Having spent a good deal of time advising facilities management ("FM") providers on significant FM outsourcing arrangements, I've noticed a trend among organisations to outsource FM functions to expert providers. A significant proportion of FM activity is still undertaken in-house, which means that these organisations turn to trusted advisers when it comes to navigating their options as "first generation outsourcers". Here, I look at some of the key issues which, in my view, should be considered by any business seeking to deliver a successful outsource transition, especially in an environment where FM outsourcing was not previously practised.
What is the intended end-result?
The first step in choosing to outsource FM services (or indeed any other business function) is to consider what a successful outsourced model looks like and the benefits it brings – after all, outsourcing can be one of the fastest ways to unlock an organisation’s hidden value.
Demonstrating success to the satisfaction of the Chief Financial Officer, and potentially to outside investors, demands that organisations looking to outsource must marshal together complete, comprehensive, current and accurate data about the ‘before’ and ‘after’ economics and operations. This data will be equally important for an FM service provider in analysing a potential customer's needs and how their service can be best tailored to the customer.
Build an early partnership with the chosen FM provider
FM outsourcings tend to be long-term in nature, and the most successful arrangements are based on a "partnering" model where the FM provider and the customer work together collaboratively and seamlessly to drive the best mutual value from the relationship. During early discussions (whether via a tender process or otherwise), the investment of time, transparency and openness allows both the customer and prospective FM service partner to develop the most effective model to meet the customer's desired outcome.
Once a contract ‘goes live’, this partnership will allow the delivery teams to anticipate, respond and flex to meet the changing needs of the customer's business via properly framed relationship meetings, contract governance and a clear change control process.
How should the outsourcing be structured?
From my experience, there is rarely a one-size-fits-all answer to how an outsourced arrangement should be structured. Different customers will set a variety of criteria to determine what a successful solution looks like, and how it ties in with the desired end-result. Any solution will need to be carefully described in the contract between the parties – and is likely to include:
- financial arrangements – what is the agreed charging structure (for example is it based on an "open book / cost plus" model)?
- the commercial assumptions upon which the FM provider will provide the services based on the agreed commercial model.
- a clear service scope – it is essential that the parties have clarity as to what service lines the FM provider is to provide – and potentially to make clear what is out of scope.
- risk transfer – what risks are the FM provider taking on, and what liabilities / risks / obligations remain with the customer? We have previously published blogs on the importance of managing risk.
- workplace transformation and potential transfer of employees to the new FM provider.
Inspiring positive change
It is natural for customers who are new to outsourcing arrangements to be nervous about change. Given that colleagues are the most important asset of any business, it is essential to have a strong "people strategy" with clear and constructive communication as to what transformation looks like, and the impact of the outsourced model. Often transformation is delivered in phases, so it important to understand and communicate what that looks like.
As I have said in previous blogs on the importance of contractual resilience, this applies equally to the customer and the FM provider. From a customer's perspective, a clear and robust services agreement sets expectations around the level and scope of service they are to receive and provides remedies in the event of poor service delivery.
It is also important to ensure that you store and manage your contracts effectively. We recommend thinking of a contract as a "living and breathing" document – which can be used by both service providers and customers to drive maximum value and efficiencies out of a relationship. If an agreement is varied, are those variations being stored and tracked properly? It is surprising how many organisations fail to ensure proper version control following one or more changes during the term of a contract.
If you require advice on any of the issues discussed in this blog, please do not hesitate to contact our team.