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Performance Based Contracts in FM and PPP

Put simply, performance based contracts provide incentives and disincentives to achieve desired outcomes or results from contractors, with the aim of reducing costs and improving service levels. As FM services are often outsourced, there is also the risk of failure in managing supplier relationships correctly, which can have major financial and reputational consequences for the client organisation. As a result, suppliers are increasingly perceived as being part of an ‘extended enterprise’ and their performance needs to be measured appropriately.

Performance management in FM is about monitoring the operation of the facilities against set targets and identifying opportunities for improvement. This is typically focused on the performance of a contract, but can just as easily refer to that of an in-house team. In addition, there is a direct correlation between the standards of facilities management within a company and the morale and productivity of its occupants. Excellent workplaces act as a recruitment and retention tool for both employees and customers.

Specifying contracts

Good performance management involves setting objectives and targets. Without the envisaged performance being defined, it cannot be measured and managed. And in order to set those targets, the client organisation needs to understand its business goals, how facilities management fits within those goals and share that information with their service provider. Only then will the facilities management service be fully aligned with the business.

This is typically done through a contract specification, the blueprint for the contract, which forms the basis for other documents such as service level agreements (SLAs) and key performance indicators (KPIs). Although in-house relationships wouldn’t have a contract, they should typically work to internal service level agreements.

Reviewing performance

Over the past few years, we have seen a move from ‘input’ to ‘output’ specifications. An output approach involves reduced client management input and monitoring, and a service delivery that is results-orientated. In other words, do not tell them how to do it, tell them what you want. This encourages innovation and added value, and allows flexibility; the more control providers have over the inputs, the better they are able to effectively achieve the outputs.

This is especially true over long-term contracts, like those of a PPP (public-private partnership) spanning 20 years or more. There has been a shift in focus towards the operational stage (in maintaining the facility once it has been built), and therefore managing the relationship between the public sector and the FM service provider has become more important than ever.

However, through performance management software, contract terms, SLAs and KPIs can all be monitored and measured remotely and transparently through an integrated payment mechanism. The paymech aligns the agreed terms into the software, and provides instant performance and financial reports and automatically quantifies the payment due to the private partner for the services provided – as well as creating incentives for good operational performance (or indeed deductions for poor performance). This level of information allows contract managers to identify potential deductions before they occur, leading to increased satisfaction in the partnership.

For more information on improving FM performance, request Service Works’ white paper, Performance Excellence in Facilities Management.


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