There is no doubt that it pays to get an outsourcing deal right from the start. Yet many contracts contain weaknesses that may affect the level of service provided.
Independent consultants claim they can spot contractual pitfalls long before they are written into a contract, reducing the risk of poor service and early termination. And many clients say they welcome the addition of a sharp pair of eyes.
In most cases, independent consultants are hired either to provide clients with a short-term additional resource or to provide expertise and experience lacking inside the company. While independent consultants can provide clients with many services, including health and safety reviews, it is their expertise in the tendering process that is most frequently called upon.
Ideally, independent consultants prefer to be on-board from the time a client decides to outsource. According to David Pearson, managing partner of DJP Consultancy, this helps prevent an 'infernal triangle' developing between top management, support services and business units.
'If business units are to achieve their targets, they need the right hard and soft support services,' says Pearson. 'Facilities managers must understand how to match the support services to the needs of the business. In turn, the business units need to understand the constraints the support services are working under.'
David Wilson, managing director of Summit Support Services, agrees: 'Some clients can't define their expectations or state what they require from a contractor. Their existing facilities services can be poorly structured, incoherent and often there is a 'woolly' payment structure which needs to be made competitive and deliverable. We help clients get these areas right before they go to tender.'
Pearson says that frank, two-way communication between the management, business units and the support services team help convert the infernal triangle into a circle. With good internal communication in place, consultants can ensure effective output and performance specifications are contained within the contract.
Frank two-way communication helps convert the infernal triangle into a circle
David Pearson
They can also help draw up a list of suitable contractors. 'Clients often have very limited knowledge of the facilities management outsourcing market,' says Wilson. 'Contractors have different sector strengths and geographical capabilities and there is a wide range of company cultures. Finding the right fit between client and contractor is crucial.'
According to independent consultants, contractors also benefit from their involvement in the tendering process. Derek Paxman, director of the Centre for Facilities Consultancy, says they can cut back on red tape and the politics of the client body.
'The documents we write are written with specific instructions to secure effective payment. Contractors know that as long as they deliver what is required, they will receive payment of invoices.'
Reassuring the clients
Wilson, whose clients have included WPP Group, Cable and Wireless, Global Marine Systems and Canada Life, agrees. 'We take a more structured approach to a contract than clients would do.
And, just like the contractor, we can reassure the client there is no need to worry over hurdles like Tupe. We can play the role of an honest broker because we do not have a vested interest.'
Yet in practice many independent consultants may feel less like honest brokers and more like referees between two warring parties. While lip service is frequently paid to 'partnering', the reality is that many outsourcing contracts are distinctly adversarial.
If something is outside your comfort zone, employ an external expert
Ronnie Wilkie
Pearson believes the independent consultant is in an ideal position to encourage frank talking and to close the 'credibility gap' in contractual proposals. The credibility gap occurs when contractors offer unrealistically low prices in order to win a contract and then economise to recoup their margins. A decline in service inevitably ensues.
'At best, partnering can improve mutual competitive edge with long-term benefits,' says Pearson, whose clients have included Ford, BNFL and the Inner London Magistrates Court. 'If client and contractor work together honestly, there will be an effective contract base to manage this service.'
However, Pearson warns there is no guarantee that by using an independent consultant, early termination will be avoided. 'There will always be the unknown,' he says. 'The key is to build flexibility and effective change management into the contract. It's a living thing, people move on and everything changes all the time.'
So what can a client expect to pay for the services of an independent consultant? Typically, the fee will add between 2.5 and 4 per cent onto the cost of the contract. However, costs will be much lower if the consultant is not involved in the 'legwork', such as producing the detailed schedules of plan and premises attached to the invitation to tender.
Views from the industry
Richard White, head of property and estates, Thomas Cook Retail, uses independent consultants and believes they provide value for money. Most recently, the company worked with PricewaterhouseCoopers (PwC), which has formed a bespoke outsourcing operation to manage contract negotiations for the travel agent's 700 shops, 100 stand-alone bureaux and Peterborough headquarters.
White says the new operation can call upon the 'huge buying power' of PwC, gathered through its work for other retailers and occupiers.
Consultants rarely add value, often they confuse the clients
Clive Groom
However, not all clients employ independent consultants. Ronnie Wilkie, head of operations for Booze, Allen, Hamilton, believes he has enough experience and knowledge in-house, yet he is not against the practice in principle.
'You have to be honest about your level of competency and if something falls outside of your comfort zone, then you should employ an external expert, especially if you are moving into international property.'
Wilkie says some clients will employ independent consultants as a kind of insurance policy. 'Say your company is moving to Milton Keynes. You need someone there who knows the skunks and the rabbits. And if things turn pear-shaped, someone else is liable.'
The question of liability is one that frequently crops up in the business of contract negotiation. However Pearson counters that accountability can never be outsourced. 'When it comes to the crunch, the support services manager is always accountable,' he says.
Clearly many clients welcome the input of independent consultants. However contractors have a mixed reaction to their presence at the negotiating table. Some feel the presence of a third party can create an unwanted distance.
Clive Groom, executive director of Interserve FM says the size of most of the contracts his company negotiates means that the client is generally experienced enough not to require the services of an independent consultant.
Contractors also benefit from our involvement. They can cut back on red tape and avoid the internal politics of the client body
Derek Paxman
'If it is the first and only time a client is placing a facilities management contract, it is legitimate to have an independent consultant to hold their hand,' he says. 'But we rarely find they add value — more often they confuse the client.'
Groom says that as an experienced contractor, Interserve is in a position to advise clients and, unlike independent consultants, can take responsibility for delivery of service.
'We can offer all kinds of advice to the client, we don't have a fixed offering. We can find out what the drivers are to a particular client. They may be looking for cost reduction, or they may be looking to get a particular problem off their hands, such as ending an industrial nightmare.'
He adds: ' Independent consultants always have to justify their existence to clients and demonstrate that they add value. Therefore they are unlikely to side with the contractor.'
Once again Pearson rejects this. 'If I think my client is wrong and the contractor is right, I will say so. It would be inequitable not to do so. My role is an arbitral role on occasions.'
However, like many other consultants, Pearson is aware of the danger of appearing to come between the contractor and the client. 'It could happen if I dealt with the contractor alone. But I would always be part of the client team. What I've found is that contractors have warmed to my approach — to be honest, and to help make the process realistic.'
Contracts set up by independent consultants are not infallible however. All agree that even if a contract is word-perfect, it may still fall down if it is not effectively managed. Good contracts are flexible enough to take into account changes in key personnel and still maintain the level of service.
Whitbread teams up with consultants
In January 2001, leisure company Whitbread appointed EC Harris capital projects and facilities consultants to provide strategic advice on setting up a total facilities management contract and to support the outsourcing deal. Whitbread wanted to reduce overheads and deliver better value for its internal customers. The company, which has now sold its brewery and pub business, was committed to delivering shareholder value to the rest of its business — restaurants, leisure centres and hotels. Alan Tugwell, senior facilities management consultant at EC Harris, says the first task was to prepare a prequalifying list of suppliers. Site visits were made and costed tenders were accepted. Johnson Controls was appointed, its bid negotiated and the contract mobilised. Tugwell worked with Whitbread and Johnson Controls to develop an overall strategy against ‘an aggressive’ timescale. ‘Originally it was decided there would be 23 weeks for completion, but the client wanted it sooner,’ says Tugwell. ‘When you are supporting the client, you go ahead and just do it and we did it in 17 weeks.’ Johnson Controls was appointed on 1 June in a five-year, £50m plus deal, which includes both hard and soft services. The contract covers Whitbread’s three headquarters and London executive offices. Almost 50 staff were Tupe-transferred. Beyond this, over 100 separate contracts for services were ‘novated’, or transferred to Johnson Controls. While no staff were lost as a result of the Tupe transfers, the contract meant the removal of two management layers. Considerable time and effort was put into partnering during the deal, which Tugwell says defines clearly the services required for a ‘cost plus’ contract. Cost plus deals require providers to make their returns through the management fee only. Tugwell adds that given the time, expertise and resources, the client could have negotiated the deal without the assistance of an independent consultant. However, he says the benefit of using an independent consultant was that he was able to bring a number of areas of expertise to the table. These include advice on potential suppliers, development of an overall strategy and advice on the prequalifying document, the prequalifying process and analysis of bids. Johnson Controls delivers monthly briefings on service levels and key performance indicators to the relationship manager at Whitbread, who has an ‘intelligent client’ role. The aim is to free up Whitbread from the day-today management of non-core services, but to maintain control of strategic issues.Source
The Facilities Business