In a recent informal survey of facility executives who have outsourcing contracts, fewer then 6 percent said that they had a “good” contractor. More than 94 percent said that the relationship with their contractor was problematic in some way, with more than a third saying that they had an “awful” contractor. Although these specific numbers cannot be extrapolated to the universe of facility executives, the fact is that a significant number of facility executives are very dissatisfied with their contractors. This latter group said, “It just wasn’t what I expected,” and felt that they just had to live with it until the next re-bid. What’s the matter with these relationships? How did they go wrong?
First, let’s be clear about who controls the buyer-contractor relationship. The buyer always controls the relationship. When facility executives are reluctant to assert themselves in that role, things can go terribly wrong. In an industry with a failure rate of more than a third of all contracts, something isn’t working; and in the broader context of the industry, the buyer has the primary responsibility. The good news is that it is also the buyer who can fix problems with relationships.
Difficult relationships begin in the project preparation phase, well before the contractor enters the conversation. Perhaps the biggest mistake facility executives make when re-bidding a contract is to take the last contract used (or copy someone else’s), dust it off, change the dates, update the names and start the contracting process. They give little, if any, consideration to changes in the property, occupants, traffic and usage, population levels, local business environment, or the contractor market. In short, they fail to prepare adequately.
One of the most important issues in preparation is the quality of the buyer team. There are three types of buyer teams: series, parallel and unified. The series and parallel teams are often a disconnected assembly of individuals representing their own (or departmental) interests. Operations people are often focused on the building occupant, complaints and looking good to superiors. They want as much control as possible to keep occupants happy and avoid criticism. Procurement people are frequently focused on getting the lowest price possible. Legal representatives are sometimes obsessed with protecting the company from any possible liability, while gaining the most rights possible. On some occasions, a minority business representative will join the buying team. The legitimate focus of this party is to assure an opportunity for minorities and women.
While there may be other players, these tend to dominate the buying process. When trying to address each team member’s own self interest, the contractor is confronted by a series of challenges, each disconnected from other member goals. This process creates a confusing and often frustrating picture of the buyer-contractor relationship. Yet, there is a reasonable alternative to this buyer process model. The buying team must move from a collection of silos — self-protected priorities — to a set of common goals. At least one meeting of all buyer team members should be set aside to establish common goals and priorities, and a clear definition of what a successful contracting event looks like and what it should produce. This unified team is the most effective strategy for contractor evaluation and selection.
Another essential aspect of preparation is benchmarking. One reason that buyer-contractor relationships have difficulties is the absence of facts about operations and costs, before the deal. For example, how many square feet of carpet vs. ceramic tile exists in a building? How many square feet of conference space? Of office space? Of mechanical space? Of corridor space (it’s often about 30 percent of the total building)?
The parties often have different perceptions about the condition of the building and the real cost of services before the new contract is awarded. Many facility executives have only a superficial understanding of the physical characteristics of their various buildings, and they often have incomplete current cost information. This can lead to predictable frustration by all parties about what gains have really been achieved. Too often costs are reduced in one budget center, while costs are increased in other budgets. And in some cases, painful quality losses are part of the bargain, which leads to future cost increases “to fix the problem and stop the complaints.” The solution is an accurate and complete benchmark of the key performance indicators. These should include at least: quality, satisfaction, best practices (such as LEED), process improvement and detailed spend analysis. These baseline metrics provide a clear starting line, by which to objectively measure, manage and discuss the success of the relationship.
The contractor selection process is another source of problems in the buyer-contractor relationship. There is a mistaken belief that if all bidders respond to the same set of requirements, the important difference is price. This is wishful thinking, at best. Finding the best contractor is not about price; it’s about contractor management skills, best practices and innovation. The advent of LEED and green cleaning are examples of best practices and innovation.
In short, the difference between contractors is their capability, not their price. As capability varies, price varies. Contractors that use toothbrushes to sweep floors will have a higher price than those that use riding sweepers. Once facility executives understand the process used, they understand the capability; and they will have a good indication about the validity of the price.
Another complexity in the selection of the contractor is consideration of the incumbent. Incumbents often work very hard at building a close relationship with the buyer. Some come to believe that this close relationship assures “special” consideration to the point of an unspoken guarantee of continued business — all in the name of continuing a “good” working relationship. In some cases, the staff of the incumbent conducts themselves as if the normal procurement rules do not apply to them; after all, they have a personal relationship with everyone.
An incumbent with an entitlement attitude is not part of a healthy selection model. Nonetheless, selecting another contractor carries a cost. A new contractor will have to learn the intricacies of the property and establish a working relationship with the buyer.
The solution might be to add “incumbency” as an evaluation criteria and otherwise judge the incumbent on a level playing field, like everyone else. Further, a “cost of change” factor can also be included as part of the evaluation process, which provides another recognition of the value of the incumbent.
The buyer’s contract specification is another reason for problems in the relationship between buyers and contractors. Contractors often take these task/frequency specs with a grain of salt. They understand that if they were to deliver everything specified, their bid would likely be too high to win a contract. Typically, buyers specify everything. Sometimes they go so far as to require a specific list of employees, amount of labor, wage rate, benefits, equipment, chemicals, materials and hours of work. There have been cases where the buyer actually provides the equipment, chemicals and other materials needed to do the work. In effect, the buyer has designed the service delivery system.
If it doesn’t work, don’t blame the contractor; it’s your system. What’s more, this approach likely creates a co-employment risk for the buying company. In this situation, the more detailed the specification, the worse it can be for the buyer.
A better course is to require the contractor to design the service delivery system.
For example, specifications that require “daily dusting of furniture” (among other requirements) indicate to a contractor that the buyer is relatively uninformed or just does not understand how the service industry actually works. In response, contractors often submit pricing that is based on getting the business, not meeting the spec. The poor performance in this case is often the buyer’s specification.
There are two ways to address this problem. One is to develop a practical set of tasks and frequencies; a contractor or consultant can help with this task. The other route is to adopt a performance-based contracting model. National studies are showing that the performance-based services model delivers greater quality, better satisfaction and lower cost than the traditional task/frequency specification.
There are two important considerations for facility executives when it comes to on-going management of the buyer-contractor relationship. One is preventing problems. The other is ensuring constant process improvement of the service delivery system.
Many buyers judge the success of the relationship by the number of complaints received. Of course, these buyers do not think that more complaints are better. But they judge a contractor by how quickly it responds to problems. The fact that the problems are caused by the contractor is overlooked. Of course, quick response to problems is important. But the need to respond quickly to many problems may be a better indicator of failure than success.
Often the reason that some kind of response is needed is that something went wrong, did not get done or was done improperly. Most causes for complaints and service failures are preventable. It is the job of the contractor to prevent the failure, not create the need to respond to it. The facility executive will know which kind of contractor has been hired within the first 90 days. If contractor selection is done well, the facility executive will hire the kind of contractor who will prevent problems and failure rather than respond to them again and again.
Even poor service delivery systems can be coached and mentored into best-in-class performance. This will take buyer-driven demands for constant innovation and change. Constant process improvement requires constant monitoring and measurement. Again, buyers must lead in this relationship. It is the buyer (or the buyer’s third-party representative) that must constantly visit occupants or tenants, understand their view of performance, inspect the condition of the facility, and observe the practices of the contractor staff. The information and data collected should be analyzed to determine the root cause of process failures — the starting point toward constant improvement of processes.
Vincent F. Elliott is president of Elliott Affiliates, Ltd. He has represented buyers across the country in writing, modifying or updating more than 500 performance-based building service contracts with an estimated market value of a quarter of a billion dollars.
