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Order in the Chaos, some strategic FM sourcing models
Outsourcing of Facilities Management contracts is not new to the New Zealand FM profession.
Like maximising the performance of your staff, maximising the performance of your property portfolio is far more complicated than simple cost management.
There are several procurement websites where contracts are tendered, especially in health care, government and education. Client organizations are exploring more mature FM service delivery models although the New Zealand Procurement psyche is still very costs orientated and lacks value driven orientation and or specific FM procurement templates. I’ve observed some immature FM contract procurement tenders in the last 5 years and strengthened my appetite to provide some order in the views on more mature FM models in New Zealand.
There are several sourcing concepts and models for Facilities Management: self-delivery, single service outsourcing, multi-service outsourcing, managing agent and Integrated Facilities Management (IFM), just to name a few. Especially the managing agent and the IFM model create some confusion. In this article we try to create some “order in the chaos” by highlighting the pros and cons of these sourcing models. In the daily reality of FM we observe combinations of the models mentioned in this article, but all FM contracts can be simplified to one of the three arch type models described in this article.
Managing agent
In the managing agent model, the client contracts the service contractors as well as the managing agent. The managing agent is responsible for the day to day operational coordination en management of the service contractors. The managing agent often provides location managers and a helpdesk. The scope of the responsibilities of the management agent is rather wide. In some cases the managing agent also offers operational and tactical contract management responsibilities, manages the procurement process of operational service suppliers and/or delivers operational contract services (eg. cleaning, security, catering).
The most important argument for advocates of this model is the autonomy in the supply chain. Clients select independently their service providers or are actively involved. This results in more transparency for the client, especially related to the costs of the operational service providers. Another important advantage is the variance in service providers, and as a result that contracts can vary in time and thus provide flexibility in service provider mix. The contract with the managing agent can be terminated whilst the contracts with the individual service providers continue. This simplifies transitions and reduces the client’s contract risks base. Above advantages are similar with the advantages of a more strategic focus on outsourcing (high split), namely more focus on creating value for the wider business and a more strategic focus on facilities management.
This sourcing model has of course disadvantages. The most common disadvantage is financially of nature: as well as the managing agent as the operational service contractors expect a commercial margin. Another risk is that the managing agent and service contractors can deny responsibility or try to transfer responsibility to one and each other as the managing agent is not the “owner” of the contracts with the service contractors. Another disadvantage is the widespread of contracts with individual service contractors and none of them are responsible for an integrated approach or value delivery. The managing agent can play an important part to achieve this integration based on their contract KPI’s. But the managing agent can easily defer responsibility to the client, as they have not selected the individual service contracts and probably are not empowered in their contract to create the optimal service contractor mix.
Below a summary of the pros and cons of this model:
| Pro's | Con's |
|---|---|
| Managing agent provide missing competences at client site | Cross over on management and administration between managing agent and service providers as well as client and managing agent |
| Contracts with specific service providers (individual service providers as well as managing agent) can be terminated independently of other service provider contracts (reduction of dependencies) | Responsibilities between managing agent and service providers are unclear. Parties can blame each other and diffuse responsibility on delivery |
| Client keeps full control on sourcing contracts with all relevant service providers | Margin on margin on overhead, revenue and risk |
| Client can focus on value creation for the wider business and on strategic FM | Integration of service delivery at risk due to multiple single service providers being contracted individually |
| Client has high level of influence on service delivery and performance, compared with IFM, as (majority of ) strategic FM is not outsourced | Administration of single service contractors not integrated and separately managed |
| Lots of coordination and management required by client due to multiple single providers, although this can be delegated to managing agent | |
| Lack of economies of scale in sourcing due to single service provider contract approach |
Integrated facility management
Integrated facility management (IFM) has 2 main types; operational services are fully outsourced to subcontractors (subcontracted IFM) or the IFM contractor delivers the services with their own staff (self-delivery IFM).
In this sourcing model the client contracts to one service provider. Operational service delivery as well as operational and tactical management tasks are outsourced only to this one service provider. The IFM service provider outsources the operational service delivery to multiple service providers but is responsible for the integrated service delivery of these service providers. The service scope can vary from wide (soft services, hard services, record management, property management etc.) or small by only managing the soft services. The operational and tactical management tasks of the IFM service provider can vary in operational client engagement (Helpdesk or self-service portal), location management, administration, reporting and contract performance management, tactical sourcing and contract management of the individual service providers, service design, project management and more tactical end-user client management.
Typical for this subcontracted IFM model is that the IFM service provider fully focusses on the tactically/strategically management of the service providers and empowers them to deliver these operational services. The IFM service provider is independent of the FM service supply chain and as such consult and engage with the client organization to ensure the best in class service provider mix. In reality we see that IFM service contractors have developed a supply chain with preferred best in class FM service providers. A disadvantage of this model (similar to the managing agent) is that the integrated FM approach can be frustrated by a high number of individual service providers. Another risk is the “margin on margin” factor. In reality, this model is not likely more expensive than an in-house self-delivery model. In this model IFM service providers have extensive knowledge of market rates, good overview of best in class service providers and are able to negotiate value in their supply chain (financial and non-financial advantages).