The Three C’s: Clients, Cost, and Competition are all playing havoc on the Facilities Management Industry, which is already struggling to deal with the onslaught of the aforementioned pressures. The industry was marked as the “Sunrise” industry with exponential growth prospects.
However, the whirlwind from the Three C’s above points the industry to adopt a caution mode. Despite the last three years of market upside with industry-compounded annual growth in double digits, the FM bottom lines remain under severe pressure.
Each of these factors adds to the industry upheaval, with many undercurrents troubling the industry and undermining the desired impact of its services.
Due to a freefall in margins as a result of these pressures, the industry is lagging in putting in the requisite investments to support talent retention, upskilling and upgrading its service infrastructure, making it difficult to navigate its sustainability. It is at crossroads on how to fix its ills, and these factors continue to impair its profitability, leaving no room for developmental manoeuvres.
In my view, among the three Cs mentioned above, the Clients are at the top. They continue to use their excuse of budget constraints to drive lower estimates.
Fewer only use the intrinsic cost standards and often use their supply chain organisations with high-handed supply chain tactics to lower prices. They take only limited inputs on the operating dynamics and are lowering the guard on technical specifications in the bid process.
The glaring issue is that client organisations seldom align with the FM pricing against their actual technical requirements. It has become a common practice and a prevalent situation in the industry, with most clients resorting to aggressive pricing postures with reverse auctions and multiple BAFO rounds. The FM bidders are spellbound on how to contemplate their responses.
It has been a fact that most clients, be the landlords or tenants or client organisations, are not providing adequate cost allocation to meet the comprehensive maintenance needs between Opex and Capex, and more so for building lifecycle costs.
The continued disregard for necessitated cost budgets for the built environment is a global issue, and only a few organisations adhere to these standards.
In the last year, of more than 100 big tenders that included some of the largest organisations with substantial FM footprint, the tender results reflected FM underspend.
Amongst these C factors, FM cost is one such spoiler. The spiralling cost of human resources is due to high inflation, skill gaps and staff unavailability. This spike in cost is undoubtedly draining P&Ls. Adding to the cost dynamics are the materials and Opex costs that have jumped due to global supply chain disruptions and economic turbulence.
There are innumerable hardships on most cost fronts. In 2022, these costs went over 18% in UAE and a little more in other countries.
The last of the factor in this saga is the role of competition which is further aggravating the pressures. FM Companies with large overheads need scalability to support their sustainability. They have possibly prepared themselves to go even on a break-even cost basis as the situation is grim, and they must unleash all within their armoury.
In many recent tenders, I see the fierce competition where BAFO submissions have crossed all conventional postures. With twenty to thirty per cent drops, they are annihilating each other. In a recent online auction, I saw mayhem where it was a free for all with little intervention from the clients on the technical merits.
This must stop, as it is counterproductive to the interest of any stakeholder, client, contractor, or the industry at large. The only way to ease its pressures is to put the onus on clients to adhere to intrinsic cost estimates, follow strict tender governance with definitive criteria on technical merits with a reasonable weightage, and not let only commercials prevail.
These must ensure that tenderers do not price the commercials below minimum cost criteria based on global benchmarks. Amidst these challenges, I call upon the FM industry to lobby support to prevail upon clients to support higher standards of FM as well as not to undermine technical merits in the awards process.
I also appeal to FM companies to put comprehensive internal bid governance by not undermining prudence ignoring any risks as well as upholding quality.
Their competitive posture or aggressive pricing must emanate from innovation and cost engineering, not by lowering the performance bar or the company’s bottom line.