On the Same Page
Holding service contractors accountable helps facility executives get what they pay for – and what they want
Whether working with elevator, HVAC or other service contractors, facility executives search for ways to guarantee their organizations receive superior service.
After investing time and resources into advertising for, selecting and schooling a contractor, facility executives want to be sure the relationship will yield results-oriented service.
With so many different aspects of service contracting to worry about, though, facility executives often find the task of determining how to get the most value for their outsourcing dollars to be particularly challenging. The best means for facility executives to create a viable working relationship with service firms and to hold them accountable for outcomes is to create standards and use them to evaluate performance.
Setting Service Standards
How the process begins sets the stage for the relationship with the service provider. By identifying the method used for measuring performance in the request for proposal, prospective bidders understand exactly how they will be evaluated from the beginning. A key step in building a relationship is establishing standards for performance at the time the solicitation for service provision is made. But how do facility executives know what standards they should use?
The answer to that question comes in two parts. The first part lies in the amount of flexibility facility executives are willing to build into their request for proposals. The requests should seek performance-based scopes of work that do not specify how the work is to be accomplished, but rather what the expectation is for the end result. Instead of specifying that a piece of equipment will be “checked and tested every 10 days,” for example, a performance-based scope of work would state an outcome such as “the equipment must perform consistently without breakdowns or downtime to allow a continuous 24x7 operation.” The end result is the key.
Performance-based statements of work are a strategic and not a tactical approach to service contracting. It takes a while for facility executives to feel secure with the less structured nature of the service scope.
The second part of the answer rests with the ability of facility executives to convince others that performance-based contracting makes sense. Because these performance-based contracts are less prescriptive, they are harder to evaluate. It would not be uncommon, for instance, to have each one of the bidders submit different approaches to maintaining equipment, even though all are trying to accomplish the same 24x7 operational reliability outcome.
To evaluate the proposals effectively, it’s best to assign a selection committee from the facility staff and other departments to review bids and prospective contractors. Those involved with the selection of a contractor need to understand which approach is the best way to achieve the desired outcome. The best way for those at an organization to become educated about what is needed is to have a close working relationship with the facility executive. The facility executive should be willing to talk about the risks and rewards associated with each of the different approaches to service and help others select the most effective evaluation criteria.
Negotiating Standards
With a performance-based set of standards, facility executives only pay for services that meet the stated objective. If the desired outcome isn’t achieved, the provider isn’t paid. Unlike fixed-price or time-and-material contracts where providers receive payment regardless of their success rate, performance contracts hold service providers accountable for results.
Once a service provider is approved by a selection committee, the standards-setting process is not over. While the request for proposal establishes the performance basis for determining provider success, a working document between the provider and the organization is needed to incorporate a set of standards specifying how the provider will be evaluated.
At this stage, the contractor and the facility executive should agree on the standards before the work commences. That allows the contractor to have input into the standard-setting process. It also clarifies expectation levels. One smart approach to developing standards that are satisfactory to both the provider and the organization is to use a model known as the balanced scorecard.
The balanced scorecard model, developed in the 1990s by Robert Kaplan and David Norton, strikes a balance among four categories that are universal to most business enterprises. Kaplan and Norton introduced the concept to cure the vagueness found in traditional measurement strategies that overemphasized financial metrics, undervalued customer satisfaction and business process improvement strategies, neglected the human capital aspect of performance, and concentrated on past instead of current performance.
This approach to standards setting and measurement encompasses four considerations:
- Financial: how the organization should appear to stakeholders.
- Customer: how the organization should appear to customers.
- Internal business process: how the organization must excel at business processes.
- Learning and growing: how the organization should sustain its ability to change and improve.
The balanced scorecard approach is particularly apt for the relationship between facility organizations and their providers because it underscores the need to balance financial competency with three other key factors that together form the basis of success.
To a facility organization, for instance, the focus of a measurement system for a service provider cannot be based solely on financial factors. The example of “equipment must perform consistently without breakdowns or downtime to allow a continuous 24x7 operation,” speaks to the fact that when facility organizations are being evaluated by top management, operational outcomes count just as much as, if not more, than financial ones when it comes to achieving a top performance score.
Similarly, operational and financial performance alone does not add up to outstanding service by a provider unless the customers are satisfied with the service and the provider creates opportunities for the service staff to grow and learn. While the key performance indicators associated with individual categories will differ for every organization, depending on the business mission and objectives the organization is trying to meet, the goal of striking a balance among the four categories is the same.
What Can be Achieved
Using the balanced scorecard as a context allows the facility organization and the service provider to identify key performance indicators for each of the scorecard categories. These indicators serve as benchmarks to measure the service provider’s ability to hit the mark necessary to achieve the stated outcome.
Unfortunately, there is no instruction manual to tell facility executives what performance indicators they should use. Rather, it is the knowledge of what outcome the facility organization is trying to achieve that guides the key performance statements.
Brainstorming within the facility organization about the cause-and-effect relationship between outcome and indicators before the facility executive meets with the service provider is an excellent idea. Asking staff members for input into the standards to which the provider will adhere ensures that the entire organization understands what the service provider is trying to achieve.
Having the same discussion with the provider adds a second dimension to establishing the standards so that both the provider and the organization are operating from the same page. Some examples of what a facility organization might target as key performance indicators include:
- Budgeted vs. actual expenditures, savings and cost per employee.
- Improvement in response time and customer satisfaction ratings.
- Streamlining of existing processes and reduction of lead times.
Negotiating service standards reduces the likelihood of a breakdown in the service relationship.
The union between the service provider and an organization thrives only when the facility executive manages the relationship properly. The provider is well aware of expectations because they have been articulated in the balanced scorecard’s key performance indicators. The risks and accompanying rewards for achieving the stipulated results also are well-documented in a formal agreement that has been negotiated and accepted by the provider. The facility executive is comfortable knowing the right set of metrics has been applied to hold the provider accountable for delivering what has been promised and that the new relationship is secure. It’s up to the facility executive, then, to evaluate the provider against the negotiated standards.
Evaluating Providers
What remains is creating a vehicle through which regular dialogue about achievement of outcomes occurs. One vehicle may be a progress meeting at which the key performance indicator metrics are discussed. The way in which performance indicators are structured should dictate the format and agenda for the meeting between the facility executive and the provider so they can review progress routinely.
Prior to the meeting, the facility executive should evaluate whether each indicator has been attained. If the benchmark has not been reached, it is unlikely that the desired objective will be met. The facility executive should use the progress meeting as the forum for the provider to present the factors that caused the target to be missed.
Together, the provider and the facility executive determine what course of action needs to be pursued for the provider to correct the problem. Or the facility executive and provider may decide the specific key performance indicator is no longer relevant to achieving the outcome and needs to be modified.
Working through these issues as a team before a crisis occurs and the relationship suffers gives both parties the chance to intervene or render assistance to secure an end result that is a win-win.
Setting PERFORMANCE Standards | Category | Definition | Key Performance Indicators | | | Financial
| How the organization
should appear to
stakeholders | • Budgeted vs. actual expenditures
• Savings reduction in service cost/employee
• Bottom-line contributions
• Dollars per square foot
| | | Customer
| How the organization
should appear to
customers
| • Improvement in response time
• Reduction of customer complaints
• Number of call backs
• Improvement in customer satisfaction ratings
| | | Internal
Business Process
| How the organization
should excel at
business processes
| • New processes and innovations
• Streamlining of existing processes
• Technological advances
• Reduction of lead times
• Cycle times
| | | Learning
and Growth
| How the organization
should sustain its ability
to change and improve | • Increase in staff knowledge
• Longevity of provider team
• Internal knowledge transfer | |
Stormy Friday is president of The Friday Group, a facility management consulting firm specializing in organization development, strategic sourcing alternatives, and customer service and marketing strategies.
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