Controlling FM Costs Roundtable with JLL

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• Controlling FM Costs Roundtable with JLL

11 November 2022

CAFM company JLL Technologies is interested in the voices of leaders in the FM private and public sectors – as such, a diverse board was invited to a roundtable breakfast with ThisWeekinFM.

The group discussed the current affairs of the industry, aimed at sharing success strategies and struggles but openly directed by the delegates, with a view to reducing FM costs in an era of post-pandemic inflation.

Conversation traversed the labour and materials market, technological implementation, and the relationships between clients, providers and supply chains.

 

Watch the Mini Highlights

 

 

How Is Inflation Impacting Facilities Teams?

 

Clients may need encouragement to come on board with the inevitably rising costs but at the benefit of fairly valuing the quality of work and receiving high standards.
 

The economy in the UK is under pressure due to numerous factors during the last few years, not limited to the pandemic, Brexit, conflict in Eastern Europe and uncertainty in government. This has also affected the struggle of skills shortages in the FM sector, combining to raise the cost of employing the right workforce by as much as 6-10 per cent. FMs are competing for labour talent, for example in engineering where it has become difficult to affordably retain the best employees. 

On the one hand, there was actually some support for this in the room – it was an expressed opinion that the industry’s work has long been commodified, and that average pay in the industry should be higher. Employee wellbeing should be prioritised anyway, especially when considering the cost of living crisis, and an impending recession could quickly reduce the cost of this labour and affect the wellbeing of many.

Clients may need encouragement to come on board with the inevitably rising costs but at the benefit of fairly valuing the quality of work and receiving high standards. That said, on the other hand, some clients are not seeing the level of quality they are paying for due to the exact same scarcity of skill. Delivery and response times have been damaged for many as some service providers struggle to keep up in the current landscape, short of staff or out of pocket. 

This can be due to clients trying to dictate input specifications - how many people should work on the contract - in order to achieve their requested output specifications. This creates conflict, especially where KPIs (Key Performance Indicators) are unclear. If an individual cleaner doesn’t turn up, but the facilities are still clean within the definition of the KPIs, a client shouldn’t feel entitled to reimbursement.

Material costs have seen even more tangible inflation, with a 30-50 per cent increase on in-demand resources like timber and steel, driving margins down in already non-progressive territory considering the minimum 10 per cent net profit that an average FM provider needs to actually thrive – this can be more like five per cent when considering deductions of technology and labour, commercial risks, competitive pricing and rising costs. Without double digits in the margin of profit, it’s difficult to invest in operational improvements.

The average industry-declared gross margin to the client at the bid stage is typically 7-8 per cent, making a net margin of only 2-3 per cent on average. Many suppliers are now pricing with a GM at 10 per cent plus to clients and are making up the difference on projects and variable rates, but you need very efficient backroom mechanisms to support this demand. Most suppliers, however, are surviving on a goal of a 5-6 per cent net margin.

The general consensus to tackle this - as was highlighted multiple times throughout the breakfast - and to improve on most elements of the vital industry as the future brings new challenges, is to foster the most personal and transparent relationships throughout supply chains, from clients to sub-contractors. Examples were given of service agreements going on for months with as little as a single email, compared to detailed and productive dialogue that achieves the best for everyone involved. Without this honest communication, the true effects of inflation on all parties cannot be properly accommodated.

For example, cost certainty in fixed-rate contracts can be ideal for budget management, such as in the public sector where this is government regulated. However, these fixed rates are forced up to safeguard the business in the currently volatile economy, as a “risk premium”. With a business relationship that thrives on dialogue, more flexible rates can be assured and the costing explained, benefitting the partnership, understanding, and ultimately the project itself.

 

Leveraging Cost-Cutting Technology in FM

 

"While technology can’t make massive impacts on FM costs where you still need engineers attending sites, it can enable further outcomes for clients – that means more satisfied customers returning, staff retention, or whatever the optimised metric is, which in turn justifies a higher service price."

Digital adoption has been a buzzphrase for some time now, with so many buildings in need of expensive retrofitting at one end of the spectrum, and the obvious benefits of pioneering smart buildings continually making headlines in FM news at the other.

Speaking of thriving business relationships, better-implemented technology can go a long way to helping enable this. Especially in larger buildings and portfolios, collecting relevant data helps to lead to productive communication between providers and clients. The word “relevant” was highlighted here, as the point was raised that data and sensor setups can sometimes be sold on their expansiveness, rather than their usefulness – clarity and satisfaction for the client are found when applying the correct knowledge for better catering to the project’s objectives. For example, if the specifics of traffic in a large social venue that experiences more footfall on certain days or areas is recorded, the provider can prepare for and explain the need for directing further supply to that facet of management, and the client can focus on the outlet for profit.

Thus, while technology can’t make massive impacts on FM costs where you still need engineers attending sites, it can enable further outcomes for clients – that means more satisfied customers returning, staff retention, or whatever the optimised metric is, which in turn justifies a higher service price.

As net-zero goals loom ever closer and only a very small per cent of buildings are affording to move ahead of the pack on this, lifecycle data and active monitoring are vital for a circular economy approach and preventative maintenance, but many facilities are unable to support this after years of stagnation compounded by lockdowns. That can result in particularly costly reactive maintenance, and actually provides a fair reason for an FM provider with a static team to install systems and replace equipment if the contract is long enough for this to reap rewards.

If a ten-year contract is in place with good trust, FMs stand to save money by properly assessing and freshly fitting out a building, rather than trying to keep old technology afloat, creating the best service outcome for the client as well. The asset replacements with more modern alternatives will also likely save costs and carbon to support wider targets.

The delegates discussed successful implementation examples including tracking warranties to reduce maintenance expenditure with replacements, using cleaning robots for big open spaces like airports, AI analysis of CCTV systems to free up security officers from screens, and remote BMS managing power and monitoring spikes or anomalous usage.

Currently, the average contract runs for around 3-5 years which doesn’t always allow for investment in static technology to be worthwhile for the FM provider. Although it was noted that shorter contracts are often preferable in the public sector - where many skills are outsourced, benefitting from an easy exit, and they are mandated to find value for money - for the most part, this doesn’t allow for any kind of substantial work or investment due to the nature of FM. The first year is mostly focused on mobilisation and achieving the target operating model, and the final year is focused on re-tendering.

A point was raised regarding the value of captured data when this contract is passed on, as a form of intellectual capital that is rarely factored into costs, and typically belongs to the provider despite being of little use once they move on from the properties. JLL Technologies leaves its CAFM system in place to be interfaced or adopted by a new FM contractor, however, this can be costly to work around for the latest team as opposed to transitioning into their own software. The delegates envisioned an ideal future where an open-source standard would suffice to integrate and communicate between such setups for optimum efficiency, and even building owners/occupiers have a deal to keep hold of the data.

 

Strong Leadership

 

Building use is undoubtedly changing drastically, with much lower occupancy rates platforming massive rethinks on room purpose and portfolio sizes. To lead in FM in such a transformative era, there must be advocates for change at a senior level, seemingly everyone at the roundtable agreed – however this also requires a parallel in clients. If FM teams and technology experts are involved at the planning and strategy level, and the aforementioned honest, communicative partnership is built, there is much hope for evolving the industry towards integration and intelligence befitting of the year. Starting the conversation by aligning a people-centric ethos also makes the talking point of the rising costs much more reasonable for good-quality trade.

It was remarked that the old adage of “it’s not broken don’t fix it” is still hanging in the industry air, but as younger generations move higher up the command, they are bringing forwards revolutions in sustainable building design and management through adaptable tech that should be embraced, especially as the latter brings the potential of bridging some of the skills gaps through automation. 

Picture: the JLL Technologies Roundtable.

Article written by Bailey Sparkes | Published 11 November 2022

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