The Pros and Cons of Outsourcing Facilities Management in Higher Education
What are the top few advantages and disadvantages of outsourcing facilities management?
Outsourcing transfers the day-to-day responsibilities to a service provider that has the expertise to perform the tasks. Outsource service providers have support resources that are beyond the reach of most education institutions as well as formalized programs, processes and procedures. The driving force behind many outsourcing initiatives is potential cost savings. Outsourced vendors have the power to consolidate purchasing for their customers to deliver better prices on supplies and equipment. In addition, the provider absorbs employee costs such as wages, benefits, training and worker’s compensation where additional savings are possible in some situations.
The flip side of this equation is potential disruption and morale issues if the outsourcing initiative is not planned and communicated properly. It is also extremely important to select a provider that understands and aligns with the mission and culture of the institution.
What is the greatest risk or concern, in your opinion, in outsourcing facilities management and how do you mitigate it?
Making it a price driven decision making process. Cost is always a consideration but should be balanced with other factors. Sometimes the lowest price turns out to be the highest cost in the long run when you consider service, customer satisfaction, administrative time and employee morale.
Any good educational institution examples to focus on that illustrate key points, or a decision process?
A recent one that I was involved with was Des Moines University (DMU) in Des Moines, Iowa. We issued a qualitative RFP with specific selection criteria. The price was only 10% of the total. Extensive data was given to potential providers so they could build a program that would meet the Institutions needs without doing it “in the dark”. Information provided included budget and actual expenditures, staffing, wages and benefits, building and square footage information, equipment inventories, acreage and much more. Six proposals were received and force ranked by a cross functional committee and the consultant based on the selection criteria.
Results have been very positive. The selected firm provided a “soft landing” for existing employees in regards to seniority, wages and benefits and did a good job, along with Administration, of communicating throughout the transition process. The provider has implemented technology, programs, systems and processes that were not in place previously. Administration is now getting information to make data driven decisions regarding facilities management and the institution is moving towards a Total Cost of Ownership approach in regards to asset strategy and management. In addition, the provider has added staff and equipment and implemented training programs to reduce purchased services resulting in a significant cost savings for DMU.
If an Institution decides to outsource, how do they vet vendors? Top things to look for? Red flags?
First, don’t invite anyone to participate that is not qualified, pre-select. Consultants can help with that. Then look for the company that did the best job of customizing their plan for your institution. Who listened? Who did their homework? Then make sure they have the horsepower to execute and support. Are they creditable? Do you trust them? Do you like them? Remember - they will be your partner. Are you comfortable with that?
Red flags would be boiler plate proposals and a cookie cutter approach. That tells me you are not that important to that company.
Can these deals be customized? They can be quite long—10 years or longer. Is that a good idea? So much can change in that time. Are they built with benchmarks built in, where you can get out if needed if key performance indicators aren’t met? Or just do some services, and not all? Shorter agreements?
The only time a ten plus year contract makes sense is when the outsourcing firm is investing a significant upfront “rebate” or infusion of capital. This practice is common in Food Service but also occurs in Facilities at times. Some Institutions need this influx of capital for various reasons but the outsourcing firm needs time to recoup these dollars. In these situations there will always be buy out language in the contract so the Institution is somewhat locked in even though there should be performance cancellation clauses. But - if the contract were to be cancelled the Institution would either have to buy out the unamortized amount of the rebate if they chose to go back in-house or a new provider would if they chose to outsource again.
The normal initial contract term in the industry is 5 years with optional renewal periods. This allows the provider to recover their amortized startup and depreciation costs. Most firms will agree to a mutual no cause 30-60 day cancellation clause with buyout language for above. Contracts should have metrics built in around agreed upon Key Performance Indicators (KPI’s) and be scalable in order to add/delete services, square footage, acreage etc. KPI’s should be reviewed at least annually from a continuous improvement perspective but also to insure alignment with the Institution’s situation and goals. Unless there is a large upfront rebate involved this approach reduces risk, for both parties, significantly.
Where is the crossover between saving money and preserving quality and especially customer service? I would think a big concern is loss of control, which could erode customer service?
The Institution should never lose control. At the end of the day it’s their money and their campus. They should delegate but not abdicate. Everyone should be on the same side of the table. As stated earlier KPI’s need to be established and updated annually to assure alignment. Saving money is only one reason to outsource. Many Institutions outsource because of other reasons such as an aging workforce/retirements, no succession plan, lack of programs/processes/technology/ data etc. There needs to be a balance.
Any other key thoughts for the readership? Best advice? Best practices?
Outsourcing in facilities management is not a new concept. HealthCare, Corporate America and Government have been doing it for years. These industries and others recognized this was not part of their core business years ago. Higher Education is now exploring this option at an accelerated rate due to all the issues going on in Higher Ed (declining enrollments, tuition increases/public scrutiny, potential taxes on endowments, budget constraints/cuts, an aging workforce and infrastructure, deferred maintenance and life cycle issues, rising health care costs and on and on). Plus outsourcing firms have resources that most schools cannot afford.
Having said that - outsourcing is not always the right answer. There are many high achieving facilities management organizations in Higher Ed that have the talent in-house to achieve performance excellence. They may need a little help in certain areas but they are smart enough to identify that and deal with it. These tend to be the larger schools with the bandwidth required to identify and address opportunities for improvement.
Small to medium size schools simply do not have the resources in many cases to take things to the next level or work thru the change management process. This is where consultants can help if the institution prefers to stay in-house or to manage the outsourcing process if that’s the right solution.