Attendees
Martyn Sherrington (SGP Property and Facilities Management)
John Bowen (Gulfhaven)
Andrew Turner (UK Power Networks)
Peter Titus (DCT Facilities Management)
Lucy Jeynes (Larch Consulting)
Mark Hurst (Office Depot)
Susan Scott-Parker (Employers’ Forum on Disability)
Les O’Gorman (UCB)
Andy Quinn (SCEE)
Jason Cousins (Olswang LLP)
Emily Hill (Dixons Retail)
Jeremy Waud (Incentive FM)
Matthew Smith (Office Depot)
Steve Bagshaw (Supply Management and FM World)
A more mature evaluation of ‘cost’
Les O’Gorman: Most managing directors are focused primarily on cost. Procurement and FM directors have to get together and sing from the same hymn sheet. The procurement person is probably set a savings target for the year, while the FM will be given a target for customer satisfaction or a workplace, delivering to company values. The only way these two people can deliver both goals is to work seamlessly together, even if that means them going back to the managing director and saying: “We can’t have both.”
Susan Scott-Parker: That is my point. If you save so many millions, but then spend another few million in tribunals because your people are so badly served that they’re accusing you of treating them unfairly, you won’t save money in the long run.
LO’G: It’s not just black and white, there are shades of grey. Saving money doesn’t automatically mean a degradation in the working environment.
SSP: I’m talking about the buyer. He may have saved money on the contract, but in terms of the overall business there are these hidden costs that may not be picked up in the usual price related data gathering.
Mark Hurst: Presumably the managing director’s focus is going to be his people, because if isn’t he has a problem. It is about the FM and procurement directors demonstrating to him there is a return on his investment, in a language he understands and then creating the structure to go and deliver that.
Martyn Sherrington: An FM director will think, “I have to look after this building. I’m going to put my best man on it,” but a procurement director will think, “I have to buy all this IT, all this HR, all this marketing — and then I have to buy FM.”
From a procurement point of view, IT, HR, marketing — all that stuff is sexy; FM is lower down the chain. So as you come into procurement you might cut your teeth on an FM contract and that’s where you pick up some bad habits from buyers who think they know best, but don’t. There’s got to be a balance between ‘this is what we need to deliver’ and ‘this is the optimal cost we are looking for’.
Jeremy Waud: The MD’s driver should be shareholder value, and that manifests itself in all sorts of ways, not just the profit and loss. He should have a view of where he wants the business to go.
The models we should be going to the market with in the current environment should reflect creativity in the commercial model and that could come from the supply side or client side. Either way, the model needs to be creative. Incentivising is another key factor. Incentivising to perform, get it right first time, to get a low turnover of staff and high performance KPI stats to drive out cost — all the key points in the contract should be incentivised.
Being able to be flexible links into the cost model to which all these intricate, complicated costs fit. People costs, anticipated costs, reactive costs, energy costs — all sorts of things you don’t yet know. But what you do know is that you spent £5 million last year and the MD wants you to turn that into £4 million. You also know that your standards are 7/10 and you want them to be 9/10 and that you also want to improve employee performance. What worries me is when a buyer going out to tender says: “Right, where did that model come from? Let’s just dust down the one we used before.”
Making the most of existing relationships
Lucy Jeynes: A lot of procurement people paint themselves into corners by requiring themselves to go out to tender when something is going fine because the process obliges the company to go out to tender every three years, or whatever it might be.
Andrew Turner: But you don’t want to keep extending a contract because it has worked fine. You need to consider how the market has changed or evolved in that time and that’s about having the time to look at all the options.
JW: Sometimes you can be too efficient. Let’s say there’s a £1 million contract, a 10 per cent fee, and you have driven costs right the way down. You’ve driven those costs down from £1 million to £850,000, but you’re still charging £100,000 of fees. Suddenly your fee percentage has gone way up to nearly 12%. From a procurement point of view, that isn’t best value on the face of it, but it is only not ‘best value’ because you’ve been so effective between you and your service provider in driving down costs without affecting standards.
MS: Going back to the point you made earlier about engaging with a supplier. In a sense, it’s like dating; you have gone through the dating to the marriage phase so now you know each other really well and what you are saying is: “We want to develop that relationship even further.” Sometimes it is painful, but sometimes you need to go through a divorce and learn the lesson a second time round.
JW: The way you resolve that is to go back to the table and say: “Can we extend this contract on this basis? For example, we’ll take on the reception team, but we’ll not charge you any fee, or we’ll invest in more technology.” That’s about putting something back to get the equilibrium right again. That’s a mature way of working.
MS: Both parties can be very bad at record keeping. We can be bad at recording through the life of a contract what the cost was at the start, per square metre, and what it is now. So when the MD asks: “Are we getting good value?”, we can’t measure the work done in the past. All that good work is completely forgotten because we don’t record the data.
SSP: A bit of data I keep coming back to is what you were saying about return on investment. It’s a different way of looking at this game — it gives you a different conversation.
The market for FM service providers
LJ: One thing not well understood by some procurement people is that there are a lot of medium-sized, single, hard or soft service providers coming through that can give really good service and good value. But they are often extremely poor at tendering because these are the practical people who have just rolled their sleeves up and got on with it.
AT: We recently held an e-auction and we had a lot of small suppliers. We made sure that we had training there for them: I was contactable all the time and we spoke to them a lot during the process and we made sure we were comfortable with the auction process. We obviously had the support of our e-procurement provider as well. It’s in our interest to get everyone to bid, because we want to get the best proposition.
Emily Hill: You need to list the assets, that’s the first thing in your tender document and you can then establish what SLAs you want, you can go for the gold/silver/bronze type solution. In our stores we will have our top 100 gold/silver/bronze approach, but you have to start with the asset list. If you don’t have the asset list, where do you start? You don’t know what you want.
Andy Quinn: Performance measurement specs are brilliant, but they are the most difficult to compare. The bottom line is that FM will be asking of a contractor: “What is the performance? What is this going to give me? Where is the innovation?” Meanwhile, procurement is asking: “How can I compare this bid that says they are going to do it this way, with this bid that says they are going to do it another way?” There is a fundamental difficulty. It’s nobody’s fault. It’s just a fact of life.
LO’G: In one of my previous companies there was a deliberate strategy of not going to TFM in one hit. We picked off services as they came up over a two year period. One particular example was the cleaning contract. The best bid came from our incumbent supplier, who wasn’t a potential TFM provider. We had a massive battle with my boss and at chief executive level, regarding not going for this bundle because they had bought into this whole “If we bundle, we anticipate we can save £500,000 per year”. The good thing was that procurement and FM absolutely agreed that we had chosen the best bid and that we were unhappy with recommending TFM providers. That united front really delivered because we won the battle. I mentioned earlier on about involving the purchasing guys from day one, developing a spec with them, agreeing the contract model, agreeing how we would score so that the balanced score cards put together worked jointly — it wasn’t about adding the procurement bits to the FM bits and hoping they matched.
LJ: That makes sure you’re really comparing apples with apples, doesn’t it? In a tender I was looking at recently, they issued a really good asset list and said: “One of the things we want is planned preventative maintenance (PPM) on this asset list.” When the bids came in, some said: “We are going to do condition—based maintenance” while others said: “We are going to do proper SFG20 PPM.” We had to say to procurement: “Those are not the same things at all.” Yet the procurement people maintained they were. We had to fight the case to show that these were two very different models.
JW: That goes back to strategy — what is the strategy for maintenance? What do we believe? Do we know? If we don’t, let’s go and get some advice so we can decide how we want to maintain the building. The tender straitjacket
MH: The percentage of weightings that I have seen recently on cost negates some of the softer touchy-feely elements. The innovation elements are scored so low that in reality it is about cost. It is the climate we are in. Those weightings need to reflect what the vision is: innovation, longevity service, value adds, etc. If 95 per cent of the scoring mechanism is related to cost alone, you have a problem.
Jason Cousins: Cleaning is a good example. Someone comes in with a really low bid, but what they are actually saying is: “The money we are going to pay our staff is particularly low.” You know you are going to see a high turnover of staff and that the cleaning quality isn’t going to be very good.
JW: The most important point in all of that is management and off-site supervision. That’s what will make the difference, nothing else.
LJ: Yes, but it’s also about giving people the opportunity to say: “Why would you choose us as opposed to one of our competitors?” and asking the sort of questions you don’t often see in cleaning tenders. Often those questions are “We want to clean to the BICSc standard; here is our TUPE data, how would you do it and how much would it be?” Everyone has pretty much the same answer to that question.
But if you ask questions like: “Explain how you would do something different with the same team? Why are you different to other people? Can you give us an example of an organisation where you have had a difficulty in the relationship and you have worked together to resolve it?” — more interesting questions that will allow people to differentiate themselves. Often the way the questions are asked means that the answers are pretty much the same, because it is so obvious what the ‘correct’ answer would be that everyone just gives the ‘correct’ answer.
John Bowen: We’re skirting round the issue of risk here. There’s risk to the business in terms of “can we afford to carry on spending this level of money?” and there’s risk to the business of using contractors who employ people who don’t have the right to work, haven’t been trained properly, use the wrong materials, etc. These risk issues have to come into any purchasing conversation. I see that as a conversation that both sides should be having. Certainly buyers should be considering commercial risk. Surely as a buyer you want somebody who is going to be open and honest? If they’re going to pull the wool over your eyes you’ll soon find out and it will eventually lead to an exit of some form. That’s about doing due diligence at the start, ensuring you are making that right decision around your financial pressures, whatever they may be.
JW: Yes, what are they really like to deal with? How often do you see the account director? Have you ever seen the MD? Do they really provide this data when they say they do, and what happens when it goes wrong?
MS: And how often do they need to get the contract out?
THE POWER OF DATA
SB: Emily, you mentioned that data was your biggest problem.
EH: Four years ago we lacked consistent data, on FM particularly. If we asked for a particular set of data on two different days we got two different lots of data. The only way in which we can drive decisions is to understand what is driving the cost across the FM provision. It’s about using the data properly to understand where the problems are across the account. We are always keen to understand the root cause.
SB: So, data removes doubt.
EH: It gets rid of all the emotion, otherwise you go to meetings and it’s all “he said, she said” with no fact driven analysis.
