23 APR 2018
The recent IFMA-RICS Raising the Bar report found that FM as an industry is still focussed on cost and not adding the strategic value it can. Is this focus on cost driving unethical business practices? Is the Carillion collapse an indication of a fundamentally broken business model for outsourced service delivery?
I joined three industry leaders for their insights, and a look at how RICS is championing ethical standards for FM.
One of the most shocking revelations that surfaced earlier this year about Carillion was that it was not an isolated anomaly. Many of its competitors also appear to have taken on too much risk, decisions that have left them with decidedly shaky financials.
A common thread is that a good proportion of their business was, and still is, large public-sector contracts.
Is the market broken? The need to drive price down has perpetuated a ‘race to the bottom’, where suppliers are competing relentlessly to reduce cost. Contracts are being secured purely on the ability to take cost out of the business, and everyone – client, supplier and consumer – is paying the price.
RICS is calling for a more ethical approach to business. We are developing a framework that is fairer, more collaborative and more transparent, a model that all FM professionals are expected to follow. To this end we are drafting new procurement standards that promote best practice, and a new FM contract in collaboration with JCT.
We asked a panel of industry leaders why the market is failing, and what the solution is. I was joined by Deborah Rowland FRICS, Director – Public Sector Affairs, Sodexo; Kath Fontana FRICS, Managing Director – Technical Services, ISS UK and Rory Murphy FRICS, Commercial Director, Vinci Facilities.
Deborah: The way that Government contracts FM is commodity driven. FM is not a commodity, it is a service. When you commoditise something, it drives a behaviour of price cutting.
This behaviour starts with the client in the way in which they procure, but has been exacerbated by some suppliers who immediately race to the bottom line. They bid low for those contracts, despite knowing that they will be potentially loss-making on the core contract.
Kath: There are competing tensions in the market. The race to the bottom on price is because the tenders are heavily weighted on cost. Suppliers are required to meet the expectation of the market. These competing tensions can result in suppliers taking on contracts that may grow turnover but are loss-making.
Another fundamental reason why the risk/reward balance is wrong is that there is not enough effort put into the front-end of the procurement process.
Much of the time suppliers have to make judgements based on information that is fundamentally inaccurate and incomplete. Over the years that problem has got worse, because projects are continually re-outsourced so there is no consistent approach to quality data - essentially ‘eating fruit from a poisoned tree’.
It is also difficult to address these shortcomings during the tender process because you could be judged on any caveats that you include. So, the challenge for any supplier is when do you raise issues with the procurement process, and do you include caveats?
Paul: If FM continues to sell services it knows it cannot deliver at the expected cost then it is at risk of following the model set by the financial services industry. I believe that this will seriously damage its reputation as a profession.
Rory: Yes, I think that is true. But it is also about identifying the kind of customers that you are comfortable working with. Which is easier said than done.
Rory: We need more professionals on both sides running the FM business. We have to ensure that people are competent, and we have to define what those competencies are. Parts of the procurement process need to be standardised, but there needs to be room for bespoke elements too, provided they are developed intelligently.
Deborah: I agree with Rory. We need to see professionalisation in FM of those who do the procurement, and those who manage the contracts.
Paul: There is a need for stronger leadership too. We need more FM professionals making business decisions at the highest level. When we talk about ethical standards for the industry, these are not just nice to have things, they are actual requirements. People need to behave ethically, and that needs to become an expectation.
Kath: All suppliers compete on quality, efficiency and risk transfer. But let’s emphasise the quality and efficiency and minimise the risk. In order to do this, the industry needs to invest in quality data, correct specifications and proper dialogue.
Rory: Let’s compete as a profession on our intellect and the quality of our solution. None of the industry should be competing on who’s brave enough to take the biggest risk.