Outsourced FM contract: Are you achieving the anticipated value for money efficiencies?

A Familiar Story

Outsourcing your FM has a number of benefits.  However, in our experience of reviewing a wide range of hard and soft FM contracts, the reality can be very different.   You can often be left with outcomes that fall short of your expected goals.

With a better understanding of the current FM environment, you’re more likely to stay in control and achieve your objectives.

Our observations of why FM is outsourced:

In outsourcing your facilities management to specialists, the following are common objectives:

• To ensure a high level of service
• To free-up internal resources to drive value by focussing on the core operation
• To achieve value for money by engaging with specialists
• To drive potential efficiencies over the term of the contract
• To benefit from the expertise and innovation provided by FM specialists
• To minimise ‘noise’ from internal stakeholders

The reality can be very different

Currently FM providers are operating on very low margins; and this has contributed to the failure of Carillion with many others announcing profit warnings.

Do you recognise the following?

If you do, you may not be achieving value for money

It can be frustrating when these objectives start to slip away from your grasp.

Insufficient headcount

Has the contractor gone in too cheap, effectively buying the contract?  We have experienced at first hand where the promised quality of service does not materialise at the agreed price, as the contractor tries to deliver with an overly ambitious and reducing resource schedule.  All too often you’ll see insufficient headcount to deliver a minimum level of service, in order to make the desired margin.

Triangle of conflict

This poor quality of service has a tendency to create a three-way triangle of conflict between: (a) the contractor, (b) your operational teams, and (c) you as the procurement / supplier management specialists.  In order to resolve this, you’ll see your own management time being taken up in trying to resolve the issues.

B’ Team senior managers

On a number of occasions we have seen the experienced senior management that were heavily involved in winning the tender, drift away as the contract is operationalised.  This leaves less competent Contractor management who may not be able to avoid or resolve issues that have a direct impact on you.

Escalating Costs

As the contract progresses there is a tendency for an increase in reactive maintenance costs and compensation events; plus your own resources are thrown at the operation to meet service levels.  If you’ve the potential to earn a ‘gain share’ the potential for achieving this will quickly disappear.

Weak Cost Reporting

Weaknesses in the Contractor’s cost reporting means that it’s not always possible to identify inappropriate costs; with poor variance analysis that doesn’t show you where operational performance is weak.

Conclusion

You may recognise elements of the above; the symptoms are all too familiar.  Once you’ve identified that you have a problem, the crucial thing is then to identify the root cause and what changes can be made to achieve those elusive objectives.

An independent risk based, best practice methodology lies at the heart of The Orange Partnership approach to contract and cost reviews.  We identify the root cause of cost issues and work with the client and contractor to reach a resolution.