Are mindless KPIs hampering the growth of GCC's FM sector?
KPIs are the backbone of FM contracts, but are FM operators getting their due?
The relevance of Service Level Agreements (SLAs) and (KPIs) in FM contracts have significantly risen in prominence over the last few years. Their significance in defining a relationship between a service provider and a client is now crucial, especially as clients have issued a record high number of request for proposals (RFPs) in recent times.
At a panel discussion organised by RICS MENA, several heads of facilities management (FM) companies discussed the changing nature of SLAs and KPIs in the region. Tariq Chauhan group chief executive officer of EFS Facilities Services was part of the panel along with Chris Bond, director, facilities management consultancy, Mace Macro; Alex Davies, managing director, Emrill Services; Mohammed Al Riyamy, operational excellence lead, PDO in Oman; and Asif Siddique, managing director, Deyaar Facilities Management as other members of the discussion.
Chauhan said: “I have seen 600 to 900 different RFPs this year, and I can assure you majority of the times they don’t align with SLAs. How do you refine an SLA for a simple MEP job? These are challenges being faced in the industry and the solution is to have a more standardised document in the future.”
He stressed on the importance of the period between the FM company winning the initial contract, to the mobilisation stage.
He outlined a few key steps: “Firstly, we need to address the entire lifecycle in between the contract set up [mobilisation] — you have to ensure the definitive conditions are in place. Also at this stage it’s important to discuss misalignments within the contract as you will come across assets that need to be replaced, which are baked within the SLAs of the current scenario.
“So the set up stage is extremely important wherein you sit with the client and have all sorts of endorsements on the initial KPIs. Then you work out [new] KPIs in a way that the agreement with the client is in context with any changes that need to be made,” Chauhan says.
Moving away from theoretical aspects of KPIs and SLAs, Chauhan says its important to align operational needs with those of the end-user. “A trend has emerged which is leading to a misalignment with the end user needs and operational needs. So at the setup stage itself — which is the mobilisation and transition stage — we have managed to align all the terms in a sustainable model with our client. And that’s where the importance of data comes into play, but data cannot help unless the right processes are agreed.”
The panel also delved into the growing role of technology as KPIs are digitised. A lot of the information that FM companies are gathering and addressing are coming from many sources — IoT and wireless sensors, and data that’s collected from them, Chauhan said.
Members of the panel also unanimously agreed that several Computer Aided Facilities Management (CAFM) systems available in the market today are quite advanced. And routing work orders and all KPIs through a CAFM system is the most transparent manner in which FM companies can present factual evidence of its KPIs achieved.
Failure to maintain a chain of accountability often leads to the termination of the contract before its term. And Siddique indicated that the short duration of FM contracts doesn’t help in stabilisation of the project.
“In this region, clients and FM service providers are still learning. We are slowly but surely understanding the intricacies of KPIs, while both parties are understanding the importance of continuity of service quality. And we have felt that while starting new contracts and taking over from the incumbent service providers. We need to learn more about stabilisation of the contract,” Siddique said.
He also added that service continuity and stabilisation cannot take place over a period of 60 days or 90 days. He added: “According to my experience it takes anywhere from six months to 18 months to stabilise a contract, where the service provider can start understanding what the real requirements are. Aligning KPIs are critical during this stage. Clients and FM companies are now beginning to understand this timeframe.”
Traditionally, clients were not willing to re-look at KPIs following the mobilisation stage. The rigid structure, however, is slowly beginning to give way. “Three years to four years ago clients were not willing to reconsider KPIs and SLAs, they were quite rigid with the [contract]document. They were not willing to re-look or re-evaluate KPIs or SLAs as they often used different methodologies of choosing KPIs as a weapon to squeeze out more from their contracts.
“But over the last few years, clients are more open and are willing to re-look at them that were agreed at the beginning of the contract. KPIs are the tip of the iceberg and the whole contract lays beneath it and the service provider needs to be completely aligned with all aspects of it. For example our firm’s procurement and HR has to work in line with contractual agreement, but if they have different principles and rules the service execution might go in a different direction. Thus making it pivotal to understand the requirements of the client.”
Over the last few years Siddique revealed that Deyaar Facilities Management has been able to re-negotiate at least seven contracts within the UAE “where we were able to renew the contract based on renewed KPIs and SLAs. And realigning client expectations based on those indicators”, he says.
The panel also agreed that procurement and finance related challenges form major hurdles. Universally a procurement team will look to source from the cheapest supplier. The FM operator’s procurement team have to then work within the tight framework laid out by the finance department — the goal here is to make profit, a fact that Oman-based Al Riyami pointed out.
He said: “Sometimes in business we miss the fact that the contractor is here to make money and I need to respect that value add. And as an employer I am here to deliver service to my customers [tenants]. So with that mutual respect established we move forward. And in the course of our relationship [with the FM company] we realised that we sometimes address the wrong KPIs. And the only way forward is to re-align them.
“There is heavy competition thanks to cost reduction. The maturity in markets — which is defined by the longevity of service delivery — is more fruitful to the supply chain than those achieved in the short term. You need long term contracts, and short term agreements do not allow you to [make investments],” he said.
Clients are also beginning to move away from input specifications of head count to measuring effectiveness on the basis of KPI performance. “We are moving in that direction and there will be times that you do need inputs into a specification. In general, we don’t write the specifications, the clients understand that when it’s explained in terms of risk management, you are measure the service delivery not the number of people,” Bond said.
Al Reyami added: “There is a move away from the headcount approach of service delivery, especially after we experienced a cash crunch in 2014 and efficiencies started to get built in. To add it, our industry is labour intensive with labour being a big cost.”
Attendees voiced their concerns stating KPIs and SLAs are mostly defined by the client and many times that’s to protect their lack of experience and knowledge in the field. These indicators are often used as a control tool. “Our responsibility is to constantly educate the client. This involves the procurement team and client making them more aware and enhanced of capex,” Al Reyami said.
The panel also discussed incentives and penalties received based on KPI scores. “As a service provider you need to make a conscious decision of how you want to work with you partners — are you going to have an approach of avoiding penalties or are you actually going to try and deliver to expectations. Whatever the decision, you have to go ahead with consciousness. If your customer knows that you are playing the game to avoid financial penalty, you know how they will respond to that. Clients have the SLAs and KPIs in place for a purpose, they want to achieve that standard and brand image. And we have examples where achieving our targets has led to some very long term partnerships,” Davies said.
Bond also revealed that a trend of incentivising service providers is beginning to emerge where the FM company takes part of the savings earned by the client. “Having the ‘playing the game’ approach of manipulating your KPIs to avoid penalties… that actually dilutes their effect. In which case, it makes more sense to just take the KPI out, it’s not set in stone. But generally it’s more of the negatives that you penalised for. On our operation side, however, we are involved in a few positives. And I’m sure they are going to improve with time. Perhaps KPIs around recycling and improving health and safety issues through your contract can actually be a positive,” Bond says.