1 1 December 4-5, 2006 Sheraton Premiere at Tysons Corner Vienna, VA NCMA 25th Annual Government Contract Management Conference 21st Century Federal Contract

1NCMA 25th Annual Government Contract Management Conference21st Century Federal Contract Management: Challenges and Opportunities 1

December 4-5, 2006Sheraton Premiere at Tysons CornerVienna, VA

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

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

ContractPresented by: Vince Elliott, President - Elliott Affiliates, Ltd.

©2008 Elliott Affiliates, Ltd. and may not be duplicated by any means. CONFIDENTIAL & PROPRIETARY INFORMATION www.ealtd.com

Presentation OutlineI. Background

I. Industry Experience II. A National Study

II. Buying Mistakes to Avoid I. PreparationII. SelectionIII. ContractsIV. MeasurementV. Management

III. Best Practice Model I. Best Practice ActivitiesII. Perils to Best Practices

IV. Conclusion


I. Background


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.

Industry Experience


Overall Satisfaction vs. Quality Relationship

40.0

50.0

60.0

70.0

80.0

90.0

100.0

110.0

40.0 50.0 60.0 70.0 80.0 90.0 100.0

Percent Cleanliness Quality

Pe

rce

nt

Sa

tis

fac

tio

n

Not Clean - Happy Clean - Happy

Not Clean - Unhappy Clean - Unhappy

National Study Portfolio


A National StudyMetric Average High Low YouCleanliness 71.2% 95.7% 44.5%

Satisfaction 76.3% 90.9% 48.0%

Operations

Night Productivity 5,516 SFPPPH 8,557 SFPPPH 1,059 SFPPPH

Day Productivity 200,879 Per FTE 641,743 Per FTE 134,928 Per FTE

Supvr. Min/empl 36.8 Min. per Empl. 61.9 Min. per Empl. 5.9 Min. per Empl.

Supvr/Empl. Ratio 15.8 Empl. 81.1 Empl. 2.9 Empl.

Financial

Building $681,635 $4,903,000 $30,089

$/SF $1.06 $1.85 $ .43

$/hr $4,567 $10,385 $1,006


Best-in-ClassSatisfaction vs. Quality Relationship

40.0

50.0

60.0

70.0

80.0

90.0

100.0

40.0 50.0 60.0 70.0 80.0 90.0 100.0

Percent Cleanliness Quality

Per

cen

t S

atis

fact

ion

Best in Class Procurement – Satisfaction vs. Quality Relationship

>80% + >80% @ $.80


Best in Class Performance Portfolio Performance

Cleanliness 83.9% 70.0%

Satisfaction 86.3% 75.4%

Productivity 5,945 sfppph 5,472 sfppph

Price $.80 per SF $1.06 per SF

Best Practice Performance vs. Portfolio Performance

0

20

40

60

80

100

120

Per

cent

Cleanliness Satisfaction Productivity Price

Key Indicator

Measured Performance

Best

Typical


II. Buying Mistakes to Avoid


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)


Preparation: No Checklist

• STOP Goals• Business Case• Staff-to-Strategic Metrics• Internal Capability• Market (contractor) Capability• The Contract


Preparation: Typical STOP Goals

Goal Examples

StrategicMarket Change business focus

Increase current business market share

Increase shareholder value

Protect current market share

TacticalMoney Cut operating costs

Seek Joint venture-partnership opportunities

Find cash/capital Infusion

Get control of operation/function

OperationalCustomer Reduce services

Increase quality

Price cuts from suppliers

Reduce complaints

ProcessMechanism Acquire effective-efficient systems & software

Use “best practice” processes


Preparation: Inadequate Property Information

More data, more savings

Less data, less savings

Less Data

Less Savings

More Data

More Savings


Preparation: Inadequate Benchmarking

• Internal vs. Market– Scope of Work– Quality– Satisfaction– Operations & Processes– Financials – Management & Systems


Preparation: Inadequate Needs AnalysisPortfolio 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)


Selection: No Checklist

• Transparent Vendor Evaluation• Double-Blind Ranking• Financial Analysis• Risk Assessment• Reference Site Visits• Scripted Interview• Firm & Final Adjustments• Contract Validation


Selection: Incomplete Vendor Capability Assessment

• Management & People• Operations & Processes• Performance Profile

Quality Satisfaction

• Financials• Training• Experience• Certifications

Are they capable of delivering value and service success?


Contract: Often Used as a Defensive Roadblock

• 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

A ChecklistA Checklist


Measurement: Wrong Metrics

For:• Contract Compliance • Cleanliness Performance• Customer Satisfaction• Process Improvement• Occupant Expectations


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.


Management: Ineffective On-Going Focus

• No Contract Compliance Mgmt.No Contract Compliance Mgmt.• No Performance MeasurementNo Performance Measurement• No Process ImprovementNo Process Improvement• Buyer Expectations UnclearBuyer Expectations Unclear• Fail to recognize cost to: Fail to recognize cost to:

manage, measure, & maintain manage, measure, & maintain relationshiprelationship


III. Best Practice Model


Best Practices ActivitiesValue achieved by developing and

implementing Strategic Best Practices:

• Facility Benchmarking• Strategic Outsourcing• Quality Measurement & Management• Performance Based Relationships• Contract/Vendor consolidation• Process Improvement


Preparation Transition On-going Mgmt.

Fine-tuneSystems

Pre-StartOrientation

Define Proj.Milestones

EstablishScorecard

DocumentAddendums

ManageCommitments

CallCenter

ProcessImprovement

Up-dateContract

Monitor SOWAchievement

ContractCompliance

Commitment& Follow-up

Work Orders& Requests

BudgetControl

MeasurePerformance

ImplementScorecard

Re-SourceAssessment

PerformanceReporting

Buying Life-Cycle Management

Mgt. TeamEvaluation

Selection

Recognize Need

PrepareRFP

DocumentBldg. Data

DefineT’s & C’s

ReceiveBids

EvaluateBids

Performance-Fin. Link

Site Tour

Scopeof Work

PrepareBid Forms

CertifyBidders

Bid Conference

Proof ofConcept

Internal Capability

Firm & FinalReview

ReferenceSite Visit

Short ListBidders

ExecuteContract

Set KPI’s &STOP Goals

BusinessCase

Get Approval

ScriptedInterview

Advertise/Post RFP


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!


Buying Price, Performance Productivity (labor)

What are you really buying?

Price

Performance

ProductivityManagement

Process


Perils to Best Practices

• 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


More Perils:

• 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


Unclear Buyer Expectations: A Checklist

• Before the deal • After the dealService guaranteeProven track recordProven domain skillsKeep company in “control”Experience in Buyer IndustrySavings guaranteeOngoing trainingConstant improvementBest practice Ctr. SystemsEffective HR strategiesCompatible cultureProprietary metricsOn-site management

Buyer-Contractor Relationship

ResponsivenessIntegrityTechnical competenceFlexibilityPersonal serviceValueProductivityCommunicationInnovationPolitically adeptBuyer personal successWIIFM-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


IV. Conclusion


Procurement’s Job: Value

It’s not about getting the best price,

it’s about getting the best people, with the best processes, from the best partner, at the

best price!

Price is a function of process best practices and a competitive market.


For Follow-up Questions

Contact Vince at:[email protected]

Elliott Affiliates Ltd.410-584-8560

www.ealtd.com


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.

Documents

1 1 December 4-5, 2006 Sheraton Premiere at Tysons Corner Vienna, VA NCMA 25th Annual Government Contract Management Conference 21st Century Federal Contract