Why Procurement and Facilities Management are a Perfect Match

Why Procurement and Facilities Management makes sense together

Facilities Management is Usually Outsourced

FM isn’t a core activity for most companies.

So why focus on it?

You might have dedicated team members for FM. That’s because it’s a vital requirement to get FM right. If FM is done badly, you might not be able to work in the building, your staff will be unhappy, and those toilets might have an overspill. I’ve seen this happen - it’s not pleasant…and reeks.

But those FM team members will work with outsourced providers such as cleaners, tradespeople, and H&S auditors.

And that’s where Procurement can help.

Because that pesky FM statement of works can be difficult to get right. And ideally, you need good data and expertise to get them right. The problem with a lot of FM supplier contracts is vagueness. This stems from the specific Statement of Works (SOW) through to the Master Services Agreement (MSA), the latter governs the relationship overall, and the SOW governs the specific activities.

When you outsource your services to the likes of a SERCO, or an EMCOR (big UK Outsource companies that are prevalent in the public sector), or smaller FM providers, they will do all they can to keep costs as low as possible, which in turn means the service will be as low quality as they can get away with, and this can lead to a poor supplier experience.

So Procurement has to step up.

We need to get better with these contracts.

Service Levels to Incentivise

And we can do better with one little contractual tool around critical parts of any FM contract.

Service Level Credits based on Service Level Agreements are a great way to enhance and incentivise performance.

For example, if you have a ticket system for new jobs such as plumbing repairs, refills, another blocked toilet…

Every ticket needs a response within 15 minutes, someone to address the issue within 30 mins, and a resolution within 2 hours. I’m being arbitrary here - it depends on the service. If their response rate was 97% within 15 mins, we might have a service credit in place that states for every % they miss the 99.95% standard; they are deducted 2% of their monthly fee.

It would look like this (because we need to convert the % to decimals):

Payment Reduction = Monthly Contract Value * (2% * (0.9995 - Actual Service Level))

Let’s go through a couple of answers to show two different “Actual Service Levels” here.

Example 1:

Let's say the Actual Service Level for a particular month is 99.9%.

1. First, convert all percentages to a decimal form for the calculation:

   The Actual Service Level is 99.9%. In decimal form, this is 0.999. The target service level is 99.95%. In decimal form, this is 0.9995.

2. Next, calculate the difference between the target and actual service level:

   Difference = Target service level - Actual service level = 0.9995 - 0.999 = 0.0005

   This is the shortfall in the service level.

3. Now, calculate the payment reduction percentage:

   Reduction Percentage = 2% of the difference in service level = 2/100 * Difference = 0.02 * 0.0005 = 0.00001

   This is the percentage by which the payment will be reduced.

4. Finally, calculate the payment reduction amount:

   Payment Reduction = Payment amount * Reduction Percentage = £15,467 * 0.00001 = £0.15467

   Since we're dealing with money, we should round this to the nearest penny. Therefore, the payment reduction would be £0.15.

Example 2:

Let’s play around with the deduction and go for 10% here.

The revised formula now is: Payment Reduction = Monthly Contract Value * (10% * (0.9995 - Actual Service Level))

Continuing with the example where the Monthly Contract Value is £15,467 and the Actual Service Level is 87%, we can substitute these values into the new formula:

First, convert the Actual Service Level to a decimal: 87% = 0.87.

Now, substitute these values into the formula:

Payment Reduction = £15,467 * (0.10 * (0.9995 - 0.87)) = £15,467 * (0.10 * 0.1295) = £15,467 * 0.01295 = £200.55

With a 10% deduction rate, the payment reduction for this example would be £200.55.

You can see that this starts to eat into the Supplier’s fee very quickly if they let performance slide. Not to mention you might have several SLAs targeting your most important services.

We must balance the incentive to perform versus penalisation, which we do not want and is not permitted (at least in English Law).

I’ve seen FM Procurement Pros let Service Credits slide and not take the rebate.

It’s stupid not to take the deduction - and it’s an excellent way to save money when performance issues occur whilst encouraging better performance in the future.

Time to move away from what I consider to be a recognised Procurement ownership of FM to one that is not-so-recognised.

Office spaces.

The Office Space and Procurement

Finding a new office space sounds easy, but there are so many different activities from:

• Terminating your existing lease

• Moving furniture into storage

• Finding movers

• Finding a new space and dealing with the agency, surveyors, and property lawyers

• Designing your space

• Buying new stuff for your space

• Selling stuff from your old space

• New IT equipment

• New IT services

• Negotiating the new rent, the perks, and your obligations in your new place

I could keep going - there’s a lot to it. But you will notice that Procurement and Legal can be critical players here given the incredible amounts of activities that sit with suppliers and the need for good contracts to be in place throughout.

I asked

CJ Gustafson

, from

Mostly metrics

for his thoughts on this, and he stated (a must-read for anyone in business):

“I would say “procurement can be a strategic business partner to FP&A when planning for office space across multiple geographies. I’ve been at fast-growing, global companies where procurement would use the finance department’s headcount forecast within the operating plan to negotiate for long-term favorable rates. Ideally we would rent space in highly desirable locations that could attract the best talent. Procurement also was able to see around corners when it came to contractual commitments for the space we were signing up for, and point out any red flags - like having to pre pay for any office buildout changes”.

And this has been my experience.

My team was getting stuck into an office move in my previous role. When I asked to get visibility of the project, to which the programme team were absolutely crushing, the supplier activities had not been thought out to the extent of the due diligence, the commercials, and the contractual arrangements.

Not to mention the additional charges the landlord wanted to put on us as we progressed the deal.

And CJ’s point on headcount is vital.

For one, you can get better deals on leases if you bring a good footfall into the building.

A lot of buildings are shared by multiple companies.

And an active culture of companies working in a building, where other services such as catering, coffee shops/stands, vending machines, and the like, can really help the landlord make more money from their building as consumption increases.

You can have this reflected in your rate as you show that you will be a wonderful tenant.

And secondly, and this comes back to the FP&A partnership piece when you place, an office space may not be your forever home. It needs to work for you throughout the term - if you’re expecting large growth as many VC-backed companies will regarding headcount, then you need to make sure you’ve got a big enough office for the period of the term to house everyone.

This might be more of a temporary office, giving rise to additional questions, such as whether you should spend money on redesigning the floor plan or living with what you’ve got and make use of movable furniture and decoration to improve the space.

Procurement and FM make sense.

I can see how the two can be combined to create a cost-saving, risk-averse, performance-orientated team that finance absolutely loves.