In today’s business world it is important that FM’s get the maximum value for investment while minimizing risk. Being a smart customer is a good way to improve both domains. Many of the business partners you depend upon daily remain under economic duress, which may affect their ability to perform successfully. When the video store on the corner closes its doors it’s an inconvenience, when your outsourced maintenance provider or sub-leased tenant goes dark it’s a whole different issue.
An informed customer has a much greater probability of making smart decisions. I am sure you do a lot of research when you prepare for a major personal purchase, such as a car. You investigate quality and true cost of ownership, and read reviews from experts and other owners. It is only when you feel fully informed and armed with the best information that you proceed to the dealer’s lot. Making a major business purchase is no different – information is king.
Who does the research is also important. Abdicating this responsibility to your Purchasing group is not a good strategy. You know the industries, issues and players. You are prepared to ask telling questions that will reveal a potential partner’s true viability. And it is you to whom leadership will look should a business partner’s performance jeopardize your operation because they are cutting corners or have failed.
Basic investigation should include a comprehensive evaluation of financial health and risk. If a major financial or mission dependent decision is at hand then rigorous investigation is needed. This should include a review of financial health including how well the company is capitalized, a review of their stock price history, independent conversations with clients of your choosing (ask for a full list and make your own judgment on who to call – don’t just call the three or four they recommend), and a SWOT analysis to understand their market vulnerabilities. At the bottom line it’s about the bottom line. Capital is the lifeblood of business. Make sure they have it and know how to use it wisely.
Take advantage of leverage but maintain balance. There are lots of ways to gain pricing advantage when dealing in a buyer’s market, but it is possible to damage future performance and the relationship by being too aggressive. Unsustainable terms may look good now but can cause the provider to fail if they are not able to support operations in an acceptable manner due to cost pressures. While you are busy figuring out how to get the best possible deal, turn the coin over and consider what provides the best possible value. Aggressive but fair economics combined with performance measurements and penalities/incentives that compensate the provider based on true value enhancements to the customer will help set a win-win environment.
It’s all in the contract. All the good intentions in the world aside, it is the contract that rules. For important commitments contract negotiation should be an FM responsibility with Purchasing and Legal in a support role. It is fair to include penalties and often it is smart to include incentives, as mentioned above. Importantly, however, there must be a basis for understanding and interpreting performance in a way that minimizes ambiguity. Performance data, metrics, SLA’s and KPI’s offer essential legal protection but must be well thought out and agreed to, as should the processes for collecting and reporting. Another key clause is the right to re-bid and/or renegotiate the contract at any point at the customer’s sole discretion, with an appropriate notification period. This will allow you to take advantage of economic shifts in the customer’s favor should they occur mid-cycle before you would normally have a chance to re-compete, or to replace the provider should performance fail to meet requirements.