Driven by cost pressures, many organizations, particularly their procurement and supply chain functions, are increasingly applying rigid pricing models and imposing unrealistic contract terms on their facilities management vendors. This trend is rampant in the region and is gathering momentum globally as well.
As a strong proponent for FM advocacy in optimizing operational costs, I believe that cost efficiencies and productivity should be key factors in establishing a legitimate sourcing strategy. However, I object to the excessive emphasis on price reduction that solely prioritizes cutting the cost of resources or compromising service level benchmarks without considering the intrinsic costs associated with the desired outcomes. Equally concerning is the attempt to transfer all risks to service providers, whether it be through termination clauses, price inflation factors, or muted references to delayed payments and conditional survey findings.
What baffles me is their total disregard for the intrinsic costs of their stipulated Service Level Agreements (SLAs) and the underlying costs of risks they are transferring to vendors, as outlined in their tender conditions. Seldom do I see organizations undertaking such prudent measures by aligning them with the very intrinsic cost principle. What is commonly seen is the practice of companies’ budget baseline-driven exercises that are usually outdated or never aligned with industry benchmarks.
This trend poses a significant danger, creating a ripple effect that threatens the sustainability and quality of FM service delivery, while also contravening the company’s long-term costs. This is a direct attempt to void the real FM impact, a fatal error that they make as a pitfall of price-centric procurement. It is common to observe that the lowest price is ruling the FM awards rather than value creation, service innovation, or lifecycle management. Despite the loud emphasis on these objectives in their Requests for Proposals (RFPs), the tone of procurement is often non-conciliatory to these stipulations.
Armed with a high-handed approach to demonstrate savings, many procurement teams are pushing vendor selection to a mere spreadsheet exercise. In most tender meetings, we observe evaluations based solely on a single sheet of numbers, with little consideration for technical assessments or the basic intrinsic costs in relation to their stipulated SLAs. Still, the lowest bid often becomes the default choice. This obsession with cost-cutting has led to multiple issues.
Contractors are compelled to undercut costs while operating within unrealistic budgets that barely cover wages. This practice results in skill shortages that impact the quality of delivery and innovation. Furthermore, the stringent requirements for input resources often stipulated in RFPs lead contractors to deploy skeleton staff, cut corners on preventive maintenance, or use low-cost materials, all of which risk safety, compliance, and asset longevity.
Another critical issue is the risk transfer resulting from unbalanced contracts. It is also becoming increasingly complex for responsible FM players to align their bids with their corporate governance guidelines, often exposing themselves to significant risks due to grave exposures. There is a growing tendency to shift risks and liabilities onto FM service providers aggressively. There are even cases where contract terms are even contrary to the minimum notice periods required under respective regulations making their fulfilment an additional burden that the suppliers carry. Furthermore, these contracts often carry open-ended liabilities and indemnities that involve irrelevant insurance, performance-based payment models and provide limited flexibility to adjust for inflation, changes in statutory laws (such as wage increases), or scope creep.
Other issues in this saga include the ambiguity surrounding conditional survey findings and associated obligations, as there is often no clear matrix stipulated with lop-sided unilateral narratives. This situation leads to a poker play between the incumbent and outgoing vendor, where the goal is to defer their obligations related to necessary capital expenditures (capex).
These practices unfairly shift the commercial and operational burden onto service providers, creating unsustainable working conditions that undermine service quality and trust. Ultimately, these trends impact the industry and the performance of contracts. It is worrisome, as it is not just the bottom line alone, but also decimating FM standards, with a ripple effect in many ways.
First of all, it reaches the frontline workforce at the heart of FM operations. Due to unrealistic commercial pressures, contractors are often forced into wage stagnation, resulting in high attrition rates as employees experience increased workloads and burnout. This situation is exacerbated by reducing spending on training and development, which creates an overall morale issue that leads to poor performance. Consequently, this poor performance invites penalties that further erode profit margins.
Another significant concern is the effect of undermining long-term asset value. The stark reality of this lacuna is that, in pursuit of short-term cost savings, clients often end up sacrificing long-term asset health. This effect includes deferred maintenance, minimal compliance investments, and low workforce morale, all of which accelerate asset deterioration, resulting in increased breakdowns and reactive costs that unravel the myth of cost savings through procurements.
Impinging on costs without standard alignment also compounds regulatory non-compliance risks and tenant or user dissatisfaction.
Interestingly, the savings achieved today often result in costs that are tenfold in the form of operational disruptions and extensive capital repairs in the future. This apathy towards supply chain management is concerning. In the coming years, we will likely see the aftermath of such poorly led supply chain approaches reflected in capital expenditure (capex) and operating expenditure (opex) budgets, particularly in vendor spending, ultimately dismantling the myth of cost savings in the supply chain.
In this opinion piece, my objective is to emphasize the importance of building a more sustainable model with a win-win strategy for clients and the FM industry. We all need to recalibrate our approach. Clients and their supply chains must rethink their FM procurement strategies, whilst service providers do need to adhere to the service pledge. A mature, value-driven relationship in FM balances cost with the ability to achieve strategic goals, fostering a healthy relationship and the sustainability of FM providers.
Clients should view FM as a strategic enabler rather than a cost centre, encouraging collaboration over penalization and aligning incentives for continuous improvement rather than relentless cost-cutting. They must realize that such partnerships unlock innovation, drive efficiencies, and ensure that the built environment remains safe, compliant, and productive – outcomes that spreadsheets cannot quantify.