Facilities Management - The Realities of Vendor Outsourcing

Depending on your organization's size, sophisticationtendency under these circumstances for performance
and demand for copying resources, your vendor'sfigures to be fudged, with the result being that the
Facilities Management (FM) services may appear tovendor may claim that additional employees are
be an excellent solution for managing documentjustified to handle a workload which may be
production. The FM option eliminates the need foroverstated. In addition, an overstated workload may
employing and managing human resources, investing inresult in the vendor claiming the need for outsourcing
education in an environment of expanding technologyof production off-site, for which the customer is
and the headaches of maintaining sensitive equipmentcharged usage rates of 5-10 cents/copy.
and complex document production. What could be theOver-taxation
downside of outsourcing your copying facilityThis problem results from bundling employee salaries
performance, leaving you free to focus on yourand service charges with equipment and supplies.
company's core competencies rather than on theCalifornia state law mandates sales tax on the two
business of document duplication and assembly?latter items, but specifically precludes sales tax on
While a sensible argument might be made forsalaries and services. By bundling everything together,
outsourcing your copying needs under athe vendor applies sales tax to the total billable amount,
straightforward and clearly priced vendor program, theincluding those items which would not normally be
reality is that FM services are an open invitation totaxed.
cost abuse. The following analysis presents theAnnual Increases
dangers and pitfalls of such programs, and offersVendors normally apply 5-10% annual cost increases
guidance in minimizing the negative implications of suchon service and supplies for in-house copy production
a program if your organization can benefit from suchand support. However, under the terms of the FM
an implementation.contract, this increase will apply to equipment and
Bundled Pricingexcess production over base allocation in addition to
First of all, FM services are priced as a bundledservice, supplies and employee salaries. The increases
package; employees, equipment, service &in equipment costs are entirely unjustified as the
supplies are all lumped together in a base charge. Thisequipment is not being updated. You are merely paying
makes it difficult to determine what each individualmore each year for the term of the FM contract on
element of the package is costing, and virtuallyequipment which neither increases in value nor
impossible to compare to in-house costs for eachperformance. As an example, in a FM contract of
specific factor. The surprising fact here is that the$15,000/month, of which the equipment portion (if it
vendor may allocate as much as $100,000 for a singlecould be separately identified) is $3,000, annual
service employee!increases of 10% will drive the equipment costs to
Lack of Ownership$4,392 after four years. This is an increase of over
Two specific disadvantages arise with the FM40% - with absolutely no benefit! Include the
program as applied to copying equipment itself:unnecessary increases in excess production charges
as compared to a fixed five-year contract on service
1. By not owning the equipment, your company will be& toner, and the FM program looks downright
paying a premium; directly by paying for equipment youresistible!
will never own, and indirectly by foregoing deductionsLoan Rates
and depreciation.The loan rates on equipment leases under FM
2. In the case where upgrades or downgrades areprograms run anywhere from 12-28%. Not only does
necessary, you will be charged for the new equipmentthis incur additional expense, but at the end of the
while continuing to pay for the original equipment forcontract term, there is no option to buy the equipment,
the life of the FM contract.no sale-back, nor any 10-40% residual recovery.
UsageRecommendations
Two common sources of excessive costs as appliedBecause vendor Facility Management programs
to usage are:present so many opportunities for abuse, I strongly
suggest the following:
1. Contracting for a base usage of 500,000 copies per
period versus actual usage of 200,000 copies.1. Avoid Facility Management programs if at all possible,
2. Contracting for a base usage of 500,000 copiesmaintaining your document production needs in-house
versus actual usage of 1,000,000 copies. The overageand acquiring equipment through outright purchase or
is often then charged at a rate of 2-4 cents per copythrough independent lease arrangements.
as compared to the normal rate of less than .01/copy.2. If it is determined that it is in your organization's best
Furthermore, the service employee time for thisinterest to avoid the direct management responsibilities
"excess" production can be charged as overtime atof an in-house operation, then demand that all costs
rates of $25-35/hour; a concept we refer to in theassociated with the FM program (equipment, salaries,
business as "double-dipping."supplies and service) be identified separately. Require
Vendor Personnelthe equipment portion of the charges to be billed
Since the service employees belong to the vendor,separately to avoid unnecessary sales taxes. Finally,
performance and evaluation of these personnel are nonegotiate a base usage rate that best reflects your
longer under your organization's control. There is acurrent and estimated future levels.