs
- Predictability through greater degree of cost certainty and the capability to manage other financial factors;
- Reduction of Risk
- Access to Innovation,
- Provision of Service differentiation
- Change in the corporate culture or a paradigm shift
FM partner or FM contractor?
In order to achieve these advantages, it is important to understand the difference between FM service contractors and professional Facilities Management organisations that can translate the enterprise’s corporate strategy into a strategic Facilities Management Plan and then translate this into tactical and operational plans that manage and deliver fully integrated property maintenance, asset management and facility management solutions.
A preferred partner needs to be selected on a wide range of criteria that enables an assessment and selection to be made on the likely overall value they will contribute based on track record, experience, competence and capability, not simply the prices they will work for. It is unrealistic to expect that a company selected as an FM contractor can subsequently be turned into an FM partner with the depth and breadth of knowledge and IP required.
The best result for a Customer is, therefore, to get the maximum effort from a good service provider who has put in the work to be able to submit commercial terms that exclude any risk premium and who has provided the Customer with the full benefit of their industry know-how in developing their proposal.
The treatment of the existing staff who are to be transferred to the outsourced provider should be of the highest priority to both parties. Workers rights are often protected by the law of the land through mechanisms such as TUPE in Europe and Section 194 of the Labour relations act here in South Africa. However in the event of price competitive tendering in an outsourcing context. The transfer of staff is akin to an auction reminiscent of those in the movie Gladiator in what amounts to offloading them to the lowest bidder.
This course of action is fraught with dangers, both in terms of securing the ongoing rights of the labour force as well as the reputation of the Customer for the insensitive behaviour in which it treats its outgoing staff. Regardless of the terms under which they may have been transferred, the Customer has a moral obligation to their outgoing staff to ensure their ongoing needs are met and that their potential future careers are advanced with a reputable organisation.
More expertise than the Customer?
The workplace is becoming more and more complex, and organisations are more aware than ever that the required skills do not necessarily exist within their workforce. In this light, the Customer needs to recognise that partners exist outside their organisation who have more expertise and know-how in their non-core business, i.e. FM than resides within their staff and their non-core departments.
If it is recognised by the Customer that partners exist who have more expertise than the Customer, then it follows that the partner should be engaged in such a way by the Customer as to be motivated to share that expertise and to use this to the Customers best advantage. In this way, Customers can maximise their chances of achieving all of the additional business benefits of outsourcing as listed above.
For maximum benefit, the partner must be able to assess situations without restraint, use their experience and expertise to analyse challenges and be free to take and enact strategic decisions that will result in successful operational plans. More importantly, if they are allowed to accomplish all of this then the partner can be held fully and unequivocally accountable for the resultant performance.
Pre- Contract Investment by the FM partner
It is reasonable to expect a partner, once selected, to invest significantly at their own risk, and bring their expertise and track record of similar contracts to bear into whatever pre-contract effort is required, to achieve a sound contractual and commercial arrangement that is underpinned by an agreed strategic intent which has the full commitment of both parties.
It is to be expected that a good partner will have sound experience of how to achieve this and, possibly, have more experience than the Customer in this regard. The Customer, therefore, should be open and receptive to the partner’s proposals and enter into a constructive dialogue to achieve the best outcome and not expect to simply impose its own terms.
One of the unique advantages of outsourcing staff to a preferred partner is that the partner gets to collaborate in a pre-contract situation with the outsourced management and employees in creating the new outsourced entity. By working shoulder to shoulder with these people, who are aware of the current conditions and issues in delivering a service to the Customer, the partner is better able create an enhanced performance based solution against which there is a substantial reduction in the risk of service interruptions and so there can be no excuses for non-performance.
If one acknowledges that ‘people buy people’ this approval from the staff facilitates collaboration, ownership and commitment and reducing concern, which will help to secure the transfer smoothly and effectively. This, in turn, enables the partner to better warrant no disruption in service to the Customer. This enhanced ‘buy in’ cannot be achieved in the adversarial scenario of price competitive tendering. The resultant lack of acceptance from the staff may, in the end, cause the outsourcing to fail due to a lack of commitment from the people. Furthermore, this scenario provides the partner with a ‘probable’ escape clause, which would diminish the contractual obligations of the partner and the ability for the Customer to hold them accountable for non-performance.
I realise that what I am suggesting here may be seen as counter-revolutionary by many Customers and their procurement professionals but this has worked in many situations to the advantage of both parties and their ability to partner and collaborate meaningfully.
However, one understandable reaction I have seen is the Customer’s inability to commit. I have encountered examples of this where the Customer has maintained a large in-house team to “man-mark” the service provider in the mistaken belief that this is required to manage performance. This issue of partial outsourcing of FM services is associated with a number of problems which experience tells us can be avoided if the entire realm of FM services are outsourced to one FM partner.
It is suggested therefore that the Customer must, in the context of the above, delegate full responsibility to the partner and give them the necessary freedom they need to perform. Wherever a Customer is unable or unwilling to do this and they endeavour to overly control or manages the partner, or influence key input decisions pertaining to the partner’s services, then the Customer cannot hold the partner accountable for the results.
The Customer must rightly expect to monitor the partner and the partner must enable this to happen. Monitoring requires a minimum of resources. For the Customer to gain maximum benefit, while holding the partner accountable, it should reduce its internal resources to a minimum and ensure they only have a monitoring role and not a managing one. This has the added advantage of maximising the Customer’s internal cost savings.
Once a partnering route is selected, there must be a strong commitment from both sides to crystallise the core principles by which the partnership shall be managed and to proactively ensure adherence to those principles throughout the duration of the relationship. A partnering arrangement that slips into a Customer-supplier framework will not simply fail as a relationship, it will also fail to deliver the benefits.
Accountability and Control
The prime aim of any outsourcing has to be to deliver savings, with one FM supplier there is an increased ability to integrate services optimally and ensure not only cost savings but also improvements in levels of service, which may have proved difficult in the past. Without a single point of accountability, there is a duplication of costs in management overheads, system costs, etc. This reduces the ability to deliver savings and may in fact actually increase total costs.
Without a single point of responsibility, there is confusion around accountability and it has been my experience that the contract devolved into a blame game where it became impossible to separate responsibility despite very stringent KPI’s and SLA’s being in place.
With one total FM supplier, this situation is avoided and there is clear accountability for performance, through KPI’s and SLA’s, which are backed up by penalties for poor performance. This has the effect of improving Customers control over performance, which is often not available when managing internal resources.
With clear reporting lines, accountability and transparency the outsourced entity are responsible for providing information to the Customer on all areas of service delivery.
Mitigating the risk of one supplier
Outsourcing is fundamentally a change management process, which includes a transfer of risk to the outsourced partner as well as major benefits to the Customer’s balance sheet. If change is required then how will this be achieved? By retaining the majority of the service delivery capability in-house there is no incentive to change the current service levels or to optimise costs. The opportunity to maximise the benefits should be taken by partnering with a company that can demonstrate specialist FM experience and a track record of having done it before.
The key to any outsourcing has to be the avoidance of disruption to the Customer’s core business. By outsourcing the entire package of services this means that the same people are delivering the service there is less chance of disruption to the Customer’s core business. By splitting the services there is an increased risk of disruption, without the ability to ensure accountability and to penalise where necessary.
The parties need to make the extra effort to set out a continuum in which risk, control and the relationship will align with one another. The goal has to be to achieve a “degree of intimacy,” which replaces the traditional ‘arms-length’ Customer-supplier relationship with an effective connection in which both partners work toward common objectives.
Outsourcing continues to be a powerful strategic tool for improving business performance. Whether the issue is control, measurement or governance, a recurring motive is the strategic and long-term character of an outsourcing initiative. Far from being a single business decision made at one point in time, effective outsourcing requires engagement, in the partnering process between the Customer and the FM service provider.
Outsourcing is at its most effective when it is a relationship more than a transaction, a continuing collaboration rather than a one-time transfer. Achieving the greatest return from outsourcing begins with the vision to look beyond mere cost savings alone and seize opportunities for fundamental gains in business performance.
Please leave me your valuable insights on this week’s Question “Are Tendering and Partnering at odds with one another?”