If debating whether to outsource facility management functions — either all or part of them — consider that an estimated 50 percent of all outsourcing deals fall short of expectations. Failing to achieve anticipated cost savings or receive acceptable service from a firm is the risk that comes with outsourcing.
Facility executives can substantially improve their odds of success, however, by identifying clear objectives, planning thoroughly and staying engaged in an outsourcing relationship through supervision and communication.
“Critical to the success of an outsourcing arrangement is daily interaction and support of the relationship on the part of the client,” says James T. Eckert, director of corporate real estate and facility management with Owens Corning. “We, as clients, need to be working interactively with outsourcing firms to solve engagement and performance problems, not merely assessing the results of their work on a periodic basis.”
Before issuing a request for a proposal to potential outsourcing firms, establish how much it costs to manage the organization’s facilities.
“It’s important before you go to market to understand what you do, how you do it, the cost and service levels,” says Michele J. Flynn, president of the consulting firm, Expense Management Solutions.
Those fortunate enough to have a detailed chart of accounts will be able to identify accounts containing facility expense data relatively easily. Those without such access, however, will likely have to hunt for the appropriate costs across a variety of expense categories. For instance, the salaries and benefits of a custodial staff that are relevant to facilities are likely not identified as such by the human resources and accounting employees that support the facilities management team. “You need to include all related costs in order to make a valid comparison,” says Flynn.
Most decisions to outsource facility functions prompt anxiety and concern among employees in the facility and real estate departments. After all, their jobs and livelihood may be at stake. Oftentimes, concerns also extend to those who may be affected by a change in services.
In both cases, pre-emptive communication, to the extent possible, is key. With employees in the facilities management function, let them know that outsourcing can present increased career opportunities and growth.
At the same time, let employees in other departments who will need to call on the services of the new outsourcing provider know what changes are in store, why the shift is being made, and how the change is likely to affect them.
“It’s good business sense to get buy-in as you’re going through the process, rather than presenting people with a fait accompli,” says Flynn.
Another common mistake companies make is to prepare a bid that only vaguely describes what the outsourcing provider is supposed to do. “Frequently, we’ll see companies say, ‘We want you to provide building management and maintenance services’ within a single paragraph,” says Flynn.
Sketchy instructions often lead to disappointment. The outsourcing provider may think that its employees are doing the job expected, while the company hiring them finds that its needs aren’t being met. In addition, the lack of clear objectives makes it difficult to adequately measure how well the outsourcing company is performing and determine whether costs are being reduced.
What works better is carefully defining the desired outcome, but allowing the outsourcing provider to use its own discretion in deciding how to meet the objectives. Flynn provides an example: For a floor cleaning agreement, the contract might include a clause that says, “All carpeted areas will have a recently vacuumed appearance and be free of dirt and debris. Hard-surface floors will have a high shine and be stain free.”
This isn’t to say that facility executives can’t provide any parameters around the way in which the outsourcing employees perform their jobs. For instance, a facility executive may want to require staff to be on site between 8 a.m. and 6 p.m. on weekdays and to follow all applicable codes and regulations.
To be sure, such detail boosts the size of the overall contract. Flynn says it’s not unusual for a facility management contract to have upwards of 60 separate service level agreements. While this may sound excessive, such detail gives both parties a thorough understanding of what’s expected, reducing the chances for later disputes.
After establishing how much is spent on maintaining the facility and determining what types of services might be outsourced, it’s time to evaluate potential providers. A key step in this process is to visit other sites that the firms manage, says Victor Atherton, associate vice president, facilities administration, with the University of Miami. Atherton oversees the 260-acre Coral Gables, Fla., campus, which has more than 100 buildings.
The facility executive should look at the quality of the work and talk with the people at the site to see if they’re satisfied with the contract. Ideally, the facility executive should visit sites similar to his or her own. So, if a facility executive is evaluating contractors who will be handling facility maintenance at a health care clinic, it’s best to check other health care facilities the firms manage.
Finding the Right Experience
When surveying sites and talking with the outsourcing provider, try to get a feel for the level of expertise the firm can bring. “I want people who can bring knowledge that I don’t have and show me how to do things better,” says Eckert, who oversees the 400,000-square-foot headquarters building and 650,000 square feet of research and development space for Owens Corning.
For instance, when Owens Corning decided to hire an outside firm to manage many of its real estate transactions, management wanted a company with the expertise to complete sophisticated financial calculations, such as those involved in lease-vs.-buy decisions. “It was expertise that I didn’t have,” he says.
You also need to determine whether you’re looking for an outsource or an out-task provider, says Eckert. The difference? An out-task provider is responsible for specific, well-defined tasks, such as caring for the flower bed around an office. In a true outsourcing arrangement, “there are a lot of gaps between the tasks to manage,” he adds. As a result, the outsourcing firm’s employees need to be able to think beyond the job at hand.
For example, an outsourced facilities management team is responsible for an entire building, including moves, adds, change requirements, service calls and security, among other functions, says Eckert.
Once the outsourcing relationship is up and running, don’t skimp on oversight. If the contract is sizable – say, into seven figures – it will likely take an administrator to oversee it, says Atherton. “It needs to be a full-time job.”
At the University of Miami, the contract administrator has a background in horticulture. That’s key, given that the outsourcing firm is responsible for the upkeep of the lawns and trees on the University’s 260-acre campus. “It’s important to have the expertise needed to oversee the contract,” says Atherton.
Also among the administrator’s jobs is checking the payroll of the outsourcing company. The key is to make sure that the employees paid through the outsourcing contract are not being used to provide extra services, for which you’re double-billed, Atherton notes.
Also, determine who should purchase cleaning and maintenance supplies. Outsourcing companies asked to purchase supplies may be less concerned about the quality of those products and often charge a markup for acquiring them. A non-profit organization that purchases its own supplies can avoid paying sales tax. On the other hand, if the outsourcing firm is a national or large regional company, it may be able to purchase supplies at volume discounts.
As a result, there is no answer for every situation. “You have to decide who can get it more cost effectively and will be able to better control the quality and inventory,” says Atherton.
Facility executives with experience in outsourcing also emphasize the importance of ongoing communication with both the on-site representatives and management of the outsourcing firm. If this doesn’t occur, it’s unlikely that employees of the outsourcing provider will really understand just how facilities should be maintained. What’s more, small problems are more likely to balloon.
Eckert talks daily with the outsourcing firm’s employees who maintain Owens Corning’s world headquarters. In addition, the two parties sit down twice a year and formally review such topics as the appearance of the facility, the personnel, customer satisfaction, building security and energy spending, among other topics.
Eckert also oversees the outsourcing contract for the company’s research and development facilities, located 140 miles away from the company’s headquarters. He stays in touch via daily e-mail messages, as well as through visits every couple of weeks. In addition, he goes through an overall site review with the leadership team on a quarterly basis.
The key to effective communication is to personally observe the facility and talk with the people involved, rather than rely solely on written reports. “I don’t give a lot of credence to reports,” says Eckert. “You can make them look however you want. I manage interactively.”
Clearly, outsourcing can be a cost-effective way to obtain the facilities management services an organization needs. However, a successful arrangement takes planning, hard work and ongoing attention. As Eckert says, “We cannot write a contract and expect it to manage itself. We need to be in the trenches clearing the way for the effectiveness of our partners, each and every day.”
Karen Kroll, a contributing editor to Building Operating Management, is a freelance writer who has written extensively about real estate and facility issues.