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What key contract terms should you negotiate with service providers?

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As a facility manager, you need to work with various service providers to ensure the smooth operation and maintenance of your buildings and assets. However, not all service contracts are created equal. You need to negotiate the key terms that affect your budget, performance, quality, and risk. Here are some of the most important contract terms that you should pay attention to and negotiate with your service providers.

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Clement Olaniyi Ayegbusi

MEP Engineer | Asset Manager | Energy Manager |Project Manager
Sony Cherian

QHSE Practitioner in Facilities & Properties Management, committed to making places safer to live and work in.
Mohamed irfan Abbas gani, MIWFM, FMP?

Sustainability Professional: Pioneering Carbon-Conscious Solutions through Life Cycle Assessments.

1 Scope of work

The scope of work defines what services the provider will deliver, how often, and to what standards. It should be clear, specific, and measurable, and aligned with your facility goals and needs. You should negotiate the scope of work to avoid ambiguity, gaps, overlaps, or unnecessary services that could affect your costs and satisfaction. You should also include provisions for changes, additions, or deletions of services, and how they will be priced and approved.

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Sony Cherian

QHSE Practitioner in Facilities & Properties Management, committed to making places safer to live and work in.
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Defining the scope of work is one of the most important aspect in FM contract drafting and review. It should be properly determined, reviewed and recorded that what all services you would require from a provider and to what extent. For each service, determine what you need from the service provider and what you could provide in-house. A proper assessment of the current state of your facility management services and the shortfalls that you have experienced in past could help to determine the scope of work.

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Mohamed irfan Abbas gani, MIWFM, FMP?

Sustainability Professional: Pioneering Carbon-Conscious Solutions through Life Cycle Assessments.
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Navigating the scope of work for a high-rise facility service was an exciting challenge. We mapped out maintenance, cleaning, and safety tasks with clarity. Establishing a seamless schedule ensured smooth operations. Payment milestones were tied to achieving quality standards, reflecting our commitment. Clear ownership, confidentiality measures, and dispute resolution plans were also ironed out. This negotiation crafted a robust guide for a successful partnership in high-rise facility management.

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2 Payment terms

The payment terms specify how much, when, and how you will pay the service provider for their services. You should negotiate the payment terms to ensure that they are fair, transparent, and consistent with the market rates and your budget. You should also consider the payment methods, frequency, invoicing, and dispute resolution processes. You should avoid paying too much upfront or too late, and link the payment to the performance and quality of the services.

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Mohamed irfan Abbas gani, MIWFM, FMP?

Sustainability Professional: Pioneering Carbon-Conscious Solutions through Life Cycle Assessments.
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Negotiating payment terms for our high-rise facility service added an interesting layer to the process. We worked on structuring a payment plan that aligned with project milestones, emphasizing financial transparency and accountability. This involved setting clear expectations for payment frequency and correlating disbursements with the completion of significant deliverables. The negotiation also delved into exploring any penalties or incentives tied to the agreed-upon payment schedule. Ultimately, our collaborative efforts ensured a fair and balanced arrangement that underscored mutual commitment and the successful management of the facility.

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3 Performance indicators

The performance indicators measure how well the service provider is delivering the services according to the scope of work and your expectations. They should be relevant, realistic, and quantifiable, and reflect the outcomes and benefits that you want to achieve. You should negotiate the performance indicators to ensure that they are aligned with your facility objectives and priorities, and that they are monitored and reported regularly. You should also include incentives and penalties for exceeding or falling short of the performance targets.

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Clement Olaniyi Ayegbusi

MEP Engineer | Asset Manager | Energy Manager |Project Manager
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Service level agreement (SLA) is about the most important as it is what drives cost and other factors. This has to be negotiated within the realistic of other factors including cost, accessibility among others.

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Amaechi Samson

Quantity Surveyor / Project Manager / Entrepreneur
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Contract scope & deliverables This ensures that all implied obligations that are not expressly stated or contained in the contract framwork / provisions are known from abi-initio.

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4 Quality standards

The quality standards define the level of quality that the service provider must adhere to in delivering the services. They should be based on industry best practices, regulatory requirements, and your specific needs and preferences. You should negotiate the quality standards to ensure that they are consistent with your facility specifications and expectations, and that they are verified and validated by independent audits or inspections. You should also include remedies and warranties for any defects or non-conformities in the services.

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5 Risk allocation

The risk allocation determines who is responsible for managing and bearing the risks associated with the service delivery. It should be based on a fair and reasonable assessment of the likelihood and impact of each risk, and the ability and willingness of each party to control and mitigate it. You should negotiate the risk allocation to ensure that you are not exposed to excessive or unnecessary risks, and that you have adequate insurance and indemnity clauses to protect you from any liabilities or losses.

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6 Termination clauses

The termination clauses specify the conditions and procedures for ending the service contract before its expiry. They should cover both mutual and unilateral termination scenarios, and the reasons and notice periods for each. You should negotiate the termination clauses to ensure that you have the flexibility and security to terminate the contract if the service provider fails to perform or breaches the contract terms, or if your facility needs or circumstances change. You should also include the consequences and obligations of termination, such as payments, refunds, transitions, and disputes.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Sony Cherian

QHSE Practitioner in Facilities & Properties Management, committed to making places safer to live and work in.
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As sustainability is one of the most pressing aspects nowadays, FM contracts should clearly outline our needs and expectations on sustainable practices. This should include effective measures to decrease emissions, improve energy efficiency and ensure they positively impact the environment. Below items should be defined in the contract. 1. Sustainable procurement through approved suppliers prioritizing cradle to cradle products, energy efficient equipment, recyclable products and local purchase. 2. Use of Green Seal, Ecologo or EPA Safer Choice certified cleaning products/equipment. 3. More integrated and energy efficient management of assets. 4. Set standards for products used in facility renovation and retrofitting.

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What key contract terms should you negotiate with service providers?

1

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3

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5

6

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1 Scope of work

2 Payment terms

3 Performance indicators

4 Quality standards

5 Risk allocation

6 Termination clauses

7 Here’s what else to consider

Facility Management (FM)

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What key contract terms should you negotiate with service providers?

1

2

3

4

5

6

7

1 Scope of work

2 Payment terms

3 Performance indicators

4 Quality standards

5 Risk allocation

6 Termination clauses

7 Here’s what else to consider

Facility Management (FM)

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