Whether a performance-based contract or PPP, the underlying principles for FMs are the same: financial penalties for under performance, or full contract payment where performance meets SLAs.
Such contacts are often complicated and hard to manage, but CAFM software can help manage both performance and services through a raft of FM tools and a payment mechanism (or paymech), saving thousands of pounds over the contract term.
Start with a functionally strong CAFM core
Before diving into how a paymech works, it’s important to highlight that it should work in tandem with a strong, functionally rich CAFM system to monitor and measure every aspect of a contract. We’ve looked at contractor management and how to spend less on asset management in the previous two blogs in this series, both of which are key areas for performance-based contracts. Intuitive resource management functionality is a must, providing a way to build responsive, agile services to meet the needs of changing building priorities and tight deadlines. Functionality such as inventory management helps ensure work isn’t delayed due to missing parts or materials; and service providers can avoid penalties for missing inspections or failed audits more easily when the functionality is fully integrated as part of the CAFM software.
For PPPs, our contract performance software P3rform enables transparency between the client and service provider. The client is able to see various live performance and audit reports, promoting trust that work is being carried out in line with contract requirements, as per the service provider’s reports. This in turn can lead to some mutually-agreed flexibility in the partnership, rather than rigid enforcement to the letter of the contract. And in the long term, this can also lead to a long and harmonious relationship between client and service provider, rather than going through an arduous retendering process.
Penalty calculations
A paymech is created by uploading the contract terms into the chosen software platform, line by line, whether 200 or 20,000, including the agreed requirements for each. Payments will be based on outputs such as the availability of facilities and the quality of service provision, with ratchets or multipliers in place for repeated under-performance. Some areas will be deemed more of a priority than others, for example an operating theatre, and carry a larger performance penalty; and these will be stacked whereby failures in one area can cause penalties in another as per the contract, known as consequential unavailability. For example, if the lights are out in the recovery room, this would also take the operating room and anaesthetist room out of action as services cannot function without all three being operational. Such terms lead to highly complex calculations at the end of the month. Significant value and efficiency are gained, since the paymech manages the financial element by reporting on performance against the agreed KPI and SLA parameters, quantifying any penalties. Work that could take days using spreadsheets, and has the potential for numerous errors, is performed with ease by the paymech. And, if the paymech is fully integrated, data never leaves the systems during the calculation, meaning every step is fully auditable and transparent.
Extension of time
Sometimes a deadline is missed due to reasons outside of the FM team’s control; highly frustrating and potentially expensive. QFM P3rform’s extension of time feature provides the flexibility to handle mutually agreed deadline extensions. For example, an HVAC repair needs to be made, with a work order deadline of 5th September. But there is a delay in receiving a critical replacement part, meaning the job cannot be completed in time – incurring a penalty. However, if the client is contacted and can see in the system that work was started in good time, and that the part will not arrive until 8th September, they could decide it is reasonable to allow an extension of the work order until 10th September and no penalty will be applied for these extra five days. Approval and a reference are updated on the system for auditing purposes, and the team is automatically notified of the new deadline. In this way, certain penalties can be avoided, and transparency and good will is maintained within the contract.
Limiting exposure with data
Conversely there are times when the service provider is unable to meet deadlines due to lack of resources, and at such times may need to take a tactical approach to penalty management. QFM P3rform can produce an open failures report at any time to show what missed deadlines are currently costing at that moment. It is not always the urgent jobs that might demand the most resource: a routine service that had a seven-day deadline in a priority area, like an operating theatre, could be costing £1000 due to strict availability clauses, whereas an urgent task with a 15-minute deadline, may only be costing £300. While a CAFM system’s traffic-light system of red, amber and green helps manage the order of completed works, it can work in tandem with the open failures report for in-depth control of finances.
SWG can also produce a ‘look ahead’ report, looking at how much failures over the next x number of months would cost, to help prioritise resources against the most critical contact terms.
Contract awareness
Missing a deadline once is a problem, but it’s not all about timing. For example, a contract may contain a clause to deter rushed works, imposing a significant penalty for compound failures. For example, a temporary fix on an asset in order to meet the SLA, which then undergoes two or three more temporary fixes instead of a proper investigation and a permanent fix. But with all the work happening on site it can be hard to spot when this is occurring. A good paymech can identify a potentially recurring issue, for example work in exactly the same location with the same service type within the contracted time frame, and provide a link to the identified work for the FM to check and confirm.
Our software can also put the formula on reports to remind the team how penalties are calculated, as a useful reminder of the contract SLAs to help improve performance and reduce monthly outgoings.
For more information about how QFM can save you money in your performance-based contracts, contact us for a chat or a demonstration.
