Perils of the Client-Contractor Relationship in a Performance-Based Cleaning Contract

1. Perils of the Client-Contractor Relationship in a Performance-Based Cleaning Contract Perils of the Client-Contractor Relationship in a Performance-Based Cleaning Contract Presented by: Vince Elliott, President - Elliott Affiliates, Ltd. NCMA 25th Annual Government Contract Management Conference 21st Century Federal Contract Management: Challenges and Opportunities

2. Presentation Outline • Background • Industry Experience • A National Study • Buying Mistakes to Avoid • Preparation • Selection • Contracts • Measurement • Management • Best Practice Model • Best Practice Activities • Perils to Best Practices • Conclusion

3. I. Background

4. Industry Experience The # 1 reason for failure:“It just wasn’t what we expected” • 13% to 25% of outsourcing contracts are brought in-house within the first two years. • Buyers replace 80% of their service contractors in the first three years. • Contractors turn over 40% of their contracts each year, on average.

5. National Study Portfolio Not Clean - Unhappy Clean - Unhappy Not Clean - Happy Clean - Happy

6. A National Study

7. Best in Class Procurement – Satisfaction vs. Quality Relationship >80% + >80% @ $.80

8. Best Practice Performance vs. Portfolio Performance

9. II. Buying Mistakes to Avoid

10. Areas of Failure • Inadequate Preparation(Savings Start Here) • Flawed Contractor Selection(Project Failure Starts Here) • Unclear Contract(Conflict Begins Here) • Wrong Performance Measurement(Management Failure Starts Here) • Ineffective On-going Management(Performance Improvement Rests Here)

11. Preparation: No Checklist • STOP Goals • Business Case • Staff-to-Strategic Metrics • Internal Capability • Market (contractor) Capability • The Contract

12. Preparation: Typical STOP Goals

13. Less Data Less Savings More Data More Savings Preparation: Inadequate Property Information More data, more savings Less data, less savings

14. Preparation: Inadequate Benchmarking • Internal vs. Market • Scope of Work • Quality • Satisfaction • Operations & Processes • Financials • Management & Systems

15. Preparation: Inadequate Needs Analysis Portfolio physical characteristics What are you paying per square foot? • How are you calculating? Net or Gross? Current delivery model • Labor type, shifts, quality control Number of complaints How do you measure/enforce performance? • In-house or contractor lead? Time frame (Expiration and Flexibility)

16. Selection: No Checklist • Transparent Vendor Evaluation • Double-Blind Ranking • Financial Analysis • Risk Assessment • Reference Site Visits • Scripted Interview • Firm & Final Adjustments • Contract Validation

17. Selection: Incomplete Vendor Capability Assessment Are they capable of delivering value and service success? • Management & People • Operations & Processes • Performance Profile • Quality • Satisfaction • Financials • Training • Experience • Certifications

18. No goal alignment No specified results No pays for performance No defined metrics No rewards for continuous improvement No risk/reward allocation Does not reflect the relationship No mutuality of benefits No 3rd party measurement No scorecard reporting No contractor process accountability Few fact-based decisions No long term operational thinking Does not document value Contract:Often Used as a Defensive Roadblock A Checklist

19. Measurement:Wrong Metrics • For: • Contract Compliance • Cleanliness Performance • Customer Satisfaction • Process Improvement • Occupant Expectations

20. Measurement: Poor Quality Assurance Program • Using Quality Assurance as an Inspection System, a Customer Relations Program, or a Marketing Strategy. • Failure to translate QA into a workplace culture, a way of thinking , a way of doing & managing things. • No Focus on Process Improvement.

21. Management: Ineffective On-Going Focus • No Contract Compliance Mgmt. • No Performance Measurement • No Process Improvement • Buyer Expectations Unclear • Fail to recognize cost to: manage, measure, & maintain relationship

22. III. Best Practice Model

23. Best Practices Activities Value achieved by developing and implementing Strategic Best Practices: • Facility Benchmarking • Strategic Outsourcing • Quality Measurement & Management • Performance Based Relationships • Contract/Vendor consolidation • Process Improvement

24. Pre-Start Orientation Up-date Contract Implement Scorecard Recognize Need Get Approval Business Case Set KPI’s & STOP Goals Define Proj. Milestones Monitor SOW Achievement Measure Performance Prepare RFP Scope of Work Document Bldg. Data Internal Capability Establish Scorecard Contract Compliance Budget Control Define T’s & C’s Performance -Fin. Link Certify Bidders Prepare Bid Forms Document Addendums Commitment & Follow-up Work Orders & Requests Receive Bids Site Tour Bid Conference Advertise /Post RFP Fine-tune Systems Call Center Process Improvement Evaluate Bids Short List Bidders Reference Site Visit Proof of Concept Manage Commitments Re-Source Assessment Performance Reporting Execute Contract Firm & Final Review Scripted Interview Buying Life-Cycle Management Preparation Transition On-going Mgmt. Mgt. Team Evaluation Selection

25. Performance-Based Relationships • Buying & Managing Results, rather than Processes • In RFP, Contractor bids services against Results, rather than Task & Frequencies • Ensures you get what you pay for!

26. Buying Price, Performance Productivity (labor) Price Process Performance Management Productivity What are you really buying?

27. Loss of control Sr. management support Cost creep “Secret” info Poor due diligence One-sided relationship Disconnected buyer-seller goals NIH (not invented here) attitude poor scope of work Weak project management Price-driven decisions Perils to Best Practices

28. Inadequate documentation Poor project controls Poor outsourcing systems Buyer designs system No benchmarking No contract manager Unclear contract Failure to act on Project Resistance No performance metrics-scorecard No incentive-goal-fee link Mis-matched STOP expectations More Perils:

29. Before the deal After the deal Unclear Buyer Expectations: A Checklist Service guarantee Proven track record Proven domain skills Keep company in “control” Experience in Buyer Industry Savings guarantee Ongoing training Constant improvement Best practice Ctr. Systems Effective HR strategies Compatible culture Proprietary metrics On-site management Buyer-Contractor Relationship Responsiveness Integrity Technical competence Flexibility Personal service Value Productivity Communication Innovation Politically adept Buyer personal success WIIFM-L (Lately) Q u a l i f i c a t i o n P e r f o r m a n c e

30. IV. Conclusion

31. Procurement’s Job: Value It’s not about getting the bestprice, it’s about getting the bestpeople,with thebest processes, from the bestpartner,at the bestprice! Price is a function of process best practices and a competitive market.

32. For Follow-up Questions Contact Vince at: velliott@ealtd.com Elliott Affiliates Ltd. 410-584-8560 www.ealtd.com

33. Your Presenter: Vince Elliott, President Elliott Affiliates, Ltd. • Vince is the founder and current President and CEO of Elliott Affiliates, Ltd. of Hunt Valley, (Baltimore), Maryland. He is widely recognized as the leading authority in the design and utilization of performance-based management techniques to establish continuous improvement systems for cleaning and facilities outsourcing. As one of the first to apply the concepts of performance based contracting in the Real Estate industry over 34years ago, Vince has a broad experience and insight into - and understanding of - the buyer's view of what “clean” means, how it is used in performance-based measurement, and on-going management of cleaning. • Vince has represented buyers across the country in writing, modifying or updating over 500 performance-based building service contracts with an estimated market value of over a quarter of a billion dollars in contracted services. • Drawing on the work of Dr. W. Edwards Deming, Joseph Juran, Phil Crosby, Yoji Akao and others, Vince has integrated the methodology of the Malcolm Baldrige National Quality Award process into a powerful strategy for cleaning system management. His work has been published in national magazines and he speaks frequently at national conventions. Vince has also been the recipient of a number of awards and commendations, including the prestigious Apgar Award for Excellence by the National Association of Corporate Real Estate Executives (NACORE) and Cleaning Management Magazine’s “Outstanding Service Award". He was recently the host on a weekly radio program called “Consulting Success: Key Strategies in Business Management” on which he interviewed leading business strategists, authors and experts. Vince is currently a regular contributing editor a national industry magazine. • Vince is a member of the Association for Quality and Participation (AQP); the American Society for Quality (ASQ), where he is a past chairman of the Facilities Management Quality Control Committee; and a Charter Member of the Cleaning Management Institute (CMI). He is also a member of the International Facilities Management Association (IFMA), the Building Owners & Managers Association (BOMA), CoreNet Global, International Sanitary Supply Association (ISSA), and (NCMA) National Contract Management Association. • Vincent Elliott has a bachelor’s degree in Economics from Towson University and a Master of Operation Research degree from Johns Hopkins University in Baltimore. Vince is also a past Associate Professor at a leading Maryland University teaching service management strategies.