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22 October 2018
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OUT OF ALIGNMENT

Varying GDP figures, overlapping business models and absurdly low cost bids means the outsourced service sector needs to reorient itself, writes Bradford Keen 

p57_panel.png
Panel

05 June 2018 Bradford Keen


Any discussion about FM outsourcing can leave one feeling like Bill Murray’s weatherman character in the movie Groundhog Day. It’s the sense of being stuck in a repetitive loop, in which new solutions are rebutted or old ones dusted off and rebranded.


Take the suddenly topical idea of ‘vested outsourcing’. A rebranding of an old idea or something wholly new? It depends on who you ask. Part of the ‘vested outsourcing’ model, as espoused by ThinkFM presenter and panellist Ed Hudson, regional head of FM at UBS, is a move away from the transactional “master-servant relationship to much more investment-based” in which suppliers have room and time to deliver and innovate. It’s a shift from input to output specifications. 


But is this new? Consultant John Bowen described vested outsourcing as “just another version of the same thing with a different name with about as much credibility as that apocryphal quick spray job and change-the-plates approach of the dodgy back-street car sales outfit.”


Bowen agreed with the sentiment of vested but believes the problem lies in its execution, lamenting how the open-book approach, which seeks to demonstrate trust between parties, rarely happens in reality. 


“I have not yet come across a working example where both sides of a contract really work that way,” said Bowen. “If the process is one-sided then it is about mistrust and is doomed.”


Consultant Martin Pickard of FM Guru was more positive. “It’s true that vested outsourcing is a new term to describe an old idea,” he asserted. But there is value in rebranding to “gain traction”.


Previous terms such as partnering, which referred to similar contracting strategies, were misused to the point of meaninglessness, said Pickard. And the new vested approach goes beyond similar ideas such as ‘gainshare’.


“Gainsharing, as an outsourcing mechanism, is a means of incentivising service providers to reduce costs without reducing their profit contribution,” explained Pickard. “It is only valid in contracts where the principle objective is cost reduction and is transactional rather than relationship-driven.”


While vested outsourcing may incorporate the above, it also encompasses “a wide range of other benefits that one or both parties might value”, said Pickard.

Emma Potter
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George McFarlane

Breaking the cycle

It’s not easy to tell how different this model is from previous attempts at securing better procurement contracts, but regardless of terms used, ThinkFM speakers including Incentive FM chair Jeremy Waud made it clear that the industry needs to grow up and change how it operates.


Drawing on Albert Einstein’s maxim that “the definition of insanity is doing the same thing and expecting different results”, Waud called for delegates to break out from the repeated procurement cycle in favour of more creative strategies that will lead to better contractual outcomes.


He believes that too many FMs put poor FM service down to the procurement department. He is, however, willing to apportion part of the responsibility to clients who switch suppliers at the first mention of innovation.


“They think it sounds really good and quite often it doesn’t turn out to be,” said Waud. “We need to inject the learning into the procurement process.” 

This means educating clients about current best practice to avoid past mistakes. “They should look for FM partners that can assist them to attain their goals,” he added.


Bowen blames the lack of creativity on organisations being driven by process. “The procurement cycle will have been refined to give best value, but doing things by rote often blunts the cutting edge that might bring best results,” he contended.


The time from procurement to mobilisation of a contract can be an issue, warned Bowen. Specifications will have been “reviewed and developed prior to the tenders being issued” and a year might have passed before the contract starts. Business needs will have likely changed by then, meaning a contractor may well be “trying to perform to a specification and performance standards that no longer reflect the needs of the end users.”


Although the more optimistic commentators in the industry speak of ‘vested’ relationships in which added value is sought from suppliers while room is given to them to innovate, the prevailing truth is that cost and margins remain major issues for outsourcing. 


It is something with which Michael Kenny, soft services manager at FES, agrees.


“The lowest cost will undoubtedly result in a lower level of service quality being delivered. It is very important that an organisation’s requirements and culture are understood and bid on to fully reflect this. If this is done correctly, then the price versus quality scale should not tip too far in either direction,” he said.


Understanding the bid

If there was a catchphrase to be picked from the session, Baroness Ruby McGregor-Smith’s comes close. “If it’s bid right, it will be fine.”

The senior adviser for Mace said a significant concern was that suppliers “bid for things they just can’t do, or they think they can but it transpires they can’t”.


Suppliers need to understand the “unintended consequences of what can happen if you bid for the wrong thing or with the wrong client base”, McGregor-Smith advised. While suppliers should know what they’re bidding on, the speed of change means both contracting parties will need to be able to adapt.


Indeed, rather than arguing over the ideal contract length – most of the ThinkFM panel suggested more than three years as this allows value to be favoured above cost – McGregor-Smith prized flexibility above duration. Technology is progressing so quickly that tying a client down to a long-term contract so the supplier can demonstrate its value is unrealistic. 


“Everyone knows that with outsourcing, what you sign on day one is rarely what you end up delivering two years later or a year later, or even six weeks later,” she said. “Where outsourcing works best is when you have great relationships and great people – nothing has really changed in 25 years.”


However, Hudson suggested that even with technological changes, long-term contracts provide conditions for “suppliers to thrive”. The longer duration allows both parties to achieve their goals with the understanding they’re investing in “future technologies with aspirations to be market leaders”. 


Kenny said that ultimately this debate depends on the “desired outcome of the contract award”. This could be the client “looking for a partner to join them on a journey,” which may include capital investment and “a major change to the status quo”. 


If this is the case, it will likely need a lot longer than an annual contract. “Short-term contracts do not necessarily provide the best value for money,” Kenny argued, “as there are always upfront costs to be included that can’t be amortised over a longer period, such as equipment and other mobilisation costs.”


Calculating FM’s contribution


For six years, varying figures about the contribution that FM services make to the nation’s gross domestic product have been suggested (see timeline, right) – and it happened again at ThinkFM. What’s clear is that no definitive figure truly exists – yet.


Why is it so difficult to agree FM’s contribution to UK GDP? Graeme Davies, FT news editor and FM World columnist, believes that the industry’s fractured nature doesn’t help, being split between outsourced (easy to measure) and in-house (far more difficult) services.


Across Europe, says Davies, FM GDP is 5 per cent – so the more advanced UK market is likely to be larger than that at perhaps 7-8 per cent. The value of an acceptable GDP figure is clearly great. But, continues Davies, companies don’t always distinguish softer internal services from total value of FM provision. They can provide FM services within wider service offering and consolidate earnings into one stream when reporting, and privately owned companies are not required to widely publish their earnings and overseas companies operating in the UK are not required to publish detailed breakdowns of their income streams in this country.


For its part, the Office of National Statistics considers facilities management GDP to be mainly construction-driven, says Ed Baldwin, partner at Citrica LLP.


“The multiple sources of data which go to make up the value of FM in the UK are not easily consolidated without an express desire on the part of the companies who make up the sector to work together to provide a universal figure,” says Davies.


A timeline of FM GDP figures

Late 2011: 8% 

This figure was in fact for all outsourcing, and provided by the Business Services Association. But the extrapolated FM component kick-started the use of a GDP figure in various conversations – a figure that has tended to vary considerably.

November 2012: 5-6% 

(FMA)

March 2016: 7% 

(BIFM)

May 2017: 8% 

(Professor Per Anker Jensen 

at the Technical University of Denmark)

June 2017: 8% 

(BIFM May 2017 report)

June 2017: 10% 

(CIBSE Journal)

January 2018: 7% 

(BIFM chair Stephen Roots)

ThinkFM May 2018: 7% 

(Vicky Pryce, Ruby McGregor-Smith 

and George McFarlane) 

ThinkFM May 2018: > 10% 

(Ed Baldwin)

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Ed Hudson

A question of size

Questioning contract length is never too far from discussion about contract size, or rather how big the supplier should be to fulfil it. 


The Crown Commercial Services SME framework, which aims to open public sector contracts to smaller companies, has suffered its share of criticism recently (see FM World, April 2018). 


George McFarlane, director of sector development at the CBI, told ThinkFM that government would continue to support SMEs, citing a “lack of aligned policies” from the government for any current disenchantment with 

the framework.


To provide better opportunities for SMEs, government will need to determine whether these companies can “deliver directly or whether the supply chain is a better way to go about it, and that will come down to the nature of what is being asked for and the risk profile”, McFarlane added.


Regardless of what government aims to do, Lucy Jeynes of Larch Consultancy spoke from the conference floor about having not seen an increase in SMEs landing public sector contracts in more than two decades. She charged the CCS with removing SMEs from the supply chain and leaving them to “pick up the crumbs from the table”, while upsetting the “fully functioning free market economy in FM”, granting work to a limited few.


McGregor-Smith was also critical of framework’s complexity and expensive bidding process, while Kenny asked whether talk of SME involvement would actually lead to “an increase in the value/amount of contracts being awarded to them”, listing time and effort required to submit the tender as prohibitive for SMEs.


Undoubtedly, much of this debate will feel like all too familiar ground, trampled smooth from regular footfall. What lies beyond this well-trodden path, however, is perhaps where outsourcing’s redemption lies. Indeed, it may well be time to break the cycle, grow up and charter a new course for the sector’s outsourcing services.  


Trading up? The need for a new FMA 

During a Q&A session following the disruption panel debate, Ruby McGregor-Smith and the consultants Lucy Jeynes and Martin Pickard spoke of the need for a trade body to act as a loudhailer for the FM outsourcing sector’s voice.


We’ve been here before, of course. The Facilities Management Association (FMA) was set up in the 1990s and was active as the sector’s trade body until 2013 when it merged with Asset Skills and the Cleaning & Support Services Association to form the short-lived Building Futures Group (BFG). 


The BFG ceased trading in 2016, and Pickard thinks it is high time that the original idea behind the FMA was revisited. There is a need, he said, for an organisation to help service providers protect their interests and promote good practice, ethics and standards in outsourcing; one to gain the ear of government and business to publicise FM’s value; and one to help smaller service providers in particular to do business with government.


Could the BIFM carry out this role? Not according to its director of insight, Chris Moriarty. Professional bodies and trade associations play distinct roles, he said. A dedicated industry body would be better placed to raise understanding about the outsourced FM sector’s specific contributions as a whole.


However, as Moriarty pointed out, no definitive industry body representative of FM service (and product) providers has so far thrived. More broadly, there’s the Business Services Association, while more narrowly there is specific service line representation through organisations such as the Cleaning & Support Services Association. But multi-service FM service providers, while likely to benefit, have never effectively grouped together in the way many would like.


For its part, BIFM says it would foster a constructive relationship with such an organisation if formed, appreciating outsourcing’s key role within FM. But, it continues, BIFM already focuses on raising the profile, status and development of facilities and workplace management professionals, whether working in-house or outsourced, offering a unified voice to communicate with government.