Strategic Sourcing Tips for Effective FM Procurement

Why do you need to develop an FM sourcing strategy? Packaging your services properly will ensure you are attractive to the market and you get competitive bids when you tender. Buying the services that your business needs and ensuring appropriate risk transfer will improve value for money and by tendering to the right market should ensure you get a company that is the right fit and will value you as a customer.

A sourcing strategy for FM should consider the following components:

• What FM Services does your organisation need to buy?

• How should you package the services to be attractive to the market?

• Which FM suppliers should you have on your tender list?

This paper discusses some of the most important issues that need to be considered for each of these questions.

Deciding what to buy.

Buyers should always take the opportunity to properly improve the alignment of the new services with the changing needs of their business. Considering the business need and the effectiveness of the current service is an important first step to develop the Sourcing Strategy. It is rare if a business doesn’t significantly change over the course of an FM contract so it is important to understand at least whether the following have changed:

• Property characteristics

The size of the portfolio is the single most important factor influencing the cost and needs to be properly reflected in tender documentation. Ensuring that How has the area occupied changed including working spaces, meeting spaces, external areas, sub-let areas etc since you last tendered.

• Occupancy Characteristics

With Covid, how space is used in many businesses has changed potentially impacting the nature of specification required. Eg number of occupants / visitor Profile, which days people are using the portfolio. Understanding these characteristics have helped suppliers change their service profile and allowed them to innovate in recent tenders we have been involved with.

• Landlord / tenant obligations / Lease events

Understanding the obligations will help refine the service scope and avoid the risk that the service is either not captured or captured twice

• Variations during the current FM contract

Capture any changes to the current contract that you want to retain in the future specification. This may seem self evident but more often than not we find specification in contracts are not updated during the current contract. Some business factors such as maintenance of critical assets, secure environments and clean environments in particular will need to ensure service levels including response times is properly captured and reflects current business need.

• Stakeholder Requirements

Understanding how services need to be delivered on the ground is an important part of the development of the statement of requirements. "Stakeholder" recipients of each of the services should be included in this engagement. In particular areas that may have significantly changed over the course of the current contract such as ESG / CSR are particularly important areas for stakeholder engagement.

Efficiency and Effectiveness of Current Service:

It is of great value to understand how effectively the current service is supporting the organisation as it will help inform the changes needed. Particular areas that should be checked are:

• What is the current cost and does it provide value?

How does the total cost compare with the original tender? How does it compare with the current market? Do you have adequate visibility of supply chain costs and if not, in what areas do you need more visibility? Checking that your current cost compares favourably with the original tender, the current market and reflects changing trends in the market through internal and external benchmarking helps both set expectation of improved value and sets realistic expectation of the cost of business critical services.

• How effectively are the current Supplier(s) delivering the service

Are they meeting their contractual obligations? Are they meeting current business needs? Are there areas of service quality you would wish to improve? Do you have access to appropriate information? If you cannot answer these questions then you will want to strengthen the reporting and ensure that any new Supplier can provide good performance information. If you know the current performance of your Supplier are there areas that you particularly want to improve and needs more clarification in the specification.

• Is the Supplier helping support your ESG / CSR objectives?

What are your main ESG / CSR objectives and how well do you believe that FM Supplier supports these objectives? The FM supplier will often be able to support ESG / CSR objectives through the services provided such as waste management and improving energy consumption as well as supporting good procurement practices. Being very clear of the targets you are seeking to achieve and your progress to date allows new suppliers to be creative and support innovations in this increasingly important area.

• Do you have effective FM Systems?

Are the management systems used to manage the service able to support your information and service requirements? Deciding whether you own the systems or whether you want the supplier to provide their systems will influence the mobilisation and running costs. Whichever approach you seek to employ it is vital that it allows you to understand and manage performance of the supply chain.

• How effective are the Resources provided by the Supplier

Are the resources provided by the supply chain adequate and appropriately skilled? Does the FM Supplier’s HQ staff provide the right support? Potentially going through a tender process may mean that a lot of your current supplier staff on the contract will transfer to the new supplier (TUPE). If you have shortcomings now in service delivery, staff development, staff capability etc it is important to capture required changes during the tender process.

• Do you receive a compliant service?

Do the supply chain effectively manage your compliance, environmental and H&S liabilities? How do you know? Have you changed your “compliance policies” as a result of Covid 19? Often suppliers are not good at demonstrating compliance and often this not rigorously tested by clients. It is important to ensure the specification is strengthened to reflect compliance obligation shortfalls.

How to Package the Services?

Facilities Management Services can be organised in a number of ways. Typical models include:

Total Facilities Management Contracts (TFM) where the operational management and the majority of FM services potentially including cleaning, maintenance, security, waste services, mail, catering etc are all delivered under the same contract.

Bundled service contracts where the operational management is retained within the client organisation but a number of the services are combined into the same contract (particularly where there are synergies and operational efficiencies that can be provided through joining up these services). For example bundled contracts could include:

• Hard FM services, such as mechanical, electrical, plumbing, fire safety, etc.

• Soft FM services, such as cleaning, security, waste management, landscaping, etc.

Single service contracts with the operational management retained and each service delivered under separate specialist contracts, for example separate cleaning contracts, maintenance contracts and security contracts.

Further information about how the FM market organises itself can be found in our 2019 report https://www.landmark-and-associates.com/copy-of-fm-report. Note the market has changed significantly since 2019 with a number of companies merging or being subject to acquisition. However the FM models are still appropriate in 2024.

Other things to consider when choosing a service model.

Current management organisation

Depending on whether the current service provision is delivered and managed by the Supplier (TFM) or managed by the Client and delivered by Single or Bundled Service Suppliers the preference would be to retain this current model going forward, unless it is currently failing . This is because any change will have a significantly increased impact on recruitment, skills management and potentially TUPE. It should be noted that if the current management solution is not working it is a far easier proposition for the client to migrate the current in-house team into a TFM solution than to establish an in-house capability.

Cost v Risk

TFM is often seen as a more cost effective solution because it means that the Supplier can combine services to deliver natural synergies. For example, one organisation combined security with first response maintenance because each location needed security guards but their security role was not sufficient to keep them busy all of the time.

However, if there are services which require an enhanced level of support that address particular risks in the business eg complicated plant requiring a high level of maintenance services, security guarding of sensitive sites etc it is more likely that the specialists able to deliver these services may not offer consistent value across all services and a single service solution should be considered.

Retaining an Intelligent Client Function

No matter which model the client chooses it is important that the client retains at least an intelligent client function. A helpful description of the role is included in the “Office of Government Commerce Principles of Contract Management: Service Delivery” which identifies that the Intelligent customer capability needs to combine “in-depth knowledge of the (client) business and understanding of what the provider can and cannot do. It is vital that the individuals or teams responsible for managing contracts on the customer side have this kind of capability. The aim is to reduce misunderstanding between customer and provider and to avoid problems, issues and mistakes before they happen.”

We believe a strong Intelligent Client role is important, as clients should not abdicate responsibility to collaborate with the supplier to deliver the service. Just outsourcing a service does not provide the “business” guidance that is necessary for a successful contract.

Who should you buy the FM services from?

With many service contracts one of the most important factors when choosing the best supplier is that the Supplier needs to see the Buyer as a valuable client. The main things that you need to consider to generate a relevant tender list are:

Scope of services offered by the supplier

The suppliers scope of services should broadly reflect the services you need. Check their website to make sure that the services you require are prominent on their website. One of the areas we would be less concerned with is the extent of the Supplier’s self-delivery capability. All service packages can include a combination of self-delivery by the supplier and sub-contracting. Many clients like the thought of having the majority of the service as self-delivery but often we find logical sub-contracting can bring significant benefits in the right environments. It is far better for clients to consider the whole offer and its impact on service quality and cost and not just take a narrow view of the delivery model.

Turnover

Significant discrepancies where the contract value is a very small percentage of supplier turnover can mean that clients are undervalued. One note of caution is that some very large suppliers organise themselves into smaller customer focused business units; MD’s of these smaller business units would value you as a client and it is important to understand what part of the business (and it’s turnover) you would be contracting with. Equally if your contract is much larger (>15%) than any other contract managed by the supplier this should be of equal cause for concern.

Track Record

Preference is that suppliers have a knowledge of your business and your industry. Checking that other current and recent clients are in the same or related industries is an important sense check.

Geography

Suppliers will need to demonstrate a core competency in all service areas and across all geographies that you require. Some sub-contracting may be appropriate if there is broadly a match but most of the service should be deliverable by the Supplier. This avoids significant learning and investment costs in new locations that are remote from the Supplier infrastructure.

Systems

Does the supplier have underlying systems (CAFM / Help Desk / Health and Safety etc) necessary to support your contract. It is recognised that often contracts need integration with other client systems but the ability to offer a coherent standalone system is an important starting point.

Summary

In summary, developing a sourcing strategy is an important starting point for a successful Facilities Management contract.

The main areas we believe are central to this strategy are:

1. To have a clear understanding of what you are buying based on evaluating changes in business need and an understanding of the improvements you would make to the current service.

2. To know how you will package the work you should consider variables such as your in-house organisation, specialist business requirements, importance of cost of the contract and appetite for retained risk.

3. Choosing the right bidders by making sure they can offer the services you need across the geography you require; they are not so large that you are not a valued customer and they have appropriate systems to support your business.