• Time to rethink the property contract?

      Last night, our latest Mitie Executive Dinner provided a fascinating discussion with a dozen senior property and FM folks around the opportunity to redefine the way suppliers and clients engage with each other, and how the services model should be best defined. As you might guess it was a lively discussion.

      At one end of the spectrum was a Property Director who argued that the future lies in landlords providing the entire property on a fully serviced, pay-as-you-go basis. It sounds like the Regus model on steroids, and its flexibility could have merit. However, on a large scale it would most likely prove to be too costly, which is why it would be unviable.

      So instead of changing the model totally, we started discussing whether the root of the problem lies in the way contracts are let.

      There are several points of disconnect in the current process. To start with it is all about paring everything down to the lowest common denominator to try and get to the lowest possible price. Many people questioned if this approach is sustainable considering the value of FM contracts and the effect that getting it less than right will have on the organisation’s most important assets – its staff and customers,

      The corporate focus is increasingly on delivering a high quality experience to all those people who use commercial premises. So why use a procurement model designed to get the lowest cost on commodity items?

      You can’t really evaluate how well your two organisations will fit based on ticks in a box and a few meetings. Nor can you really get under the skin of the supplier/ task in hand. If you do there is massive risk – as one guest pointed out, the last contract was awarded to the least-cost bidder, whose bid had been prepared entirely from reading the ITT. The fit was so bad, they decided to exit the contract early. Not only did this incur a hefty termination fee, they then had to go through the whole time-consuming and costly process of finding a replacement service provider.

      If that was the first time I’d heard something similar I’d be shocked, but tales like this are all too common in business.

      So how do we reinvent this particular wheel? Certainly from our perspective, the cost of responding to huge formulaic tenders is significant, and I genuinely believe that clients are never going to get best value from a process that has been tried and tested to near-destruction.

      We need to change the engagement model to one around a dialogue that is open and interactive and starts well before the ITT is even being considered. We also need to do a lot more pre-qualification to avoid wasting everyone’s time. If suppliers know they have, say, a one in three chance of winning, rather than a one in 20, then they will invest more in the pre-sales process, and the client will get a much more sustainable outcome.

      We’ve seen this approach work well in other industries, particularly the IT space, where large procurements are often issued only after lengthy pre-contract discussions between the client and a select group of potential suppliers. Sometimes these discussions last for over a year, but the net result is that the business gets what it needs to help it achieve its corporate goals, rather than the cheapest grey box

      When I buy something I want to that the product or service will deliver what it says on the tin, whether that is for my home or business, so I’ll take a sensible amount of time making sure that all the factors are weighed and considered. Surely we would get better value all round if we stripped out some of the excessive layers of process around FM procurements and injected a larger dose of common sense?

      There’s a lesson here from Japanese manufacturing, which is that a continual process of slow and steady improvement can deliver more than step changes. Perhaps re-engineering the way we engage would be a good start down that road?


      A version of this first appeared in The Mitie Debates