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Higher purchase

They may have been uneasy bedfellows in the past, but a recent roundtable saw representatives of FM and procurement discussing their common concerns – and how together they could raise the status of both professions.

Procurement roundtable 2013 1

 

18 July 2013


Process and PQQs


Marcus Hill (MH): The biggest challenge I see concerns the true stakeholders in an organisation. Procurement is very process-driven and can sometimes hamper the achievement of strategic objectives. There’s no standard process for pre-qualifying companies in a consistent manner. It is hard to clearly see the demarcation between pre-qualifying suppliers and the actual tender process. This, in turn, makes differentiation between suppliers difficult. A huge amount of front-end information is required, much of it basic and repetitive. Suppliers have become good at ticking the boxes, sending us every process, policy and insurance document they have. Clients and procurement specialists get bombarded by data.

Hannah O’Reilly (HO’R):
As a company interested in working with a spectrum of different suppliers, sometimes we have to ask the basic questions to make sure that we are working with a trusted supplier. I agree some stuff is a little bit redundant, but we can’t just assume everybody ticks every box.

Richard Warner (RW): My supply chain stretches from the UK across Europe, the Middle East and Africa, and my approach is to have a preferred suppliers list. This means I am only doing my PQQ once, in which case I just need one standard process, because I don’t know the Mom and Pop shop in the middle of Bucharest. They are the ones that are more a risk to my duty of care. I need to make sure I am gathering that data. I get the point that if we are dealing with a Capita I don’t necessarily do that, but which part of Capita am I dealing with? Where does my contract sit? A lot of this is actually about establishing who the legal entities are on those frameworks.

MH: When we carry out due diligence, we look at parent companies and subsidiaries. I’ve worked on pre-qualifying a number of very big companies where in the PQQ process we have run financial risk scores on them. Surprisingly, some score badly because they have a number of group companies and trading entities that are not ultimately the company that delivers the service. Frameworks are good, but a lot of clients don’t use them and the whole PQQ process is very inconsistent. Why could we not have a standard PQQ for suppliers that takes care of all of the basics – company registration, VAT number, insurance details, and so on? The time it takes suppliers to pull this all together and then for someone on the client side to read and evaluate, adds overhead burden to both organisations and detracts from the high value-add and alignment to an organisation’s business strategy that should be the real focus.

Andrew Lofty (AL):
As a retailer, we have a duty of care to our customers to make sure those hygiene factors are in place. It also depends on what generation of outsource you are in – if you are in a first generation outsource deal, you are doing that due diligence to make sure you give your customer, the internal stakeholder, the benefit of knowing that we have everything in place, that the supplier is the right supplier to work.


Preferred supplier lists


Mia Loberg (ML): If you have a selection of preferred suppliers, it’s more easy to add on more services to those suppliers. We in AstraZeneca have developed a capability matrix that includes the  type of services and geographic scope. From that we have chosen our preferred suppliers so that we know, when entering into a country, that the suppliers can provide the services or otherwise have sub-suppliers that can deliver them.

Qusharat Hussain (QH): Processes are there for us to be able to demonstrate after the event how and why we made the decisions we did. As laborious and frustrating as it is, it has to be done. But one of the things to come in these criteria that you set for the PQQs is the potential of setting barriers for new bidders. One of the concerns is that the whole tendering/bidding exercise has become an industry. Bid writing is an industry in its own right and what you tend to get, especially for the large contracts where you have large companies tendering, is the big boys who are quite slick and indistinguishable in terms of what they put forward.

AL: As for a preferred supplier list, how long do you take to do that pre-qualification? If I am pre-qualifying you for a whole host of services that I may never use you for, it just makes it a more laborious and longer process. I’m not necessarily interested in one supplier to do all of our European locations because I want the best in every market. This might mean it’s eight different providers or one provider for all eight markets – but at no point would I want to limit myself to one person because we have gone down that pre-qualification route. A specifications straitjacket?

John Bowen (JB):
One of the biggest drag anchors I see is that we set up these wonderful stacks of specifications and KPIs, and we box the service in: a three-year contract starts today, whack, that’s how it’s going to run for three years. How do you build change into that? How do you adapt to all of this and still measure it in the same way? You can do it, but there are a lot of people there who say: “Oh no, the service has changed, the statistics are gone, all the trends are gone. Now, I can’t show that it’s better than it was last month, or it was no worse than last month, or it’s cheaper or more expensive” –  panic, panic.

Jon Hickey (JH): That’s a maturity issue. We need to get past that and build in an ability to develop over time. Something we now do is challenge on an annual basis. So we have a
three-year contract: “Okay, this is what we have done for the past 12 months, what are we going to do differently next year?”

AL: It also comes back to what generation outsource you are. If you are in a first-generation outsourcing arrangement, often the client will want to be a bit more prescriptive because they want to make sure that their bins are emptied three times a day, that the toilets are cleaned four times a day – that level of detail.

Craig Little (CL): The key is having a contractual arrangement in place that isn’t strict in the sense that it says: “You must do this and you must do that”. It has to be flexible.

ML: If you procure on specifications, you think that you as a company know the best way to do things and you lose the opportunity to use the contractors and the suppliers’ knowledge. It’s their core business, so let them provide the services in the way that is the best on the market, rather than pointing out that four times a day, the toilet should be cleaned, or whatever.

MH: For some organisations, that is just a leap too far. The other challenge is that the person who then gets assigned the task of writing the specification is an FM operator and not a strategist. A strategist would be quite happy to work on an output basis and say: “this is the output we want to achieve”, aligning it to business objectives and the business plan. If the specification is written by an operator then there’s a danger it will focus solely on the operational requirements, not the desired contract strategy.


FM’s sheer breadth


AL: The difficulty with FM is that it is so varied in terms of whether it’s bundled, unbundled or self-performed. I might pre-qualify somebody who’s the managing contractor and, in essence, they are not actually self-performing anything. Effectively, I’m pre-qualifying them for their ability to pre-qualify their supply chain and get those guys lined up. At which point, does that sub-contracting process stop?

CL: That’s important. One of the main problems in FM procurement is that so many organisations jump into it as a commoditised procurement exercise and don’t do the strategic part up-front, setting the strategy and the model. That’s possibly down to a lack of knowledge and expertise within client/procurement teams.

MH: I’ve worked with a number of large organisations where the procurement team has been brilliant at buying commodities with complex supply chain issues, but they then switch
to running an FM tender. Very often they’re not equipped with the skill sets and expertise to
go from procuring goods to procuring services. They may have limited time as they are running multiple or sequential projects and they have a limited understanding of FM. This makes it a challenge to effectively procure FM. There’s a big difference in articulating the requirements for the procurement of a cleaning or catering service to that of buying goods.


Innovation and differentiation


QH: FM has changed. Firms are beginning to understand how complex FM is and the need to hire external expertise. FM is an umbrella for a number of categories that in themselves are quite complicated and can be badged in various ways. When I was a director at [construction and building repairs company] Morrison FS, it ran an event for the CFOs to address indirect procurement because normally the focus is on direct procurement and that’s something companies already control really well. However, indirect costs, where the FM category normally resides, are pretty much hidden and not very well addressed. It’s very much ‘process procurement’, as opposed to a real understanding of these indirect costs and effective sourcing. Once they realise that this is an untapped area, you get innovation. In our area, for example, we looked at co-location. We were involved in construction and the repairs and maintenance sector, so looked at property and real estate in a different way. Why have our own offices? You look at CRE completely differently. That’s where FM and the
supply chain can make a difference. Where you get a very strong FM leader who recognises and owns that particular cost element, who brings fresh ideas and challenges whether or not you need certain space – that’s where we can contribute most.

CL: The assumption we should make is that service providers should be able to deliver the
core services: the innovation, the good practice, the driving value, the collaboration – it’s those things you want to test and demonstrate.

RW: It’s about having a shared expectation of what that right thing looks like because whatever is documented will change over time. In fact, if it doesn’t change over time, then something is wrong because your SLAs and KPIs should change annually through your whole governance process, realigning to where the business is actually going.


Term lengths

MH: Why do we have three-year contracts? Traditionally, it was to write off equipment. But by the time the supplier has mobilised and bedded-in and, normally, six months before contract expiry, a decision is made as to whether to renew, renegotiate or re-tender. The ‘live and steady-state’ period is not very long, making it hard for suppliers to truly add value and innovate. If you had someone through the life of that contract working in the client’s procurement team and they got seconded into the supply chain for three months to work with the buyers buying the various services within a contractor, how much would that person learn about procurement and about how FM service delivery takes place?

Colin Caulfield (CC): Businesses tend to build their business plans around five-year bundles, yet we talk about three-year contracts, so that sits outside of the model for your business plans. You talk about true partnerships in terms of partnering up with a supplier or a number of suppliers; if you align that to your five-year plan, surely that will be in the interests of both parties.

AL:
Anyone’s five-year plan that they did two years ago won’t really be worth much now. If you look at the way the industry and economy has gone, you have to have versatility within the contracts and the business plan to enable you to follow that.


Early involvement


CL: One of the most common phrases I have heard over the past 10 years is: “That’s the way we have always done it”. Too many client organisations roll from contract to contract, doing what they have always done. We’d all probably agree that the FM market is changing at a rapid pace and there are so many best practices in place today that many organisations are lagging five years behind. That’s one of the challenges – it’s not just the commoditised buying, but procurement teams procuring what they procured five, six, seven, 10 years ago.

RW:
We have to look at where FM sits in the food chain within an organisation. Corporate real estate is tied into the top level business objectives of ‘where are my business leaders going?’. But this then filters down about five layers to get to FM delivery on the ground. When you go out to do an FM delivery or re-tendering exercise, you’re approaching those people at that operating layer who are actually the guys doing all the service delivery. They are not commercial people, they are actually there to deliver a service and so you are then getting those people to develop a specification which is not something they normally do because they focus on delivering the FM service. You are then putting them into, category management, in which case you are giving the process over to a process-driven procurement organisation. You have a lack of specification in a process going out to a marketplace that it doesn’t necessarily know unless it has PQQd them.


Competitive dialogue


RW: There are lots of different ways of engaging, but the best bid we have ever had was by engaging with our clients through a competitive dialogue. We got down to two or three providers and essentially sat down in locked rooms with workshops to say: “What is the actual need you have, what is the specification? Let’s work together on that”. So we are not yet building any costs in because we don’t know all those unknowns. Once you are appointed, it is then all about trust and understanding what those deliverables are, then coming up with the right solution. We can negotiate the right commercial structure.

JB: If you look at the way a tendering process tends to work, we look at history. Think about how the world has changed in the past two or three years, the speed at which it has been changing, yet we sit there with a six to nine-month tender process talking about information over the last two years. We’re buying something that is going to support us through the next three to five years.

PC: The competitive dialogue process is a manifestation of a positive behaviour. It says that the customer wants to know and is taking the benefit of the years of experience of a number of suppliers where there are two or three in that dialogue stage. That means that the customer is probably more open and likely to do something collaborative.


The intelligent client


CC: We’re starting to see what BIFM would call the intelligent client function; the person in the business who understands FM and who works with procurement to say: “In the first instance, this is what I want to procure”.

CL: There are certain organisations building the intelligent client function into their overall strategy, but that is, I think it is safe to say, a minority.

RW: Also, you have to look at who the FM clients are. Everybody needs FM, they just don’t realise or even call it FM. So it tends to come down to a receptionist or an office manager or somebody in a single location. They deal with the FM, so it is quite unsophisticated. They are just buying a service because that’s what they think they need. Then you go right up the other end of the scale, to huge global corporates where they have the same issue – because most global corporates haven’t got there unless they have gone through some sort of organic growth and you tend to find that there are lots of different pockets of business units that all do
things differently. So it’s somewhere in the middle that you have to pull those different things together. We’re trying to come up with a single solution that fits the whole spectrum of a client. There are different people within that supply chain; the whole range has different levels of expertise. It goes back to the expert who understands it, who can specify it, who knows what their expectations are. This is passed on so the supply chain understands and knows what
the expectation is, and can deliver what’s really required.

Paul Crilly (PC): There is another issue there and that is whether the expert customer has spoken to the consumer of the services. This person is rarely consulted on what they want.

AL: Whether it’s procurement or the FM team, it comes down to how good and open-minded your people are. I have somebody specifically in place heading up the FM procurement side, and they know what their role and mandate is. But equally, they understand where their limitations are and when to call somebody in – a consultant or whomever, to help in the process.

MH: It’s about CSR and brand too, because the quality of FM service delivery will affect and influence the brand and reputation of an organisation. FM interfaces with all parts of the organisation from arrival in the car park to meeting the chief executive in the conference rooms. Buildings account for 40 per cent of CO2 output and areas, such as waste management are at the heart of FM; CSR and brand is directly linked to the delivery of FM.

ML: The important thing is to interact with the business along the full length of the contract – so not just the first implementation phase and the last three months of the contract period, but to have a governance model where you share the obligations to do the follow-up with the partnering supplier. At AstraZeneca, we have open discussions on innovations and improvements along the way, not just for the mobilisation, implementation and last phase. Follow the contract over the whole period – that is part of the success.


Building relationships


AL: We make the assumption that FMs are experts in the art of communication. Often they are good at peer-to-peer and downward communication, but sometimes they struggle going
up the food chain.

RW:
When I talk to my facilities managers, one of the challenges they have is being perceived as anything other than a boiler suit. That’s a big issue for the industry, going from the boiler room to the board room. And in procurement, it’s almost harder because you are simply not seen. Sometimes the FM is seen around the building, but in procurement you are in a room somewhere, tucked away in the bowels of the building.

JH: It’s in our hands to make this change. We all have to take responsibility, whether we are on the FM side or we are on the procurement side, of marketing ourselves.

ML: We will be a commodity if we do not challenge higher up in the organisation. We’ve picked out stakeholders and they are senior managers within AstraZeneca. I have four of them, and they are scientists. I have 30 minutes, four times a year, for an open conversation. Of course, it’s scary. I don’t know everything they do and sometimes they ask me questions on a specific part of their processes that I don’t know about – but that is the challenge, to step in and see what happens.

RW: The difficulty the category manager has is that they not only need to know what their customer group is doing and be a specialist in that, they have to be a procurement expert as well – that is a real challenge. The big selling job that individual has is to tell everybody: “I’m not here to take away the costs. I’m here to make sure we get the right service.”

Jason Wakefield (JW): For some FMs, it’s a power thing, so when you get somebody in procurement who knows their stuff, the FM will think: “They’re taking my power away. I have been autonomous in managing this building.” That’s one of the major challenges between FM and procurement working together.

JB: If they are not clear on their organisation’s strategy, then they are sat in an ivory tower rather than understanding that the business is under pressure and asking themselves what they can do to improve value. I’ve introduced charges for vending, things like that. Hugely controversial, but go and talk to the HR director and the choice is: “We do this or we start to look at head count.” Often that provides the necessary focus people need to understand the kind of pressure the wider business is under.


Bad practice


AL: There are some people out there trying to buy work and coming back with variations later on down the line. All that does is take the whole relationship discussion and rip it apart.

CC: It’s still a huge issue in the market. We know that people will bid on 90 per cent of their operating model and say to their FMs who they have on the contract, ‘you have to find 10 per cent savings. Actually you have to find 12 per cent because we need 2 per cent profit’. That defeats the objective.

PC: There is another part to that – the customer accepts it at some point. We all know that’s under-bidding, but some would accept it and that’s a risk. It’s unacceptable to both parties.

AL:
You make an interesting point, that somebody has accepted it. You have people that are ill-informed who are accepting that service or accepting that cost and who don’t know better because their organisation hasn’t invested in the consultant or hasn’t done their right market intelligence.

HO’R:
One of the things I have not heard mentioned all that much is about customer service of the FM provider to the procurement teams and the FM teams that are going to be their customers. Absolutely, procurement and the FM team have a responsibility to do the due diligence and the validation on any offer on the table. But ultimately the responsibility to put a bid on the table that you can stand and live next to is with the suppliers, they have to take some ownership of that as well.