Topic 4: Policy and Procedure FOR Procurement Strategy

POLICY AND
PROCEDURE
FOR
PROCUREMENT
TOPIC 4
STRATEGY
BCF10013 FACILITIES MANAGEMENT 1

CONTRACT
A contract is an agreement between two or more
parties that is binding by law. The following are
some of the many names or terms in which
trading contracts are also referred to:
• Management contracts
• Supply agreements
• Service agreements
• Service contracts
• Supply contracts
• Trading agreements
Facilities Management (FM) is particularly concerned with contracts for services
and maintenance operations and these contracts are usually entered into based on:
 Performance-based Contracts: Result-oriented contracts where outcomes, outputs

or results are defined instead of the processes. The client organisation defines the
results while the service provider is to ensure that the expectations are achieved.

 Task-based Contracts: Process-oriented contracts where processes are defined
instead of results. Processes are defined by the client organisation and the service
provider follows those processes in order to deliver the agreed services. Whether
this leads to satisfactory results or otherwise is not an issue as long as the service
provider complies with the defined processes. For example, defining the number of
times (process) a workplace floor is cleaned by the service provider as oppose to
defining how clean (result) a workplace floor should be kept by the service
provider.

 A Combination of Both: A combination of both performance and task-based
contracts.
OUTSOURCING STRATEGY
Outsourcing can be defined as the placing of facility management

services required by an organisation into the hands of external
service providers.
Outsourcing, however, cannot be assumed as the best approach for

service procurement for all organisations. So much goes into
determining whether services should be delivered in-house or by an
outsourced provider. The general underlying objective should be to
achieve optimal value for the organisation.
STRATEGIC TACTICAL
 Improve business focus  Reduce or control operating

REASON FOR  Access to world-class capabilities costs
 Accelerated re-engineering  Make capital funds available
OUTSOURCI benefits  Cash infusion
NG 

Shared risks
Free resources for other purposes
 Resources are not available
internally
 Function is difficult to manage
or out of control
• The implication is that the delivery of non-core activities of the organisation is
provided through an external route. In any case, whether totally outsourced or
partially outsourced, it is expected that the organisation maintain a small
management team in-house to exercise control and to coordinate the activities
IMPLICATIONof the third party provider. In essence, this means managing the contract
performance.
• Managing contract performance is vital to ensure that the contract meets

expectations and any malpractices or irregularities by third party providers are
not encouraged or curtailed. When compared with in-house delivery option,
outsourcing provides a better opportunity for getting expert delivery services.
Frees management time
Reduced staff costs
Increased flexibility
Cost certainty
OUTSOURCIN Reduced staff management problems
G BENEFITS Improved consistency of service
Reduced capital requirements
Reduced risks
Improved financial controls
Reduced property or infrastructure costs

Three major factors to consider
SELECTING A when selecting a delivery strategy
are:
DELIVERY • Management Issues
STRATEGY • Cost Factors
• Control Issues
• The decision to outsource or
provide services in-house must take
MANAGEMENT ISSUE into account both the capability of

service providers and the efforts
required to manage them.
• In an outsourcing arrangement,
quality of services provided by the
contractor or provider needs to be
assessed and monitored.
• Managing agent: to manage the

output of services from the service
provider or contractor against
service specifications and targets
contained in the service level
agreement (SLA) between the client
organisation and the service
provider. In this case, the
representative takes on the role of
an intelligent or informed client
function individual on behalf of the
client organisation.
COST FACTORS
Cost factors refer to aspects that require budget allocation.
These costs are basically classified into indirect and direct costs.
Indirect Cost
Indirect costs include those incurred in the internal
management of external contracts and the ongoing
training and development of in- house personnel. These
costs are often overlooked when evaluating the costs of
potential delivery options.
Other costs that must be taken into consideration include

costs related to administration of the services such as
permit-to-work procedures, competent and approved
person regimes together with the technology to operate
or provide the services.
Direct Cost
Direct costs include costs such
as contract sum in an
outsourced arrangement, cost of
supplies, salary of personnel
and other costs in an in-house
arrangement. These costs are
indeed easier to ascertain as
they are obvious expenses,
unlike indirect costs.
In the case of an outsourced

service provider, the contract
sum is a figure that is readily
available.
COST FACTORS
CONTROL ISSUE
Whatever arrangement
Where services are is in place, the delivery
Loss of control is always
retained in-house, there of reliable management
an issue for many
must be a clear information relies on
organisations that are
distinction between the technology. It is through
considering
party who is purchasing available and accessible
outsourcing. The level
and the party who is information that many
of control can be
providing the services. of the control issues can
affected by the resultant
In this case, the in-house be solved. The most
strategy and the
FM department or appropriate
contractual relationship
division is being the management structure
between the client
provider and the will be one that ensures
organisation and the
organisation is being the the organisation of both
service provider.
purchaser. the economy and
control over its facilities.
Managing services in-house or outsourcing them poses
RISK FACED BY many new responsibilities and risks for the organisation.
ORGANIZATIONS Many risks come into play and these risks must be
handled in the most effective way if the services are to
deliver customer satisfaction.
Inadequate planning of Misapplication of
Inadequately resourced the implementation employment regulations
service providers or where there is no prior especially where
inexperienced customer analysis of needs or personnel are to be
organisation allocation of related reemployed by a
responsibilities contractor
Unclear or imprecise
Poor relationship Conflict of interests
roles, responsibilities
between contractors and when dealing with in-
and targets for effective
the contract manager house bids
team working
Possible loss of control

Lack of standard forms
over the FM function
or inadequate
and ownership of, and
conditions in FM
access to, documents
contracts
and knowledge
Inappropriate allocation Specifications that are
Lack of consideration of
of risks and rewards Inadequate definition of overly prescriptive
all stakeholders
between the customer the scope and content of and/or concentrate on
involved in the FM
organisation and the services procedures instead of
process
service providers outputs
Absence of, or poor Redundancy in the

Poorly controlled
Excessive monitoring of system for, providing supply chain where cost
changes to user
contractor performance incentives for is added without
requirements
performance necessarily adding value
Absence of benchmarks
Poor cash flow position for cost and quality
Financial failure of
Lack of education and for customer against which to
chosen service provider
training in FM organisation and service measure performance
during contract period
providers and subsequent
improvements
DELIVERING THE OPTIONS
EFFECTIVELY
Once FM services are effectively procured,
delivery becomes a critical concern because
its effectiveness will make a difference
between business performance optimisation
and failure.
The delivery option would depend solely on
the needs of each individual organisation. As
such, even organisations operating within the
same sector are likely to have differing needs.
FACILITIES
MANAGEME
NT BUSINESS
FLOW
Performance
Measurement System
Performance measurement allows for
benchmarking and is a critical
element in the FM delivery process.
Performance measurement enables
continuous improvement practices.
This is because the level of service
delivery is measured to ensure that a
satisfactory level of service delivery is
maintained or to demand that
improvements be instituted to raise
the satisfactory level.
Performance measurement tools such

as KPI, balance scorecard and
benchmarking could be employed.
Other performance monitoring tools
EFFECTIVE SERVICE such as user surveys, analysis of help-

desk fault reports, analysis of
equipment downtime and analysis of
DELIVERY incidents could be utilised.

EFFECTIVE
SERVICE
DELIVERY
Effective Communication
System
This could be in the form of

reports to the Board,
management meetings, team
briefings, site inductions,
signage and notice boards and
others.
EFFECTIVE SERVICE
DELIVERY
Feedback System
Ways of collecting feedback such
as questionnaires, surveys,
comment cards, verbal feedback
and electronic feedback should be
maintained.
Other ways of dealing with
feedback include regular analysis
of help-desk activities, incident
reporting system, swift response
time and publication of updates on
intranet should also be maintained.

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POLICY AND

BCF10013 FACILITIES MANAGEMENT 1

 Performance-based Contracts: Result-oriented contracts where outcomes, outputs

Outsourcing can be defined as the placing of facility management

Outsourcing, however, cannot be assumed as the best approach for

 Improve business focus  Reduce or control operating

• Managing contract performance is vital to ensure that the contract meets

Reduced staff costs

OUTSOURCIN Reduced staff management problems

G BENEFITS Improved consistency of service

Reduced capital requirements

Improved financial controls

Reduced property or infrastructure costs

MANAGEMENT ISSUE into account both the capability of

• Managing agent: to manage the

Other costs that must be taken into consideration include

In the case of an outsourced

Possible loss of control

Absence of, or poor Redundancy in the

Performance measurement tools such

EFFECTIVE SERVICE such as user surveys, analysis of help-

DELIVERY incidents could be utilised.

This could be in the form of

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