Property and facilities management services outsourcing started in earnest in Australia in the mid 90s. Many of these contracts are into their third and fourth generation. By now the market should have evolved into a mature industry with a range of service providers having robust processes and systems, all striving to provide value-for-money excellence. By now clients should have a good understanding of these contracts and how to achieve their outsourcing objectives.
Alas, this utopian landscape does not exist. Instead clients continue to be disappointed with the level of service received. Contractors lament the treatment they receive in mainly acrimonious master-servant relationships. Both lament the inability to achieve real value-add outcomes and contract inertia. What can be done to rectify the situation? What are the primary issues that are perpetuating this unhappy state of affairs?
Clear objectives
Is outsourcing all about cost savings and head count reduction, with a focus on the transfer of operational risk? Or is it about doing things better with the internal resources relieved of day-to-day operational matters to focus on property and facilities strategy, responding to business units’ strategic needs and providing competitive advantage? These objectives should be clearly stated up-front in the procurement process, as they have a direct bearing on the form of contract, as well as the ensuing of business relationship.
Best-of-breed v integrated
Another fundamental decision up-front is whether the contract form will be fully integrated property, facilities and project management service delivery, reporting through one provider. Or is the best-of breed service provision more likely to provide service excellence for each function – albeit the co-ordination, reporting and decision making will, by necessity, need to be done within the client group. Many in the industry believe the integrated model is the logical way forward, but the market size in Australia may prevent the evolution of new integrated service providers at competitive levels.
Head v management contract
A strong motivation for outsourcing is to transfer risk to another party. But true risk transfer does not come without a cost premium to cover uncertainties. These uncertainties are generally linked to portfolio condition and the information available. The less detail available, the more entrenched the uncertainty, the higher the cost premium. A head contract with full risk transfer is usually not prudent or financially feasible in a poorly documented and maintained portfolio.
Tender documentation
The tender documentation is usually awesome – and frightening. It is often comprehensive in general details and specific performance criteria, with very little ‘out-of-scope’, but often somewhat removed from the details of the portfolio.
Tenderers must shake their heads in wonderment at the requirements and minutiae of service performance measures. There is usually a realisation that if the contract is fully priced for delivery on all details, the tender will be knocked out at the first hurdle. Non-conforming responses are few and far between – a quick way to be relegated to the discard pile of ‘also-rans’ early in the process. So to stay in the game tenderers retaliate with an awesome response and price based on ‘what-can-we-get-away-with?’ logic.
In this way, the whole process seems to be set up for the contract to fail. It is impossible to deliver all minutiae at the price tendered, the client expectations are unlikely to be met and, from the beginning of the contract, the parties move into adversarial territory.
Role and responsibility delineation
On-going shadow management continually frustrates both clients and service providers. There are two primary causes – either the lack of clear delineation of roles and responsibilities in the contract documentation; or the inability of the client to ‘let go’, allowing the service provider room to perform.
Most scopes of service include lots of detail in service definition, but there always seems to be those areas of joint responsibility. Without a detailed roles and responsibilities delineation matrix, ambiguities will prevail with both parties waiting for actions by others.
Systems and processes
Another key success decision is about systems and processes. Will the contractor’s systems and processes be adopted for the contract or will entrenched client processes and systems – no matter how defective – be adopted? Although some customisation is expected, trying to do too much is not wise. Is the customisation really likely to enhance the service delivery? Or is the client just stuck in old bad habits?
All the major industry service providers have invested significantly in their systems. These systems are usually their key ‘points-of difference’, providing pricing advantage. The system is the tool and the service provider’s role is data input and management. There should be no question about who owns the data – the client – with an onus on the contractor to provide regular back-ups and downloads in an agreed format.
Performance measures and incentives
As with all service contracts, on-going assessment of performance is the key to good contract governance. But what to measure, how frequently and the consequences are all vital decision points. Measures should be meaningful, manageable and measurable – but assessed and reported frequently, so all involved know whether
expectations are being met. Too often, contracts have a detailed range of critical minimum standards and key performance indicators that are impossible to keep track of and become neglected, causing frustration and irritation for all.
Most important is that these measures should be linked to real contract incentive payments – not just negative penalties and pseudo ‘profit-at-risk’. This helps to ensure that objectives of the parties are aligned. To ensure performance on both sides of the contract, reverse performance measures are great – for the contractor. Are client decisions being made within required time-frames? Are the lines of communication regular and open? Are client instructions clear?
Form of contract
In its final format there should be clarity if the contract is to be in the form of a true partnering arrangement or it will tend towards the traditional master-servant contract. Too often, the front cover of a contract seems to aspire to a partnering arrangement, but once the detailed clauses are reviewed, it is evident that the traditional norm will prevail. This lack of consistency between the stated intent and actual content of a contract is often the cause of contract disharmony.
Transitioning
The industry mantra is that without good transitioning-in, a good contract relationship is unlikely to occur. Three months appears to have been accepted as the norm for transitioning-in, no matter how large and complex the portfolio.
But is this a realistic time period for the transition? With data coming from multiple databases, previous service-providers on the way out and multiple portfolio databases, it is probably not realistic to expect the new service provider to be fully documented, team and processes all in place, within three months. And by the nature of contracts, if this does not occur, the client becomes disillusioned at the very commencement of the contract. The way forward could be to have a two-tier transitioning period.
During the pre-contract start date, there could be an intensive threemonth period to achieve certain critical data capture and process implementation to enable the contract to become operational. Then post-contract start date, there would be an ongoing transition for another three to six months to finesse and capture all other data and entrench all the other support processes.
The status of the current property and facilities management outsourcing industry is that it is alive and well – but not living too honestly both from a client perspective as well as the service provider promises. Maybe the time has come for more transparency in the outsourcing objectives, desired form of contract, the expected outcome and the service delivery promise.
