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Clients will look to cut the costs of services, too

Many construction companies have related service groups in the facilities management sector. By Nigel Shilton

As the slowdown looms and construction looks less enticing, these firms may start to look to property service contracts to provide stability.

On the other side of the fence, clients are more likely to be looking for expenditure cuts. Property-related costs are often a favourite target for reduction.

With an agreed contract in place, service providers might consider themselves immune but when the cost reduction spotlight is turned on across the entire organisation, there’s no contract that can’t be broken.

Property directors charged with cost reduction typically move quickly over the rent and rates lines and home in on service costs as their main focus.

Here, the first port of call is normally to find areas of demand that can be turned down or even off. After that, the core service contracts come under increasing scrutiny.

What steps can be taken to reduce service contract costs?

This is not as easy as the finance director might like to think. With thin industry margins and service quality at risk, there is a limited amount of room to manoeuvre. The obvious commercial approach is to put the supplier under competitive pressure.

But straightforward retendering is not always attractive due to the timescales and perceived risks around any transition to alternative service providers.

‘No change’ doesn’t help

Incumbents might feel secure in this position, but ‘no change’ doesn’t help clients achieve their aims and this does not help build the sort of long-term relationship most service providers look for.

It’s not long before the emphasis starts to shift to look for ways in which the client can work with existing providers to find ways to reduce costs while maintaining service quality. It is at this point relationships come under threat. If suppliers can’t deliver savings they risk being seen as unhelpful and if they do, they are asked why they hadn’t done it previously.

With this catch-22 awaiting them, service providers might do better to seek dialogue rather than be caught unawares as the clients take the initiative.

Nigel Shilton is the construction partner at Deloitte