This is the testimony of a mid-sized FM service provider, who has burnt his fingers in the past by vying for property management clients:
“We spent one year negotiating with one of those firms; it was a very big account. The figure came down to just 75 rupees per person…and they still didn’t give me the contract. For their tenants, even 100 or 200 rupees per person wouldn’t have made a difference. But we are at their mercy.”
Why would an experienced service provider – who wants to grow – keep himself away from an entire category of major clients? Here’s one more reason why:
“Someone from an asset management firm called me on a Friday evening, told me about the facility – which was over 50 kilometres away from the nearest city – and asked me for a quote by the next day. I managed to speak to the procurement person, and brought up a point which their RFP mentions: ‘The management fee should be restricted to 5%.’”
“Do you know what he said? “There are other service providers who are willing to do it for 4% or 3% also.” I thanked him for considering us, and told him that I won’t be the right vendor for you.”
This service provider has had many satisfied clients stay with them for years, if not decades. Their reputation is such that FM heads of the tenant companies – who are the clients of property management firms – would have chosen to give them the FM contract directly. But, they are mandated to go through property managers.
Not everyone is a bad egg. Some such clients write the spends on human resources into the contract, and ensure they get paid on time. But in many cases, it takes 60 days or more for payments to come through. That too, after making arbitrary deductions that could have been discussed and clarified in the interim.
Few mid-sized service providers have pockets deep enough to sustain such a payment cycle. “Instead of spending on two-three months’ salary for such low returns, it would be easier for me to invest in a Fixed Deposit and earn interest without any headaches.”
Despite his bitter experience, the person I spoke to still plans to do some business with such clients. Why? Because their tenants are global conglomerates and marquee names; servicing their spaces gives service providers a better reputation in the market. “I will make an almost marginal profit, which won’t be worth all the effort. Still, by associating with big end-clients, I will be able to keep my company’s name in the running for other, more profitable contracts”.
FM companies need to work with property management firms to grow. But working with FM companies won’t allow them to grow…a Catch-22 situation.
When it comes to FM vendors, asset management companies may be spoilt for choice. But are they, really? How long can a new player – who is willing to undercut experienced companies by working at 1.5-2% margins – pull on?
FM service providers should be treated as partners, not serfs. For property managers to thrive, they need at least to survive.