Red flags your outsourced FM contract is running into trouble

Outsourcing your facilities management (FM) can have a number of benefits

One of the biggest drivers for outsourcing an FM provision is improved value. The belief is that a third party FM provider will offer a
competent, expert service at a better rate than keeping it in-house, which will in turn provide more flexibility with your budget and reduce overheads. You’ll benefit from challenges to scope, as well as cost-efficiencies on labour, equipment and materials. At the same time you’ll free up internal resources to drive value by focussing on your core operations.

You are also likely to expect that the suppliers specialism in their field, will bring industry best practice when it comes to delivery of a high quality service, compliance, innovation and process efficiency. In our experience the reality is sometimes very different, with outcomes that fall short of your expected goals.

Five red flags your contract is running into trouble

FM providers typically operate on low margins which can sometimes result in clients not achieving the expected value for money. The main red flags indicating a contract is running into trouble include:

1. Insufficient headcount
   The promised quality of service does not materialise at the agreed price, as the supplier tries to deliver with an overly lean and reducing resource schedule. All too often you’ll see insufficient headcount to deliver a minimum level of service, in order to allow the supplier to make the desired margin. All too often you’ll see insufficient headcount to deliver a minimum level of service, in order to allow the supplier to make the desired margin.
2. ‘B’ Team senior managers
   The experienced senior management that were heavily involved in winning the tender, drift away as the contract is operationalised. This leaves less competent management, who may not be able to avoid or resolve issues that have a direct impact on your business. All too often you’ll see insufficient headcount to deliver a minimum level of service, in order to allow the supplier to make the desired margin.
3. Conflict:
   Poor quality of service creates conflict between the supplier, your operational teams, and 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. All too often you’ll see insufficient headcount to deliver a minimum level of service, in order to allow the supplier to make the desired margin.
4. Escalating Costs
   As the contract progresses there is a tendency for an increase in reactive maintenance costs and supplier driven change; 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. All too often you’ll see insufficient headcount to deliver a minimum level of service, in order to allow the supplier to make the desired margin.
5. Weak Cost Reporting
   Weaknesses in the granularity of supplier’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.

You may recognise elements of the above; the symptoms may be all too familiar. Once you’ve identified that you have a problem, the crucial thing is then to identify the root cause/s of underperformance.  This will be the subject of our next post.