Re-engineering a Corporate Real Estate Service Organization: Strategic Sourcing

Posted: 10/06/2018 - 00:38

In Part I of this article we provided insight into the key steps and success factors associated with the process of re-engineering a corporate real estate services organization. In Part II, we shift the focus to strategic sourcing of real estate and facilities services: supplier pre-qualification, bid strategy, RFP development and administration, contract negotiation and transition management.

In Part I: Operational Review, the team identified what needed to be done and determined the optimal delivery model. In Part II: Strategic Sourcing, we will examine the strategic sourcing process, including: 
  1. Supplier Pre-Qualification
  2. Bid Strategy
  3. Request for Proposal/Solution/Partner Development
  4. Bid Administration
  5. Contract Development and Negotiation
  6. Transition Management 
The first question is whether your organization has the expertise or internal capacity to manage a complex, time-consuming and resource-intensive sourcing project for corporate real estate services, or whether you require the services of an external consultant. A proven and established consultant will layer their knowledge of best practices from within the industry as well as innovations from other industries on top of their strategic sourcing expertise. In some cases, the independence and objectivity a third party brings to the process can facilitate stakeholder buy-in and enhance change management. 
Regardless of whether you work with an outside consultant, with your internal procurement organization or some combination of the two, your team’s involvement in the strategic sourcing process will be significant. 
1. Supplier Pre-Qualification
The purpose of Supplier Pre-Qualification is to identify providers that are qualified to deliver required services of the appropriate quality at a competitive price.  
Begin by approaching experts within your organization who use the goods or services you intend to source. Reach out to colleagues in the industry, especially those who have recently completed similar sourcing initiatives. Suppliers are also a good source of information. Professional organizations such as the Sourcing Industry Group, Institute for Supply Management, International Facility Management Association, or CoreNet Global may have a directory of providers. Trade publications will contain an index of advertisers or general articles that may mention particular suppliers. Finally, industry experts who manage sourcing activities can offer some ideas; this is usually a piece of their service offering. 
The second step is to "qualify" the providers and determine their level of interest in the opportunity. Whether the team chooses to undertake a formal Request for Qualifications (RFQ) or Request for Information (RFI), or rely on industry experts to provide the information, four key questions must be answered.
  • What is the company profile?
  • What is their product profile?
  • What is their commitment to the industry?
  • Are they willing to meet your needs?
A formal RFQ/RFI should provide sufficient information and structure to ensure the providers’ responses are specific and adequately answer these four questions. A fairly typical RFQ/RFI contains: 
  • A brief overview of your company and its intention to source a particular good or service;  
  • Instructions on how and when to respond as well as contact information and a timeline; 
  • A list of questions focusing on the provider’s ability to deliver the service needed; and,  
  • Any relevant attachments that the potential bidder must agree/adhere to or sign in order to be considered as a potential bidder.   
  • Assess the information provided and determine which providers will be included in the next phase of the sourcing process. 

2. Bid Strategy

Development of the bid strategy is a key milestone in the sourcing process. In a straightforward sourcing engagement involving a narrowly defined range of services, the bidders will vary little and can be pre-qualified in advance of determining exactly how the bid will be structured. In a more complex sourcing endeavor, the bid strategy and supplier pre-qualification steps may be undertaken in parallel. The processes may even be iterative as information obtained from one area influences decisions in the other. 

A bid strategy includes the following elements: 

  • The list of pre-qualified suppliers;
  • A carefully determined approach to service alignment;
  • A well-defined bid process; and,
  • The pricing structures and contract framework.
Service Alignment 
Is there a preference regarding a single-source solution or a multi-supplier solution? A single-source solution may limit the number of qualified suppliers. Also, determine the extent to which alliances and sub-contracting are acceptable. 
If a multi-supplier solution is preferred, how will you bundle or split services? Are some services considered core components of any bid, while others may be awarded as standalone services to alternate providers? 
Bid Process 
Determine what process will be used to manage the sourcing activity. Will you use an electronic tool? Should the bid process be an auction? A sealed bid? A formal Request for Proposal? Should it be a multi-phase bid, splitting the assessment of the desired solution from the pricing discussion? Should it be a request for proposal with explicit responses to predetermined scopes, or a request for partner with whom you then define the desired outcome? 
Where innovation and creativity are required, you may want to consider a more collaborative Request for Solution, or include what are often referred to as yellow-pad sessions with each supplier. 
Finally, specify the key criteria for determining the award, how the evaluation of the responses will occur, and the desired timeline for the initiative. 
Pricing Structure and Contract Framework 
Next, determine the most appropriate pricing model and contract framework. Whether the goal is transparency of cost structures, mitigation of risk, guaranteed maximum price, or lowest possible cost for a desired level of service, development of the appropriate pricing structure will help to enable achievement of that goal.
3. Request for Proposal/Solution/Partner Development

The bid itself should include six basic components. Although organizations call the process of obtaining a bid many different things, the most common is "Request for Proposal" (RFP). A properly constructed RFP ensures that all responses are comprehensive, easily evaluated and reasonably comparable. Your RFP should be sure to address the following:

  • AdministrationSpecify exactly how you want the responses submitted. Require the bidders to respond to the questions in the order presented, include the original question and utilize the same numbering scheme.  

  • LogisticsClarify your right to use the information submitted in any way you choose and that bidders bear the costs associated with preparing the response. Specify how bidders will interact with existing contractors or sub-contractors, employees and the bid team. 

  • Business Context: Include a clear delineation of your company, the component of the organization that will be impacted, the intent of the RFP, and the specifications and volume of information that will enable the bidder to develop a comprehensive solution. Some organizations opt for a pre-RFP yellow-pad session that allows the bidders to present their capabilities and ask questions.

  • Approach/Solution: Craft the questions about "how" the bidder will provide services so they may be easily evalutedFocus on one concept at a time. Ask for supporting documentation and exhibits. If particular response must be submitted in a specific format to facilitate analysis, provide a template

  • New Ideas: Provide the bidders an opportunity to make suggestionsoffer modified approaches, or demonstrate innovation and creativity. However, limit their opportunity to be creative to a single stand-alone section.

  • Service AgreementInclude the actual agreement within the RFP and require the bidders to comment on their willingness to accept your terms and conditions and any modifications they would require

You must decide how you will distribute the RFP. Over time, eSourcing tools have become more sohisticated and some may be able to handle intricate services RFPs. Depending on the tool, you may be limited to conducting a reverse auction on the pricing component or just distributing the questions and gathering the responses electronically. The more sophisticated tools also allow you to score responses and turn the winning response into a contract.

4. Bid Administration

Bid administration can be relatively straight forward and simple, yet it is fraught with potential pitfalls.  The goal is to ensure the bid runs smoothly and that the team has sufficient, valid information to award the contract. Successful bid administration consists of three primary factors: a solid process, excellent communication and consistent application.

A Solid Process: Identify each step in the process prior to issuing the bid and then stick to the schedule. Clearly define the time frame and format for questions and responses. Will you conduct on-site tours? Will you require live bid presentations? Must the specific operational team responsible for the account be present? How will communication between bidders, employees and existing contractors be managed? Develop an objective evaluation matrix to score and rank the bid responses. 
Excellent Communication: Throughout the process, it is important that the team communicates effectively with each other, with the bidders, and with key stakeholders. All communication should be clear, concise and targeted. 
Consistent Application: Ensure that all actions remain consistent with the originally defined objectives and the desired goals. Bidders should obtain the same information in a consistent format from a single source with a single message. Award decisions should be made consistent with the established criteria. It can be difficult to maintain consistency throughout a complex initiative that extends over many members and impacts many stakeholders.
5. Contract Development and Negotiation
Contract development is the capstone process of Strategic Sourcing. Critical components of the deal include: 
  • The scope and service level expectations;
  • The desired outcome and goals of the relationship;
  • The governance model;
  • Specific pricing details;
  • Defined limitation of liability; and,
  • Indemnification. 
A number of critical issues to consider during the negotiation and documentation of successful contracts follow.
a. Know and Document the “Deal:”
The cardinal rule of contract negotiation is:  "If it's not in writing, it's not part of the deal." The contract becomes the only legally binding document between the owner and provider. All prior written and/or verbal agreements are null and void unless they are embodied within the contract documents. Don’t rely on "relationships" and verbal understandings. Those involved in the deal initially may not be involved over the life of the contract. 
The contract should accurately document the critical issues but also allow for modification as business realities change. Official "trigger events" should be incorporated such that if business drivers significantly change, or aspects of service delivery requirements significantly deviate from the agreement, each party has the right to take certain actions up to and including the right to terminate the contract.
b. Understand the Provider's Key Business Drivers:
Know what is important to your provider. Where are they negotiable? Are there some items over which they have no control?
c. Determine the Right Drafting Strategy:
Typically contracts are drafted to favor the drafter. In the event of litigation any lack of clarity will most often be determined against the drafter. Wherever possible you should utilize the form that best meets your needs. In most cases, this will mean drafting the primary contract with your own attorneys or advisors. Be certain to obtain qualified counsel with deep experience in the specific area under review.
d. Don't Abdicate Negotiation Responsibility:
Every contract is a combination of terms and conditions that have a legal basis and/or a business basis. Don’t abdicate responsibility for negotiation of the terms and conditions of an agreement to their lawyers. 

e. Tenaciously Guard Key Provisions Affecting Financials:

Pay special attention to limitation of liability, indemnification and insurance. Although of limited consequence when the relationship is healthy, each has the potential to increase the financial exposure of the owner substantially while decreasing the financial exposure of the supplier.

f. Address Termination and Exit Strategy:

After a lengthy sourcing process, it is often difficult to think about "the end" of the relationship. However, this is the only time you will have the power to negotiate your rights upon termination. Termination rights should be negotiated for conditions of cause and/or convenience (without cause), and address issues that might include:

  • Financial penalties;  
  • Transition of data, personnel, systems and processes;
  • Rights of ownership of intellectual property and items developed by reimbursable staff; and,
  • Rights to hire critical staff at termination (at no cost to you), transferable to your designee.

g. Incorporate Strong Performance Measures and Incentives:

Key performance measures (KPIs) and service level agreements (SLAs) serve as vital elements in the management of supplier performance. You can manage supplier performance most effectively when the provider's performance drives total compensation. After the contract is executed, performance management will become part of the governance structure that we will discuss in Segment III.

6. Transition Management

Whether you decide to reengineer internally or outsource, a well-conceived, well-executed transition plan is critical. Many well-intentioned reengineering and outsourcing initiatives have stumbled or failed in transition. Five critical components include:

a. Establish a Dedicated Transition Team: 

The transition team should include representatives from key areas such as Human Resources, Information Technology, Procurement and Finance, in addition to the operational management team. Allocate a sufficient number of resources to the transition team and enlist "dedicated leadership" whenever possible.

b. Utilize a Formal Process:

Conduct an in-depth kick-off meeting with all team members to review and confirm the project goals, implementation strategies, critical success activities, sequencing of events and target milestone dates. The transition should be completed "swiftly," but not be rushed. Clearly document roles and responsibilities of all parties, agree on deliverables and timeframes and schedule regular weekly or bi-weekly meetings.

c. Embrace Continuous Improvement:

Establish a mechanism to identify service improvements and opportunities to lower costs. Place a strong emphasis on training and employee retention. Set aggressive improvement targets in customer service, quality and cost savings and engage everyone in your operation in the development of those targets.

d. Abolish the Use of Old Practices:

If after the successful planning, communication and implementation of the "new model" the departmental staff, customers or suppliers continue to use "old" practices, the success of the project will be greatly diminished, or could be considered a total failure. Ensure business controls are put in place to prohibit the use of practices and procedures that relate to the prior environment.

e. Measure Performance and Report:

You have established a clear baseline of your operation, competition, customers and industry. Be equally well versed in the vision, operations and financial aspects of your new model. Understand the underlying drivers to your costs, operate your department with an entrepreneurial mindset and be able to clearly articulate your value proposition. Share the impact of objectives as they are met. Communicate progress frequently, and use a consistent format. Use multiple methods for communicating the same message, and repeat it often.

Now that we have completed the strategic sourcing of your real estate and/or facilities services and managed through the transition, our next focus is to ensure that we derive the expected value and benefit from these new relationships. 
In Segment III of Re-Engineering a Corporate Real Estate Services Organization, we will cover a complex collection of topics, including governance, supplier management and performance management as well as some of the tools that support the implementation of a comprehensive supplier performance management strategy.

About The Author

Ingrid Fenn's picture

Ingrid is a highly accomplished leader in corporate real estate and facilities management. As a global real estate strategist and portfolio platform builder, she brings more than a decade of major multinational corporate expertise to her strategic and operational leadership of SIREAS

Working directly with clients’ executive and real estate leadership teams, she designs strategic plans that cost effectively meet their business goals. She also provides oversight and guidance to SIREAS’ client engagement teams and develops the third-party supplier and outsourcing relations that are vital to the maintenance of client portfolios and facilities. 

Ingrid’s career has included leadership in value-building real estate strategy, the development of portfolio and facilities management platforms, and oversight of millions of square feet of leased and owned research, commercial, office and manufacturing facilities. Before cofounding SIREAS, Ingrid served as Global Head of Real Estate for health products leader Covidien, where she partnered with the executive leadership team on value-building real estate strategy, designed and led the real estate organization, developed the portfolio and facilities management platform, and oversaw 16 million square feet of leased and owned research, commercial, office and manufacturing facilities.