A key aspect of handling facility management spend is the type of contract the buyer decided to opt for during their engagement. Types of contracts are decided by many variables, such as supplier maturity in the desired geography, price fluctuations, scope of services and geographical reach.
Recently, buyers have exhibited a preference towards performance-based contracts, as they have inherent advantagesꟷespecially in providing freedom to the service provider to innovate, make the existing process more efficient and focus on end results.
In performance-based contracts, however, there are also challenges which make them difficult to implement smoothly. Two key challenges are uniform implementation of services across different regions/countries and holding the supplier accountable for performance.
Some buyers desire uniform implementation across all their units/spaces to have a similar standard, making them easier to administer and manage. It is expected that ~80% of the SLA for most of the facilities are consistent for similar type of properties (manufacturing facility, office space or warehouse). Local regulations, cultural differences and expectations typically include variations. Thus, different facilities tend to claim variances, and these must be established and validated before being accepted in the scope.
Service Provider Accountability
SLAs determine the manner in which a service provider can be held accountable. For the SLAs to be more effective in a performance-based contract, they should have the following attributes:
- Linking performance to the payments of the supplier (Non-performance has a cost)
- Ratchet mechanism so that repeated non-performance has a greater impact
- Include relevant and meaningful KPI that are effective to administer and do not consume disproportionate amount of time.
The measurement mechanism should also allow soft measures that take in the views of the end consumer through customer satisfaction surveys.
The positives outweigh the challenges in a performance-based outcome model. Buyers will need to use the services of specialists while designing a performance-based contract, the cost of which should be offset by the savings achieved over the duration of the contract.