RELATIONSHIP & CONTRACT MEASURES IN FM 2015

The Facilities Management Peer to Peer Client and Suppliers Club (P2P) have collaborated to bring you this overview and its club secretary and an independent FM specialist from Opale Management Services Ltd have drafted this paper.

The Peer to Peer Club has been researching and debating best practice in FM contracting for the past 14 months. We have run in-depth surveys and examined ‘techniques of contracting’ that are not commonly deployed in FM. The membership of the club contains a wide range of private sector businesses at senior FM level and across the industry (CBRE, Severn Trent Water, National Grid, ISS, UCB pharmaceuticals, Telephonica O2, EE, HSBC, Mitie and NATS to name a few).

Relationship and Contract Measures in 2015: An IntroductionDespite many publications and views to the contrary, the P2P concludes that FM is not and will not be strategic for any business. We all recognise, however, that FM is valuable to and is a significant cost of doing business; as a result of which FM has influence.

Discussions with businesses served by an FM platform enabled the P2P to identify a clear FM value statement: ‘A risk managed and appropriate environment offering maximum flexibility at the lowest possible cost.’ No doubt you recognise as we do, that business continues to reduce the available budget for FM which is invariably against the advice of the FM Platform. The message for us all is clear. The FM platform is governed by one principle only. “Don’t spend if you don’t need to and what you do spend, must be spent well”.

Success for any FM platform, therefore, must rest in how efficiently it spends money. This is at the heart of the FM relationship with business it services and the suppliers it uses; and the contractual arrangements that underpin those relationships. In this paper, we explore:

• The need to spend FM money wisely, avoiding the ‘seam of discontent’ where tension between the client and supplier threatens contracts.

• How the current spirit and style of contractual measurement used fuels the seam of discontent. Instead, we suggest four areas of focus that you can use to identify the success of supplier performance.

• A measurement methodology that turns subjective measures into objective ones, allowing you to make tangible improvements.

The Context We recently conducted a survey with client Peer to Peer members that overwhelmingly demonstrated how crushingly unaligned the connection is between the client and supplier, and the contract that forms the basis of that relationship. Over 84% of those surveyed either identified that their contract was working well, but the relationship was negative, or vice versa. Only 16% suggested that the contract and relationship were in sync.

No matter what size or sector of FM platform is deployed, it will be a combination of client and supplier’s contractual bond (Figure 1 -left). The platform’s ability to best service the business is wholly dependent on the strength of relationship that exists between the client and the supplier.

Little progress has been made in the last 20 years to improve the contractual relationships in FM. This means that fixing the contractual relationship between the client and the supplier, and effective measurement of that relationship, is at the heart of any successful FM platform.

Governing PrinciplesThe core principle that governs successful FM contracting is ‘what is spent on FM matters is decided by the business and how wisely it is spent is decided by the FM Platform’. Therefore, the judgement that determines success for any FM platform is whether it has spent the money provided in the most cost-efficient manner.

Are you a Client?

The overriding condition for success rests in user demand control and management. The Client organisational design must include Relationship Management (RM) to enable effective fiscal management and agility in supporting the businesses financial and operational demands.

Are you a Supplier?

The supplier must demonstrate that monies given to them are spent efficiently (‘spend is under control’). Forcing behaviours that vary from these principles will increase the ‘seam of discontent’ and the supplier should recognise that:

• The money being spent belongs to the client who can choose to spend it with whom they wish.

• That, outside a change in scope of the contract, the contract value will never increase and with innovation should decrease.

Little progress has been made in the last 20 years to improve the contractual relationships in FM

Figure 1

What about the Contract? A successful contract spends efficiently and effectively what is gifted to them from the business:

• In terms of financial value and levels of service, a contract has an extremely short lifecycle and therefore should be designed in a manner that enables change easily.

• It must ensure that the ‘measures’ drive behaviours that support the core principle.

• Its measures must be objective in nature, uncontroversial and easily applied in contract. ‘Maturity Indexing’ enables the conversion from subjective to objective.

‘Seam of discontent.’ A clear disjoint exists between the expectations of the relationship and contract and contract management used to underpin those expectations. The seam of discontent (figure 2) which is created by the four corners of discontent resides, to a lesser or greater extent, in every FM contractual relationship. As the seam of discontent widens, tension between the client and supplier becomes unhealthy introducing risk for the client and making the FM platform inefficient.

How does the ‘seem of discontent’ contradict the core principle? Inefficiency is generated by the seam of discontent but it goes largely unnoticed as it is not measured. However, a level 5-8% of the yearly contract value is common. This could be considered to be ‘low hanging fruit’ in the drive for efficiency, and is accessible by adopting contractual measures that support the core principle, challenging the four corners of discontent and aligning the contract with the expectations for the relationship.

Equally, the contract procurement or purchase processes have remained largely the same as were deployed in 1995 and are based primarily on commodity purchase techniques. The spirit and style of contractual measurement currently used fuels the seam of discontent (figure 2) and current contractual lengths serve only to harden commercial and supplier mistrust.

Figure 2

Focus driver Description

Cost The lowest cost for FM, with the highest possible value extracted per £ spent.

Agility Proactive flexibility and speed of change.

Risk Legislative compliance, management and mitigation of risk to business, reputation, and brand safety.

Satisfaction Functional environment that facilitates people productivity.

Inefficiency is generated by the seam of discontent but it goes largely unnoticed as it is not measured. However, a level 5-8% is common.

Business FocusThrough discussion with P2P club members and access to board level owners of the FM plat-form, four areas of focus were common board-level drivers no matter what the sector or type of business (CARS):

*CARS applies to the FM platform as a whole and therefore some of the measures apply to the client organisation. Some are criteria that should be applied to the process of selecting the supplier, and the remainder are measures that should be applied to the supplier and housed within the contract.

Measures The measures and the judgements (point of failure or success per measure) which determine the performance of the supplier are absolutely governed by CARS; as are the implications (positive or negative) to the supplier of these judgements.

The measures are common across all FM contracts no matter what sector or environment, albeit that the judgement and the implications vary client by client. These measures are out-lined on the next page.

Contractual measure Client Measure Condition/criteria of purchase

Business Driver

FM Rela-tionship

Expectation

Measures & Judge-ment

Remarks

Cost E f f i c i e n c y - The greatest level of effi-ciency possible

Cost of spending a £1 Catering is the costs of taking £1

Ratio: Management Vs Deliv-ery

This is the contractors directly employed resources

Spend Under Control – Where a supply chain is

deployed

Procurement efficiency of the supplier in engaging their supply chain using maturity indexing

Maximum Value per £1 – Rev-enue Vs Capital depreciation

Where Capital is deployable, this would be the cost of cap-ital and capital depreciation versus Revenue expenditure

Demand Con-trol – Control what is spent

Client Relationship Manage-ment (CRM) process efficiency and effectiveness

This Measure is not contrac-tual, but necessary for the FM platform using maturity indexing

Agility

Proactive Flex-ibility

Improvement/ Innovation Pro-cess Maturity

The measurement of Inno-vation and improvement pro-cesses using maturity index-ing

Development Process maturi-ty

The measurement of Bench-mark and development pro-cesses using maturity index-ing

Capabilities Condition of Purchase

Risk

Compliance

Legislation AuditPolicy Brand AuditResponse Turn Around TimeStrategy Refers for the service strategy

in place for each service line

Competence

Resource knowledge, experi-ence and qualification

Audit

Management (of risk)

Business Practice Business dependencies of FM and impacts resulting from FM

Capacity Condition of PurchaseExperience Condition of Purchase

Satisfaction User Environment Viability (survey) People productivity in rela-tion to the environment (de-pending of survey content this would be solely a measure of the supplier of could be shared with the client

Owner Owner contentment Business owner

Maturity IndexingWhere a measure is subjective, maturity indexing converts that subjectivity into objectivity which can then be applied in contracts.

Best practice techniques have been used by a range of industries to measure maturity of services delivery for some time and are now common place. The IT industry uses models such as IT Infrastructure Library (ITIL) to define their best practice and model operating system whilst the Capability Maturity Modelling Integration (CMMI) is globally established as the proven approach to assessing maturity and is extensively deployed in manufacturing. Both are solid and well known examples of this approach.

There are five levels of maturity to be applied to processes, activities and outcomes. A judgement can be applied to these levels of maturity which enables each subjective measure to be judged objectively.

In terms of financial value and levels of service, a contract has an extremely short lifecycle and therefore should be designed in a manner that enables change easily.

Level Title Simple Explanation1 Exists/Challenged There is evidence of process, activities and outcomes, but it

can be challenged, sporadic and localised.2 Managed /Controlled There is evidence, whilst being sporadic, of process, activi-

ties and outcomes being purposefully managed. 3 Standardised/Coherent Process, activities and outcomes and standardised and co-

herent across the FM platform.

4 Managed /Controlled The FM platform has consistent processes, activities and outcomes for which management information is available and reported.

5 Optimised/Calculated For the process, activities and outcomes the Management Information is used to facilitate improvement and planning.

Maturity indexing allows for self-assessments with periodic assurance checks from the client. Therefore, maturity indexing does not present an administrative burden.

AboutThe Peer to Peer Club has been researching and debating best practice in FM contracting for the past 14 months. We have run in-depth surveys and examined ‘techniques of contracting’ that are not commonly deployed in FM. The membership of the club contains a wide range of private sector businesses at senior FM level and across the industry (CBRE, Severn Trent Water, National Grid, ISS, UCB pharmaceuticals, Telephonica O2, EE, HSBC, Mitie and NATS to name a few).

If you’re interested in membership, please visit www.peertopeerclub.co.uk or call 0845 130 7060 to find out more.

www.peertopeerclub.co.uk