Facility management is an interdisciplinary field primarily devoted to the maintenance and care of commercial or institutional buildings,such as hotels, resorts, schools, office complexes, sports arenas or convention centers. Duties may include the care of air conditioning, electric power, plumbing and lighting systems; cleaning; decoration; groundskeeping andsecurity. Some or all of these duties can be assisted by computer programs. These duties can be thought of as non-core or support services because they are not the primary business of the owner organization.

There are three Types/Tiers of service providers in the Facility Services marketplace:

Tier 1:  National Full Service Providers – Characterized by broad geographic coverage and broad service offerings

Tier 2:  Niche Providers – Characterized by specialization in a narrow but complementary portfolio of services or focus on a particular geographic region

Tier 3:  Regional and Local Contractors – Provides point   services or small combinations of services for a defined   geographic area. Each tier is also differentiated by the characteristics of typical deal structures and contracts, and the depth of “value added service management” provided to the customer.

Tier 1 Profile: National Full Service Providers

Breadth of Service: Deep capabilities in both Facility Maintenance Management (FMM) and Asset Planning/Construction Management.

“Value Added” Services:  Integrated service management, asset and facility planning, design and architecture and engineering, project management, inventory control, performance measurement, etc.

Contracting Characteristics: Performance based/gain share contracting common. Service provider often takes ownership of Facility Services assets.

Operating Model: Broad service scope typically provided by combining capabilities of various wholly owned operating divisions and coordinated through a common management infrastructure.

Business Drivers:

1)Economies of Scale – multiple large and lengthy contracts allow for efficient sharing of common assets (i.e. IT and operations equipment), leverage over supply inputs, and broad use of best practices.  2)Service Bundling – Combining higher margin service management and skilled labor services (i.e. design architecture and engineering) with non-skilled labor services (custodial) provides risk diversification against historically low facility maintenance margins.

Example Companies:  Johnson Controls, Aramark, Unicco, Fluor

Tier 2 Profile: Niche Providers

Breadth of Service: Often geographically or industry focused.  Deep capabilities in core service area, with “market parity” service in related auxiliary services.

“Value Added” Services:  Industry focused providers offer comprehensive service choices for the targeted customers (i.e. From custodial to full operations of power generation facilities).  Specialized service providers offer true best-of-breed practices in a particular service area.

Contracting Characteristics: Tendency toward cost-plus contracts with performance parameters.   Limited gain sharing contracts.  Fixed cost contracts for one-time transactional services.

Operating Model: Geographic coverage and service breadth often achieved by service “alliances” with sub-contractors.  Various methods used for integrating sub-contractors into the service management infrastructure and managing sub-contractor performance.

Business Drivers:

1)Specialization – Leverage complex and specialized best of breed practices to a specific scope of service (such as real estate planning and management) .  This strategy often provides for deeper and more strategic relationships with clients.

2)Service complexity  – Often rely on complex service requirements from customer to differentiate from tier 1 and tier 3 competitors.

Example Companies:  Avalotis Corporation (industrial painting and coatings), MPW Industrial Services Group (industrial cleaning).

Tier 3 Profile: Regional & Local Contractors

Breadth of Service: Deep capabilities in a narrowly defined service area.

“Value Added” Services:  Transaction based. Service planning and management provided in large part by the customer. Contracting Characteristics: Fixed cost contracting with performance characteristics common.

Operating Model: Wholly owned capabilities for providing service.  Loose alliance of subcontractors for construction based jobs when required.

Business Drivers:

1)Price – With limited “value added” service offerings, price is often the dominating factor in customer decisions.   Contractors are often one of may providers of a similar service for their customer. Contractors often have limited leverage over supply costs.  May also act as a sub-contractor to larger FMM companies.

Example Companies: Avalotis Corporation (industrial painting and coatings), MPW Industrial Services Group (industrial cleaning).

Trends in the Market Place

The Facility Services industry is experiencing an extended period of growth in both the number of companies outsourcing services and the breadth of facility services being outsourced.

Customer drivers of this trend include an increasing focus on core  competencies, increasing technical complexity of facility and mechanical, electrical, and other systems, and the need for increased  system reliability.

Consolidation is slowly occurring within the industry, as competing against the largest providers requires broad service offerings, economies of scale, and broad geographic coverage.

Demand  for higher margin Facility Services such as replacement and repair are being driven by higher system complexity and aging infrastructures.

Technology is playing an ever-more-important role in the Facility Services outsourcing contracts.  The Internet and other systems have dramatically improved service providers’ ability to communicate with clients, manage projects and portfolios and meet performance expectations.

There is a downward pressure on fees and an increased use of fee structures that reflect shared risk and emphasize achievement of performance targets.   This trend benefits firms with significant scale and the ability to spread fixed costs over a larger revenue base.

Access to capital is becoming a market qualifier for large, multi-service contracts, as they often include the disposition of client assets and broad geographic coverage.

Low margin non-skilled labor services (custodial) are increasingly being bundled with higher margin service management and skilled labor services (i.e. design architecture and engineering).  Non-skilled labor services are often viewed by service providers as loss-leading market qualifiers.

Total cost of labor is a key driver for the industry.  Companies are managing cost of labor in two ways.  First, labor productivity is being addressed by deploying common advanced labor planning and scheduling applications across a broad base of client accounts and services.  Second, there is a renewed focus on professionally managed recruiting, training, and carrier development programs that are helping companies employ, train and retain qualified and motivated service technicians and field personnel, resulting in reduced turnover and higher service quality.