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Strategic Outsourcing

By Dan Hounsell - September 2007 - Equipment Rental & Tools

outsourcing, commercial, contractor


Outsourcing might be a dirty word within some organizations. After all, the practice involves replacing in-house jobs with contract workers. But maintenance and engineering departments in many commercial organizations have embraced the practice. Along the way, they have fine-tuned it so that it has become a strategic management practice that can help hold down costs, improve customer satisfaction, and ensure the smooth operation of facilities.

State Farm Insurance Co. is one such organization. In its facilities management department, outsourcing isn’t a dirty word. It’s just business as usual.

Nationwide Challenge

The 80-year-old company, one of the world’s largest financial institutions and one of the 25 largest Fortune 500 corporations, owns about 200 buildings nationwide and leases another 1,300 or so, totaling about 20 million square feet of space.

The company’s headquarters campus in Bloomington, Ill., features six buildings with about 5 million square feet of space. The company also has 13 regional zones nationwide, and each zone has a maintenance staff of about 25 people.

The far-flung nature of the organization’s facilities — as well as their large numbers — makes it impossible for managers to rely on one or even a handful of contractors to handle the amount of outsourced maintenance and engineering tasks — everything from chiller, boiler and electrical work to landscaping and housekeeping.

In general, in-house maintenance technicians tend to handle many of the less complex chiller maintenance duties, says Scott Fisher, senior engineering consultant with State Farm. Facilities often outsource more complex tasks, such as rebuilding a chiller or handling refrigerant.

Despite a common perception, the flow of work does not always head out. Occasionally, managers in one of the company’s facilities will make the case that in-house workers can perform a particular task more efficiently and cost-effectively than a contractor currently doing the work.

For example, on-site managers in one regional building believed in-house workers could handle landscaping work at their facility more efficiently than the contractor.

“An irrigation firm had been handling some of the work, and (the in-house workers) had been changing sprinkler heads and realized they could do a better job,“ says Steven Spencer, facilities specialist with State Farm.

So the organization approved bringing the work back in-house. Managers in the regional office, however, must continue to provide proof of the savings in order to keep the work in-house.

Spencer, Fisher and others on the facilities management team also understand the overall goal — whether a task is outsourced or not — is efficient facilities operation. The contractors with whom they work also understand that they shouldn’t take any outsourced work for granted.

For example, the company recently opened a large facility that will serve as one of three national service centers. Because of the facility’s central role in helping customers, its efficient operation is essential, and its complex systems require state-of-the-art maintenance.

Initially, State Farm had outsourced much of the facility’s maintenance and engineering work. Soon, however, managers decided to bring everything back in-house.

“People working for the outsourcing company didn’t have the urgency and loyalty we needed,” Spencer says — or as someone described the situation to him, “They didn’t have money in the game.”

Over the years, the business side of State Farm obviously has changed, and the nature of facilities management and operations has gone through its own evolution at the same time. But one constant through it all seems to be the facilities management department’s commitment to outsourcing to help support the organization’s mission.

“The level of outsourcing has stayed pretty much the same,” says Fisher, who has worked for the company for 27 years. That does not mean, though, that State Farm always relies on the same contractors year in and year out.

“Like everybody else, we have some contractors that are good and some that are bad,” Fisher says.

The Screening Process

Because of the organization’s reliance on and commitment to outsourcing as a management strategy, Fisher and Spencer say they use a thorough screening process to ensure potential contractors can deliver on the promises laid out in their bid proposals.

“We use a contractor qualification statement, and we investigate a company fully before bringing them in,” Spencer says. “We ask a company for all of its facilities in the area, and we go visit them. We actually try to see the work they do.”

The review also includes a check of key indicators, including the contractor’s financial situation and whether it is bonded. Spencer says investigating, hiring, and overseeing outsourcing firms requires about 25 percent of his time.

They goal is to find contractors that can meet the company’s requirements, as well as to weed out poor performers.

As an example of the latter situation, Spencer describes his walking tour of a regional State Farm facility that had contracted out its housekeeping duties. The building’s on-site manager was satisfied with the contractor’s performance. But as Spencer toured the building, he noted numerous instances of shoddy work and less-than-clean surfaces and corners.

The manager accompanying him took note of the problems Spencer’s investigation had turned up, and at the end of the tour was on the phone, giving the contractor a 30-day notice to end the contract.

While noteworthy, the situation wasn’t necessarily unusual in an organization that works with many contractors on outsourced maintenance.

“Like everyone else, we have some good and some bad (contractors),” Fisher says, adding that even though a contractor might be performing well in one location or at a certain point in time, its performance is monitored constantly.

Any final decision on whether or not to use a particular contractor also takes into account feedback from on-site building managers, who work most closely with contractors in their facilities.

“We make sure they are working with contractors and vendors they like,” Fisher says. “Otherwise, we’re beating our heads against the wall.”

The practice of outsourcing also has succeeded for the company because of communication with contractors.

“We make sure we speak regularly with the contractors,” he says. “We don’t want to just let things ride. That’s when you end up with a worst-case scenario.”

A key element in the process is an in-depth understanding of the cost of labor, equipment and materials that go into each specific maintenance and engineering task that might be outsourced.

Spencer says the structure of State Farm’s facilities management team enables him and its other members to specialize, giving them expertise in various areas when it comes to overseeing outsourcing activities.

“It’s nice to have subject-matter experts,” Spencer says. Because he focuses on interior maintenance activities, he says he understand better than most the true costs of a task or project and, therefore, knows if a contractor’s bid is too low, too high, or right on the money.

Maintenance Involvement

The expertise that team members have developed has paid dividends beyond the outsourcing process. It also enabled the managers to offer valuable insights aimed at improving the performance and maintainability of new and upgraded facilities.

That issue traditional has been a sore spot for maintenance and engineering managers, who often feel ignored when it comes to the design, construction and renovation of facilities. Often, the result is facilities that feature stunning architecture but are difficult, if not impossible, to maintain and operate efficiently.

Spencer credits the structure of State Farm’s facilities department with ensuring that renovations and new-construction projects include maintenance considerations from the very beginning of the project’s conception.

“We’re doing these things with a lot of forethought,” he says. “The maintenance aspect of what we do is taken into account.” One result is lower cost once a project is turned over to the maintenance and operations team.

For example, Spencer at one point noted that some company buildings featured walk-off mats only in their vestibules, with additional mats added when the weather turned bad. The problem? The mats weren’t removing enough dirt from visitors’ shoes, leading to heavy damage to interior floor finishes and materials.

The company remedied the problem by taking Spencer’s suggestion, revising design guidelines to extend walk-off mats to 40-60 feet beyond the vestibule.

Because of the teamwork and the development of specific disciplines among team members, Spencer says, “People have gained a respect for everyone else’s expertise.

“Lots of facilities are the victim of non-occupant design,” Spencer says, meaning the architect or designer might complete building plans without ever having talked with anyone who actually worked in the building. As a result, too many buildings are difficult to operate and maintain.

“They are well-intended designs by architects,” he says, adding that while many architects might be able to design facilities with striking looks, too few can properly design a green building or one that is maintenance-friendly once it opens.

To avoid high maintenance and operating costs for new buildings, he advises managers to pose this question to architects and designers as early as possible in the design process: “What is the cost to run this building after you turn the keys over to us?”





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