Friend or Foe?

Clients’ loyalty to their FM service provider is in the news again — because apparently, there isn’t much of it.

A recent, much-discussed survey puts FM at the bottom of the pack when it comes to playing the loyalty card. So why is FM so different to other relationships between organisations and suppliers? Is it really all down to corporate prioritising of FM compared to other services?

“Needs and requirements change over time,” says Martyn Sherrington, procurement and supply chain director, of SGP Property & FM.

“The service required can be more or less sophisticated, dependent upon the direction in which the business is going. There might be different models within the industry generating a reason for change.”

Sherrington explains that “a client’s requirements might change from a self-delivery service to a bundled service. Our clients’ requirements have changed over the ten years we’ve been working together, but we’ve recognised this.”

He feels that engaging in honest and open communication has been important in maintaining the long-term relationship.

“The onus is on us to understand their requirements and to put together a package of services that meets their needs. This way, they won’t have a reason to change,” he says.

It’s not necessarily only FM where costs are being driven down, however. According to Sherrington, “procurement is most likely reporting to a finance director and is increasingly being tasked with leading the FM process.”

As to why, he cites the pressure to reduce costs, add value and maintain service levels.

“These pressures are very real but somewhat conflicting,” he confirms. This is clearly not always the best option. While procurement is able to run a process and evaluate options and, in terms of costs, know what is best for business, the department often lacks the holistic approach of facilities management. An FM professional is often better placed to develop a solution that would work for the business as a whole; an FM solution needs to satisfy everyone’s needs.

“If procurement makes a decision in isolation it can be a recipe for disaster. They might think that going out to re-tender in order to make cost savings was the best solution,” agrees Sherrington. “However, finding and understanding the right FM provider then working together to develop a long-term strategy can be the best answer.” Frequently changing FM suppliers makes it harder to develop a stable relationship.

When clients are cutting costs, FM is not regarded as core, like marketing or finance. But people who understand the role of FM know that it’s integral to the brand and corporate identity. “Where FM is sadly seen as a commodity, it’s not discussed at senior level,” says Lucy Jeynes, managing director, of Larch Consulting.

“In these cases it’s a common complaint from FM providers that they don’t get enough time to make relationships work properly — this makes it difficult to become a ‘trusted advisor'”.

However, it’s difficult for an FM provider to be a ‘trusted advisor’, says Jeynes. “Providers necessarily have a commercial interest in the advice they give. However, that doesn’t mean that they can’t be a valued partner.”

Jeynes has found that 85 per cent of her contracts are not renewed for a second term. The reason for not retaining a contract is rarely about catastrophic failures but a cultural mismatch or a series of small failures over time. Take, for instance, a performance level of 95 per cent — it may sound impressive, but it still leaves one person in 20 dissatisfied.

“FM providers need to assign the best person to the client, who can align to the needs of the client and the culture. This can be as simple as adhering to an expected dress code,” says Jeynes.

Pricing is not the most meaningful determinant of an FM contract. Differences between suppliers in terms of price are minimal, due to material and labour rates.

The differentiator is what service you get beyond the basics. “When a provider approaches a contract there can be a lot of unknowns; sometimes, an underbid is not deliberate if the full scope, complexity and expectation of the contract was not articulated clearly. Clients should understand the pricing band in which the bids should fall. Using an emulation model can help,” says Jeynes.

Building the trust

Clients should spend more time with an FM provider before contracting them in order to ensure a good cultural fit. It should be about aligning values, not simply price and method.

Once they’ve won the contract, FM providers must provide the level of service expected, hit agreed targets and behave with integrity. This should lead to mutual trust and the opportunity to expand their services,” says Jeynes.

Standards exist for FM procurement already and SLAs and benchmarking are often used. Yet clients and providers still break relationships on a routine basis. Are the standards not respected? “Too many people take a standard document and change it beyond all recognition, which defeats the object. Ambiguity is introduced and this can be the root of disputes later, when the parties find that they haven’t been talking about the same thing from the start,” says John Bowen, head of practice — logistics and FM, at DPSS Consultants.

Instead of drafting standard documents it could be more useful for client and FM provider to work more closely together. In this way FM providers could mould themselves into the role of ‘trusted advisor’.

“Trust has to be earned and there also has to be a willingness to trust others,” says Bowen. “One problem with the way in which the tender process is applied (especially under Public Procurement Regulations) is that the ‘arm’s length’ approach precludes the potential for developing a relationship. Instead of people trying to work effectively together it comes down to cost or a perception of performance.”

So how can companies manage relationships with their FM service providers more effectively on a collaborative, human level, to ensure a good job is done and remove any antagonistic feeling between client and FM service provider? Bowen: “FM is a people industry — nothing happens unless one or more humans does something.

“But you rarely see any points being awarded for that element when the procurement exercise is under way. This is partly because it’s harder to make it objective. But it’s the single most critical factor in actually delivering the contract. People within organisations will change over a three-to-five year contract, but it helps to try to factor in the people element because that’s where both the relationship and the delivery will come from,” says Bowen.

Below the belt

The issue of ‘underbidding’ for work is also a challenge. Greater transparency between service supplier and client could possibly address the problem. If the client realised that the FM provider was underbidding, wouldn’t they simply walk away from that particular tender?

“Clients will not necessarily walk away from a low-priced tender,” says Dave Wilson, director, Effective Facilities. He explains that over the last five years some clients have been happy to take short-term savings. Transparency is key, but many companies have been running open-book accounting for over a decade now, “so it’s mind-boggling that this is still an issue. It’s one area where I think clients genuinely benefit from external consultancy support to prevent them getting into unsustainable contracts with no cost transparency.”

Paying a fair rate for a good job makes sense and FM providers should be careful not to push down price to a point that the market cannot sustain. “A lot of underbidding gets through because the client doesn’t recognise it,” says Bowen.

“If you want to make any contract work you need to be sure about what you want and be able to assess whether or not the prices you consider are right for that level of specification. There is always a chance that a major player with deep pockets will try to kill the competition through under-the-margin bids, but clients don’t have to accept them. There may be a short-term gain from doing so, but it does not make strategic sense,” says Bowen.

In order to bring some clarity, can agreed behaviours form part of a future informal code of conduct that would help to improve loyalty? “I’m not in favour of trying to create a one-size-fits-all solution to what is really a human and commercial problems,” says Wilson. “The bottom line is this: it costs both buyers and vendors considerable amounts of money to procure/bid for work. That cost has to be recouped by the vendors, and saved by the buyers. Neither side benefits from repeated, regular changes of vendor.”

Wilson believes tendering is the biggest cause of tension between buyers and vendors. “The process is runs contrary to anything that engenders loyalty. If there is an existing supplier who has done a good job, asking them to re-tender is treating them as if they had never done the job. They are being put back in a lottery.”

Below the belt

There are of course times when re-tendering is appropriate, for example, when a current contract ends or when there is a fundamental change to the business or a merger takes place.

However, if a client is re-tendering frequently then, perhaps the process is being used negatively. Says Wilson: “Most FM suppliers are competent and issues could be dealt with managerially. But for some clients it’s easier and less painful to go back to the tendering process. The appointment of any new FM provider will likely see a dip in performance from the incumbent and a period of learning from the incoming supplier.”