Proof is in Performance
Ask a building service contractor about performance-based contracting and you may get a shudder. For many BSCs, there are only two schools of thought when it comes to this kind of contract: fear or loathing.
Are they justified? I’m not so sure. Sometimes traditional contracting doesn’t work very well. A recent Contracting Profits study shows that about 35 percent of contractors will turn over five or more of their clients every year. On the buyer side, 80 percent of them will fire their current contractor at the end of year one.
With traditional contracts, the buyer, or customer, draws up the cleaning specifications. The client instructs the contractor how often work is to be performed, what chemicals should be used and sometimes even the kinds of cleaning tools that must be used.
That’s dangerous. It makes the client a “co-employer” with the contractor, sharing in liability and risk.
The client never consults the contract again until it’s time to argue with the cleaning contractor or fire him.
Frequently, contractors bid a traditional contract on the basis of what they think they can avoid doing. If they did every task at every frequency specified, no one would be able to afford hiring them. That starts a game we call “hide and seek” — or, in its more negative form, “cops and robbers” — where BSCs try to hide what they didn’t clean, and clean only to make things appear nice. The customer then tries to catch the contractor in the act.
The downside is that whether the building is extraordinarily clean or horrendously dirty, the contractor still is paid the same. It’s a scenario where everyone loses.
Performance contracting is different. One person who is knowledgeable of the differences is Vince Elliott, president of Elliott Affiliates, Ltd., based in Baltimore. He has been working with performance contracting for almost 30 years.
“Performance contracting is not taking your standard contract and sticking a penalty clause on the end of it,” Elliott says. There’s more to it than that.
In Elliott’s system, he asks building owner and manager clients, “If you could only get one thing from the cleaning contractor, what would it be?” Clients describe what really is important to them. Appearance usually is the most important deliverable and health issues usually are second. They list the types of conditions they don’t want to see, for example, dust on the desks, build-up on the floors or foul odors in restrooms.
Then, the contractor defines the process it will take to achieve those results. Each building or room is given a goal. The contractor and client agree to priorities for each kind of space. For instance, an operating room may require 100 percent cleaning accuracy while 50 percent is acceptable for a loading dock.
The contractor receives regular evaluations with a special score card. A third-party evaluator accompanies the contractor through each area of the building and gives the room or item a score. It’s not a matter of judgment. Either something is clean or it isn’t.
The contractor then is compensated by the numbers. If the building is cleaner than specified in the contract, the BSC receives a 10 percent bonus. If it fails to meet basic cleaning standards the contractor receives a mutually pre-arranged penalty.
Does it Work?
Elliott says his customers are sold on performance-based contracts once they try them.
“Their buildings are two and a half times cleaner than buildings cleaned under traditional contracts and tenants are twice as satisfied,” he explains. It’s a measurable number. Facility managers report it takes them 56 percent fewer hours to manage building cleaning. Even more amazing, Elliott says his building owner and manager clients pay less than market rates for their cleaning needs because of efficiencies.
While that may be well and good for the customer, do performance contracts work for the BSC? Contractors have four basic goals: Landing the account, getting better than industry profits, developing long-term contracts and getting solid references. Performance contracts can help BSCs achieve all of those goals.
“Contractors using performance contracts retain their clients an average of five years,” Elliott says. “And they get better profits because they can add that extra 10 percent bonus. The clients that use these contractors become a great reference.”
Performance-based contracts define the relationship between contractor and customer almost as much as the kind of cleaning. If a BSC knows how to successfully operate in a performance-based contract environment customers that already use such systems will seek out the contractor. There is no charge for the contractor match since the customer pays the third-arty administrator any fees based on facility size and type. This can result in a very low selling cost for the matched contractor. Then the third party evaluates cleaning performance each month and makes a pay recommendation.
To make performance contracting work for your company you have to have the right corporate culture. Attitude is everything. Contractors who do not like accountability are not happy in a performance contract. Because traditional contracts are based on how much work can be avoided, it’s sometimes difficult for BSCs to make the mental switch.
A second difficulty: strong managers are critical to success and they can be tough to find and hard to grow. The managers of performance contracts must be more pro-active than those supervising other kinds of contracts. Successful BSCs using this kind of contract constantly are on the look-out for cleaning systems that will help them exceed expectations while still keeping a tight rein on labor and material costs.
If there are deficiencies, root/cause analysis can help contractors identify weak spots and possible solutions. It’s up to the contractor to find ways to correct the problem. But it also creates a continuous quality improvement environment.
Although growth has been slow, performance contracting is catching on. Elliott says 26 percent of all national contracts are performance-based and the government has moved to make more of its contracts include this process. Many BSCs and their clients are experimenting with the idea. Why the interest? It’s all about both sides winning.
John Walker is a regular Contracting Profits columnist. He is a veteran building service contractor; owner of ManageMen consulting services, Salt Lake City; and founder of Janitor University, a hands-on cleaning management training program.
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