The Cost of Mistakes

It’s a while since I’ve posted on here (I’m nothing if not a master of understatement), not through any deliberate intent on my part but more as the consequence of being particularly busy over the last few months. Generally, I’ve been content to keep abreast of what’s going on within the industry and to discuss developments through the more “traditional” networking channels; occasionally, though, something hits my desk – or the screen of my Mac – which makes me sit up and take slightly more notice; or, indeed, put the figurative pen to paper. One such occasion arose when I read the i-FM report by Elliot Chase published on 23rd September and entitled “Recession drives procurement change”.

The subject was addressed at the latest BIFM Fellows’ Forum, hosted at Deloitte’s City of London HQ, and the main thrust as reported was that the recession has necessitated a shift in the approach to procurement . Attendees heard procurement specialists Martin Laws and Guy Palmer explain the results of both recent research and client experience, which confirmed (unsurprisingly) that cost control was a top priority, and that it would remain so in the foreseeable future. Then came the interesting bit (because, let’s face it, the issue around cost control is not exactly news), and I quote from the article itself…

Deloitte… is seeing a clear move towards increased interaction between buyers and suppliers in order to get the best results from a contract appointment. Increasingly tender decisions… are being made on the basis of cost, plus assessment of capability and fit… a maturing of the decision-making process in that it offers a better balance of previous approaches, specifically the technical-led and the procurement-led.

The pressures of recession… have resulted in more questions being asked, both internally and externally, as the procurement process develops. In many cases, this has had the benefit of working against short-termism, in which cost is the only real decision criterion – though there are still plenty of examples of that approach around, too.

Now, I posted an article on this blog about a year ago in which I expressed astonishment at the gulf that apparently existed between the property and FM sectors, and at the audacity of the former to tell the latter how to suck eggs. Once again, I’ve been left feeling similarly bewildered and bemused at how little understanding there seems to be in the wider world of the most basic of concepts that are the cornerstone of FM. This time, concepts relating to the procurement of FM services.

When I re-launched Edifice at the beginning of 2006, I reckoned that I had a reasonable pipeline based upon clear target clients and some quite decent market knowledge. However, the first company I went to see was one that had invited my previous employer to tender (for a hard services outsource); I’d led the bid but – although we’d been unsuccessful as a consequence of cost – I knew that the fit with the successful tenderer just wasn’t right, and that what had ultimately been procured was impossible to deliver within the accepted cost constraints. Sure enough, the new contract had proven to be a complete disaster and I proceeded to work with that client for over a year to provide a solution that met not just the budget constraints but also the organisation’s requirements in terms of culture, philosophy and customer focus.

To demonstrate this even further, the processes and systems that have been developed within Edifice to steer clients through the critical path of an outsourcing project effectively isolate cost as just one of a number of factors that should influence any sensible decision-making process. In other words, the question is “Right – given that cost comparison is going to be addressed as a discrete part of the evaluation process, what do you really feel about these suppliers? Can you work with the people you’ve seen, and have you actually seen the right people? Do their policies on sustainability, CSR and ethical procurement mirror yours? When they say they recognise the importance of training and development, do they put their money where their mouths are? Do they actually harness technology to demonstrably drive efficiency, or just spend money on systems that then has to be recovered from you, the client? And – critically – what do the clients say after working with them for x number of years? (The list could easily have gone on, but presumably the point has been made.)

Some of these questions are client-specific, but there are always a host of key areas that need to be addressed, and once done, the result is a framework within which “fit” can be accurately gauged. If the cost evaluation then suggests a similar solution, all well and good; if it doesn’t, then at least the client organisation will have the basis for rational and informed debate. In other words, if a decision is going to be made on cost, than understand the consequences of that decision before making it.

The procurement of facilities services can have a massive impact on an organisation’s performance, not just for the term of any contract let but for the additional time it takes to correct a mistake. And getting it wrong can also change the perception of a facilities team, or a procurement department, in the eyes of the end user (or, perhaps, the board). The danger, as I’ve been known to mention before, is in the “commoditising” of FM and it’s a danger that we must all be ever watchful against.

  1. #1 by Roger Thomson on October 8, 2009 - 7:01 am

    Tony,

    I think you raise a very interesting question regarding the validity of the assessment criteria that client organisations state will be used to evaluate priced submissions in respect of all types of competitive tenders – both service provision and consultancy commissions.

    In my opinion, there appears to be a general acceptance within client organisations that the weighting dedicated to the price received from bidders ‘should’ be kept at a respectably low level to demonstrate that the client is looking for ‘best value’ rather than lowest price and that they have a desire to obtain the best service for the required works. It appears almost as though the cost element of any tender assessment should be considered a little embarrassing or even a bit taboo – almost as though its a ‘dirty’ subject that they’d really rather avoid discussing at all?!

    In reality though, there is always a higher emphasis on cost than the client, or their published assessment criteria, would suggest. Regardless of the assessment criteria, or indeed the best intentions of the client, there will come a time where despite the qualitative element of a tender submission being 100% perfect, if the price does not fall within a certain threshold, the submission is rejected in favour of a ‘cheaper’ option. We have seen this from both sides of the coin – as advisor to a client organisation and as a bidder for consultancy services.

    The difficulty is that in setting weighted assessment criteria, you need to be mindful of the possibility that you may receive an excellent tender the price of which is simply too high for the client organisation to stomach – where this is the case, the risk is that the weightings may still result in the expensive option coming out on top of a tender assessment……..then what happens?!

    As a client, do you change the assessment criteria to achieve the required objectives (a little ‘dodgy’ perhaps) or do you have the courage of your convictions and believe in the assessment criteria that were set prior to the tender returns being received and recommend the most expensive option to the Board?!

    Not an easy one but does highlight the need to be very certain of the assessment criteria and weighting being adopted prior to tender opening!

    Roger, you’re absolutely right – clients have to be clear about what their objectives are, and they also have to be realistic; however, clarity and realism are often in short supply, the result being that all parties involved face inevitable difficulty which in many cases is never overcome. The case study I highlighted is a good example of that (an example that you’re familiar with, I know) and it’s one where the original outsource was effectively determined by cost with little heed being paid to “fit”. The results were disastrous.

    I think that the problem often arises not because the client is being deliberately misleading but because there’s been insufficient engagement with the business as a whole. Consequently, objectives aren’t thought through and the cost/quality debate falls by the wayside. The point I was really trying to make was not that cost shouldn’t be the most important driver (it’s perfectly valid that it might be); but more that the potential consequences of being cost-driven need to be identified and accepted.

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