Outsourced FM contract underperforming? Common root causes we see for failure to meet value for money objectives

Our experience across a number of clients operating in a diverse range of sectors has been that there are always common root causes of underperformance. You may recognise some or all of these; although you may not have made the link between these and the non-achievement of your objectives.

Root causes of underperformance:

  • The contractor has gone in too cheap, effectively buying the contract with an unrealistically low margin.
  • Procurement takes too long (generally arguing about price), with your own Procurement team too concerned with ‘banking savings’; squeezing the time available to the contractor to operationalise the contract, including back-office resources.
  • The first six months are crucial and set the tone for the success of the contract; if proper controls are embedded the contract is more likely to succeed for the duration.
  • Savings anticipated at the tender stage are not realistic due to: a heavily labour-focused cost-base, with unionised staff working under TUPE arrangements, and margins of cost plus (say) 6%, meaning that the opportunity for large savings doesn’t exist
  • You can’t effectively challenge the Contractor’s plans for achieving savings; as the Contractor doesn’t produce management information setting out where savings will come from.
  • Contractual terms are ambiguous or poorly understood, e.g. whether reactive costs should be separately charged or covered by planned maintenance and regarded as a defect for rectification at the contractor’s own cost.
  • The scope of what is covered by the contract is unclear resulting in disagreement.
  • Resources that you are paying for are used on other contracts.
  • The Contractor’s operational, commercial, and finance staff are inexperienced with high levels of change.
  • Poor levels of supervision resulting in low levels of productivity.
  • Change management is not strictly controlled
  • Ineffective cost reporting and variance analysis versus budget
  • The Application for Payment process is poorly designed and executed; your internal team struggles to provide assurance that the costs being charged are correct.

Outsourcing does not mean abdicating control

Identifying and understanding the root causes above can help re-establish control; as can monitoring certain ‘key risk indicators’ that can provide a lead-indicator of future problems.

Consider your own outsourced FM Contract

We have produced a simple Outsourced FM – Health Check Self-Assessmentwhich allows you to quickly (maximum ten minutes of your time) self-assess the risks associated with your own organisation’s FM contracts.This will enable you to focus your assurance activity onto those areas which will provide the greatest enhancement in control, and deliver a better level of assurance.

It will also show you where things may be broken.

Conclusion

Issues that appear to be unique or one-offs are often more common than you would think; with many organisations experiencing predictably similar root causes.

The benefit of sharing our experience with you, and you conducting your own self-assessment via the Outsourced FM – Health Check Self-Assessment attached is that you’ll be better placed to identify the risks, and to ask the right questions of your own team and contractors, in order to get the assurance that the contract is delivering against your objectives.