Lowest Price! Winner or not?
One of the most important aspects of selecting a contractor to partner with is deciding your criteria for your janitorial tender. Are you looking to reduce costs? Improve quality? Check the market? All of the above? None of the above? Is it simply time to go out to tender? No matter the reason, knowing what you are buying is critical to getting what you want.
Every day, I am still astounded at seeing tender documents that make all kinds of statements of quality, specifications, equipment requirements, materials requirements; And then, in the end, all that is required is a monthly or yearly price. In the end, you, the buyer, have no idea what you are going to get, only what you have asked for. How much labour are you going to get, what’s the cost of supplies, materials, equipment? What kind of profit and overhead are you being charged? These are all very important things to know. Below, you will find a basic description of what you should be looking for and why.
Firstly, you must know that labour is the single largest component of cost. For an average cleaning specification, the labour component should be 75% to 85% of the total cost. Now, please recognise that this is the labour to complete your specification, nothing else. Porters, Matrons, dock or parking attendants, etc. are not included in these values and they should also not be performing your standard cleaning specification. It must also be recognised that today, these values are being challenged by the use of technological innovations. Robotics, battery powered vacuums and other small equipment, all change the amount of labour required.
So, secondly, what equipment is going to be used to clean your environment? Is it new, reconditioned or like-new, or simply a cast off from another of the contractors’ accounts? It is for you, the buyer, to decide on what you will allow. If you specify new equipment to be priced, you level the playing field. If you also request a full list of equipment, you will be able to determine the sophistication of the contractor. On the whole, equipment typically comes in at 1.5% to 3% of the labour cost. Again, robotics and battery powered equipment may up this somewhat as a corresponding reduction in labour hours and increase in equipment cost occurs. You should also get a cost for budgeted equipment repairs and maintenance. Please, don’t let a contractor tell you its part of his overhead – that typically means they will run the equipment until it breaks. A sophisticated contractor will have a repair and maintenance plan for the equipment and will budget for this. It’s in everyone’s best interest the equipment is taken care of and runs at peak efficiency.
The third component of cost is consumables. This includes chemicals, garbage/recycle/compost bags, consumable equipment and all other non-capital inventoried items. Now, this can be a tricky one. Please resist the urge to tell contractors what chemicals to use and who to buy their consumables from. Please do set forth standards such as recyclable content in paper products, fragrance free products, environmentally friendly products, low VOC cleaning chemicals. If a contractor needs you to tell him what consumables to by, please don’t hire him. Allow them to be the experts in their industry and demonstrate that to you.
You can expect costs for consumables to be from 6% to 7.5% of the labour cost. Note, this does not include washroom consumables – toilet tissue, hand towels, hand soap, air fresheners, seat covers. The cost of these products is problematic. Consumption is difficult to calculate, and prices of these supplies has tended to fluctuate considerably. There are all kinds of theories of how to price these items, however I’ve found a dart board to often be just as likely to come up with an accurate guestimate. I favour having the contractors quote products and costs with a percent markup for their administrative costs of dealing with these. In this way you pay for what is used and the contractor avoids the risk of underestimating the consumption. A markup of 5% to 10% is fair.
The final component of cost is profit and overhead. Over the past forty years or so, we have seen profit margins for cleaning contractors erode from 25% to 5% and sometimes even less. The “race to zero” is very real and very dangerous. You have to ask yourself if you would stay in business if you could only get 5% profit for all your hard work? If you wouldn’t, why do you expect your cleaning contractor to do so? By the way, overhead is not profit, or at least it should not be. Overheads include vital business expenses to operate the cleaning contract in your facility. Items such as insurance, non-resident supervision, bonding, communications equipment, technology, uniforms, and anything else that is a specific cost to operating your account. A legitimate cost for overhead should range between 3.5% and 5%. I will not put a value on profit. Each of us needs to use common sense on this. Again, ask yourself if you would do this for the amount the contractor is asking? Is the amount reasonable and fair?
In review, costs for a cleaning contract will vary depending on size, location, prevailing labour rates, and particularly, your expectations. If labour is below 75% of cost, take a very close look. Consider the cost of equipment as it may affect the labour required. Consider the cost of consumables and look carefully at washroom consumables. Finally, consider overheads and profit. All components are important, not just the final price, and certainly not the lowest price, necessarily.
Next time, I will discuss using facilities management companies to take care of your cleaning requirements. This will be very interesting.
Frank Piller
As always, your comments are really appreciated. Discussion is healthy and important to keep our industry and ourselves growing.