Longer term contracts - a new kind of relationship

6th of May 2016
Longer term contracts - a new kind of relationship

Cleaning contracts typically run for a term of three years, a period many service providers argue is simply not long enough to enable them to make the investment and impact they would like at the site. However there are now some longer term contracts being awarded to cleaning and facilities management companies and these bring a whole new dynamic to the client/contractor relationship.

Last July, for example, Chepstow Community Hospital in the UK confirmed its total facilities management service company OCS would continue to provide maintenance and engineering services, patient and retail catering, domestic cleaning, housekeeping, reception and switchboard, portering, laundry and grounds and waste management until 2020. The company has been responsible for all FM services at the hospital since it opened in 2000.

Another one of OCS’ longer-term contracts is with the NEC Group in the UK. Its group operations director Brian Pell supports this type of partnership wholeheartedly. “For us at the NEC Group, the need to establish strong, mutually beneficial relationships with strategic partners like OCS was important from the onset. The longer our relationship lasts, the better for all parties including our customers. The advantages we have experienced at the NEC include improved performance, greater cost efficiency and help in growing our own business.

“OCS has demonstrated its experience and endurance within our business for nearly five years now,” Pell continues, “and has adapted to our needs, flexing when we needed it to and reacting to all of our requirements when called upon.

“This trust is only gained with a service partner that has grown with your business and when you have formed the bond that allows for a long-term strategic partnership to flourish,” he concludes.
As most cleaning companies know, however, this type of contract is still quite rare, as Julie Jackson, OCS head of contract re-engineering explains. “In the private sector a contractor is grateful for a five-year term, it’s usually in the public sector where we look for longer term arrangements.”

She continues: “We class a long-term contract as being seven years and above. That’s different from a long-term relationship with a client, because contracts can be renewed again and again.”

So why are more longer-term contracts not being awarded? “Clients’ procurement teams can always see a value in putting out to tender again, and there is often pressure to do that,” replies Jackson. “It’s costly for the client and the contractor to go through procurement, however they feel they must show ‘Best Value’.”

Mutual trust

The most significant benefit of a long-term contract is trust says Jackson. “A large FM provider often works across many sectors  - it can understand the strategic goals of its client and help them to move in the right direction. That’s when the contractor earns trusted partner status.”

Those relationships are far more rewarding for the contractor in many ways. “They are also more commercially successful,” Jackson adds. “This is because working over a longer term gives us the opportunity to solve real business problems and make key innovations. We like to seek opportunities for innovation in strategies and processes, and that is a long-term process. This makes the contract less one-dimensional in terms of simply meeting a specification.”

In fact Jackson believes having more long-term contracts could enable providers to restructure their organisation. She explains: “We could have less focus on contract renewal and retaining clients, and more on innovation.”

She refers to the concept of Vested Outsourcing, a concept promoted by Kate Vitasek. She believes it’s time for a change in how outsource contracts are negotiated and managed. “A common mistake outsourcing companies make is that they cling to traditional transaction-based contracting models and create detailed statements of work (SOWs) and then strictly define the work to be done. This handcuffs service providers and their ability to innovate.

“A more flexible agreement framework is needed in today’s economic and business environment. This was validated in 2009 when Oliver Williamson received a Nobel Prize for his scholarly contribution to economics. One of his key teachings is contracts should be highly adjustable or adaptable, rather than prescriptively outlining detailed transactions and rigid terms and conditions.”

The Vested Outsourcing philosophy relies on five rules to help achieve economic alignment between companies and service providers.

Rule one – Outcome-based versus transaction-based business model
Rule two – Focus on the WHAT, not the HOW
Rule three – Clearly defined and measurable desired outcomes
Rule four – Pricing model incentives are optimised for cost/service trade-offs
Rule five – Insight versus oversight governance structure.

More than service

Vitasek concludes developing an outsourcing agreement using Vested Outsourcing principles is much more than delivering a higher level of service on a given activity. “This model enables the parties to build a solid, cooperative foundation for sharing and creating value.”  It guides all stakeholders away from “the typical transaction-based mind-set while providing a clear path to
flexible, collaborative and win-win contracting”.

Julie Jackson agrees. “Vested Outsourcing helps us to move away from the pure procurement model and goes towards innovation and partnership. It encourages and enables investment in innovation, processes and technology. For example the introduction of robotics, remote machine monitoring systems etc, are very costly to implement. Providers need those long-term contracts to enable investment.”

Procurement guidelines

How do clients feel about longer-term contracts? “The response varies,” says Jackson. “Many have strict guidelines on procurement so it often depends on internal policies. Operational people on the client side are often more focused on process and delivery, while procurement experts are concerned about cost and savings.”

A vested outsourcing approach within the building services sector would change the whole dynamic of commercial arrangements, Jackson points out, because both organisations involved share the benefits.

“This type of relationship is what we should aspire to as an industry,” she says. “The culture change is huge but we would be moving towards a culture of transparency, longevity and partnership. It’s an altogether more mature kind of relationship.”

Global services provider Sodexo also actively seeks longer-term contract arrangements with its clients. For example it recently extended its partnership with The Royal Botanic Garden in Scotland for a further seven years. The contract will see Sodexo continue to deliver retail catering, restaurant, public cleaning, sales and marketing, and event services. And under the extension it will now also provide staff dining and cleaning services at the Edinburgh Garden and cleaning services at Dawyck Botanic Garden.

Heather Jackson, Royal Botanic Garden Edinburgh director of enterprise, said: “We’re looking forward to continuing the excellent relationship we already enjoy. The new contract gives us both the opportunity to realise our ambition to deliver a world-class visitor experience in a world-class botanic garden.

Development of people

“From presenting the very best of Scotland’s larder, to providing the warmest of welcomes to all of our guests, are objectives we’re committed to delivering in partnership.”

Lauren Kyle, head of cleaning, service operations at Sodexo in the UK also feels longer-term contracts are a win-win for both contractor and client. “Contracts like this allow us to really develop a partnership so that we can understand our client’s priorities and longer term strategies. With many benefits.”

She continues: “Shorter term contracts always bring challenges in that it takes us time to learn from scratch – getting to know the client, the building, etc. With longer term ones there is also greater continuity and stability for the staff, and with that come greater development opportunities. On a longer term contract the service provider is more likely to invest in people.

“If you have a front-line cleaner who has potential, for example, and their employer keeps changing there is less possibility to develop and retain that person,” Kyle adds.

She quotes the recent Equality and Human Rights Commission (EHRC) report in the UK into the cleaning workforce. One of its principles is to encourage longer-term contracts, and for clients to see the benefits of staff development. It states: “When deciding on the length of a contract, bear in mind a longer contract term, with the option of extension if justified by performance, is likely to encourage a supplier to invest in workforce development and give greater job stability.”

Contractor benefits

What attitude do those responsible for service procurement have towards committing to a longer-term relationship with their contractors? “Our clients view longer term relationships very favourably when it’s working well,” Kyle replies. “Tendering takes time and a great deal of resource - it can also distract them from their core business.

“Where procurement teams work well with FM they see the longer term picture. They understand that if you invest in the cleaning team on-site they will see benefits in terms of reduced sickness, improvement in morale and development of a better partnership. That level of service is more achievable over a longer term.”

And commercially, of course, retaining and developing longer-term contracts is a huge benefit for the contractor. Lauren Kyle agrees with Julie Jackson, concluding: “It certainly costs a great deal more to win new contracts than to retain and extend existing ones.”

www.ocs.co.uk

www.sodexo.com

 

Our Partners

  • ISSA Interclean
  • EFCI
  • EU-nited