Using mediation to avoid disputes in FM

The real estate and built environment sector are the main driver behind the growth of the Facilities Management (FM) industry.

Good FM is critical for the built environment, so that the built environment is preserved in accordance with the design intent, revenue is generated from leasing or sales activities and occupiers can carry out their core functions efficiently and effectively.

In order to maintain and enhance the living and working environment, and the visitor experience, it is necessary to provide supporting FM & Asset services during the operational phase of the real estate developments.

With the continued growth of the FM industry comes the trend of improving service levels and more demanding client requirements. FM service providers take on these challenges ensuring service standards are met, while carefully managing delivery costs to ensure assets are maintained in their optimum condition. In the midst of these trends of improved service specifications and rigorous cost management and technology.

Contracts and Challenges

FM Contracts between the Employer & the Service provider are generally bespoke FIDIC contracts incorporating the services requirements with below options;

1. Direct labour hire
2. Partial outsourcing
3. Full outsourcing different contracts for various services (e.g. MEP, cleaning. Security etc.)
4. Full outsourcing using a Total Facilities Management (TFM) contract
5. Full outsourcing on a Managing Contractor contract
6. Full outsourcing on a Managing Agent contract
7. Joint Venture with a Facilities Management service provider

Because of the quality of services and other issues associated with options 1 and 2, many employers are choosing to opt from options 3-6. However, these contracts have challenges such as;

• Multi stakeholders (Employer, Government Authorities, sub-contractors, unit owners/occupiers) contracts
• Output specification contracts are complex and based on the services provided as opposed to the measurable work based on Bill of Quantities (BoQ) as a typical construction contracts
• Difficult to measure the performance, as efficient Key performance indicators have to be in place,
• In case of litigation difficult for both parties to present the case as some of the scope of work may not tangible (customer satisfaction, quality of work etc.)

Mediation as an alternative

As FM Contracts create complex arrangements requiring consideration not only of the performance specifications but a range of other commercial issues such as asset strategy, indemnities and other regulatory matters.

Very often FM Contracts form part of a much wider commercial arrangement (e.g. Owners Association, Built, operate & Transfer (BOT) agreement, Public Private Partnership (PPP) and in such circumstances it is important to have a thorough understanding of implication of terminations, litigation process and various risks.

The major difference between resolution in the Courts and resolution at mediation, other than time and cost, is that in Court, a third party, the magistrate, decides the matter: there is a winner and a loser. However, that decision may not be in favour of either of the parties resulting in unmanageable risks for both the parties.

Mediation on the other hand is a process whereby the parties come to a facilitated agreement to resolve their dispute. It is possible to introduce features outside of the scope of the existing dispute into the settlement and, very importantly, there is an opportunity for all parties to "have their say". This is very important in case of FM contracts that both parties are in agreement or at least agree to disagree in order to avoid risks and efficaciously manage the assets over their lifecycle. 

Mediation is a recommended process of choice within contracts of strategic importance to solve problems as and when they occur, as this it has been proven to maintain relationships, commercial interests and may create opportunities by bringing in out of the box solutions. Undeniably not all the matters are suitable for mediation however the parties may explore the opportunities for amicable resolution before going to litigation.

This article was written by Meraj Ahmed Khan, who is a Senior Consultant – Facilities and Asset Management with Mace Macro, Dubai as part of his case study for the RICS Mediation Training Programme.