Recent reports suggest that for companies with core distribution operations (for example retailers, manufacturers and those involved in distribution and logistics) facilities management can represent up to 25% of total indirect spending.[1] As advances in technology, analytics and software automation transform the way that companies can interact with their buildings, plant and equipment, it's not surprising that companies are looking to suppliers of facilities management services to employ such solutions to deliver savings.
Faced with an expectation that they will be able to deploy such solutions, facilities management companies are faced with essentially three choices.
- develop those solutions in-house
- purchase them from third party vendors (if they are available)
- collaborate with technology providers to create them.
Option 1 is superficially attractive. It offers the prospect of bespoke solutions that dovetail in with the specific services that a facilities management company provides but many facilities management companies simply do not have the resources or expertise to develop technology solutions themselves and even those who do may find it difficult to keep them up to date as technology evolves. Option 2 is at the other end of the spectrum but the solutions that are available may not necessarily readily fit with the services that the facilities management company provides and may not provide competitive advantage.
Option 3 offers the benefits of options 1 and 2 – bespoke solutions tailored to the services provided by the facilities management company – and the needs of its clients - but without the need to invest heavily in software development capability. Option 3 allows a facilities management company to fuse its know-how and expertise in services (such as lighting or temperature control) with the capability of a technology company to operationalise such know-how in software solutions that can be delivered at scale, possibly via hosted services which do not require material changes to infrastructure, either of the facilities management company or its clients.
Collaborations of this sort can transform how facilities management services are delivered but they require careful thought and planning with a number of key issues to be worked through both from a commercial and legal perspective.
1. Contributions – as with all collaborations, the parties need to be clear on their respective contributions and the form they will take and also how the output of the collaboration will be commercialised.
2. Markets - If the output of the collaboration is a software product or service, who is bringing it to market - the technology company or the facilities management company? It may be preferable from a risk perspective for a software product to be delivered direct by the technology partner to end user customers with the facilities management partner receiving a revenue share for each sale. However, for end user customers with a preference for an integrated facilities management solution, the facilities management company may need to provide the software itself, relying on the technology company to provide what is required on a sub-contracted basis. The preferred structure will depend on the nature and output of the proposed collaboration and the terms of the specific facilities management arrangements in place.
3. Intellectual property - the collaborating parties will also require to consider how (and to what extent) they can protect their individual contributions to the collaboration, whether any output of the collaboration will be jointly owned and what will happen at the end of the collaboration. This will be of particular importance to the facilities management partner where it has introduced a software solution / product to its customers as it will be concerned to be able to offer continuity of service beyond the collaboration or any failure of the technology partner. In such circumstances, the facilities management partner may wish to seek ownership of (or an ongoing right to use) the collaboration output to facilitate continued service and support from an alternative technology partner (which may come at a cost). The terms of the structure will ultimately depend on the commercial bargaining position of the partners and the strength of their initial contributions to the proposed collaboration.
4. Data – the availability of quality data concerning both the demand for services and the provision of them is (and has always been) an essential part of successful facilities management arrangements. Technology solutions increasingly enable the collation, analysis and processing of such data which has enormous value – both in terms of specific facilities management arrangements between a facilities management company and its client but also on an aggregated basis in terms of building a picture of wider industry trends and future product development. The right to access and use that data is likely to be a matter that will need careful negotiation between the collaboration partners. We will look at data issues in more detail in a second article on facilities management and technology which we will publish next month.
5. Key individuals - The parties will also be keen to ensure that key personnel involved in the collaboration are covered by appropriate non-solicit provisions to maintain the drivers for any joint commercialisation of the collaboration. As always, such provisions will require careful consideration and should be no wider than required to protect the legitimate interests of the parties involved.
At Brodies LLP, we are actively involved in both the facilities management and technology sectors and have experience of advising in relation to the above issues and other bespoke collaboration arrangements. If you require any advice in relation to such arrangements then please do not hesitate to get in touch with Robert Ross, who is a member of the Brodies team focussed on the facilities management sector and a specialist in complex contractual arrangements.
[1] Six emerging trends in facilities management sourcing, McKinsey & Company, November 2019
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