1. Second Generation Facilities
Management Outsourcing
Gary Noy
Director, Vendor Management EMEA and APAC
Facilities Management and Property Event, Selsdon Park
Hotel, Croydon 29th - 30th April 2014

2. Content
• Weighing options
• Future drivers
• Risk of change
• Market perception
• Contract types and incentives
• Transition
• Contracting success factors
• Relationship success factors
2

3. Weighing Options
3
• Options
– Renegotiate
• Keep current vendor
– In source
• Use own staff
– Bid to market
• Same or different
bundles
• May result in a vendor
change
– Mixture

4. Future Drivers
Cost control/cost reduction
New service lines
New geographies
Scalability
Flexibility
Asset class expansion
Analytics/modelling
Other
4

5. Value Opportunities
• Evolution of systems, methods and processes
• Supplier capability changes
• Change in market standards
Change in market
• Acquisitions and divestitures
• Structure, services, geography
Change in customer’s business
• Ideas for improvement
• Remediate issues on current account
Customer’s experience
5

6. Click to edit Master title style
Analyse Current State
6
Commercial
Structure
Relationship
Performance
Investment/
innovation
Vendor market
position
FutureImportance
Market Competitive
High
HighLow

7. Risk Of Change
7
Enablers of risk mitigation
• Early termination rights
• Notice requirements
• Termination assistance services
• Rights to service data and
information
• Termination transfer rights
– People, Assets, Contracts
– IP (systems, policies and
procedures)
• Other contractual protections
Risk of
Change
Lack of
knowledge
of the
outsourced
function(s)
Lack of
transferable
function
Service
disruption
Time
flexibility
Termination
of existing
relationship
Stakeholder
support

8. Market Perception
8
Ensure no perceived incumbent bias
Demonstrate willingness AND ability to change
vendor
• Innovation vs. Price
• Outcome vs. Prescriptive
• Transformation vs. Tactical/Incremental
• Collaborative vs. Directive
Match sourcing process to objectives
• Process
• Decision
• Scope
Capitalise/re-engage based on history of previous
market visit

9. FM Pricing Models
•Vendor passes all direct costs of FM services through to customer without mark-up, with a
separate management fee (margin) invoiced to cover overheads and profit.
•Open book accounting of the pass through costs is essential for assurance
•These may include a “Guaranteed Maximum Price” or Cap.
Pass-through plus
management fee
•Vendor provides all services at a fixed price
•Fixed price is usually only appropriate where the volume, standard and scope of services is
constant or at least predictable
•Main benefit to customer is certainty of charges
•Downside is that the charges are rarely transparent
Fixed price
•Unit pricing of baseline levels of usage/output for specific items of service (e.g. Number of desks
or back office transactions)
•Setting a tolerance level over/under baseline levels (e.g. “cap and collar” gives the customer
predictability over certain costs
•Mechanisms for reviewing baselines can be in contract, they are effectively re-negotiations which
can be time consuming
Unit pricing/Baseline
model
•A very flexible service delivery model and allows for comparison of rates
•No incentive for the vendor to innovate and/or reduce delivery costsTime and material
9

10. Transition
Pre-
Transition
Transition
Post-
Transition
10
Coordinate transition between existing and new vendors
• Knowledge transfer
– To new vendor or customer
– Cooperation between vendors
• IP, software, assets and contracts
– Determine if existing IP can be used
• Personnel
– Determine if there are rights to hire outgoing vendor staff
• Communications
– To vendors, stakeholders and customers
Human Resources
Contracts
Finance
Technology
EHS/Quality
Operations

11. Click to edit Master title style
Contracting Success Factors
11
Clear Sourcing Strategy
Avoid piecemeal process,
inconsistency and lack of
transparency
Defined Service
Requirements
Clarity on type and level of
services
Address HR Issues Upfront
Make provision for legal and
communication activities
Effective Change
Management
Effective processes and controls
in contract
Baseline Data
Detailed budget, staff models
and improvement tracking
Preserved Leverage
Non-exclusivity,
termination/renewal rights.
Effective governance process
Understanding Pricing
Structures
Open book, risk/reward, fixed
fee, gain-share etc.
Flexibility
Structure contract to
accommodate
growth/contraction
Effective Risk Transfer
Appropriate KPIs, avoiding
margin stacking
Understanding Contractual
Content
Particularly risk allocations,
insurances, indemnities etc.
Successful
Sourcing

12. Click to edit Master title style
Relationship Success Factors
12
Clear Understanding
Align at start:
Client needs and expectations
Vendor capabilities and
responsibilities
Alignment
Objectives and financial goals are
aligned so that both parties
naturally act in an aligned way.
Prevents dysfunctional behaviour
from self preservation
Positive Engagement
An assumption of trust and belief
that the other party is trying to
do the right thing
Cemented on doing what is
expected
Motivation
Customer team contribute to
contract success
Vendor and staff compensation
based on customer satisfaction
Capability
Vendor must be fully capable of
delivering what is promised at a
cost both parties expect
Data Quality
Customer and Vendor use
accurate, complete, readily
available (and the same)
information to make decisions
Communication
Customer and Vendor
communication is effective at all
levels for timely decisions
Stakeholder Engagement
Customer has gained full
cooperation of all stakeholders
who can undermine the success
of the relationship
Successful
Relationship

13. Weighing Options
13
• Options
– Renegotiate
• keep current vendor
– In source
• use own staff
– Bid to market
• may result in a vendor change
– Mixture
• Considerations
– Change in vendor can be costly
and disruptive
– Balance value with risk of vendor
change
– Be clear on the issues that you
care about
– Define what you need to achieve
• Requires objectivity and market
insight

14. Questions
14