Contractor co-location: What is the impact?

by FM Media
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The pros and cons of contracting teams being located at the client site and being embedded into the client’s operations are discussed by RODNEY TIMM of Property Beyond.

As part of the decision to outsource non-core property and facilities services, many rulings about the nature of the service delivery model are required. Service specifications, performance frameworks, team structures, contract governance models and service fee arrangement all receive attention during the decision-making process.
But, often, the important decision regarding the co-location of the service team is neglected until late in the final negotiations and the transition. Should the contracting team be located at the client site and be embedded into their operations, or should they operate from their own corporate premises? Or, does the best solution lie somewhere between these two options? And, what is the impact of the contractor team location decision in terms of cost, service culture, ongoing professional development, corporate loyalty and ultimately effective performance?

The easiest assessment relates to costs. If the contractor is to accommodate the service team in their own premises, expect a price tab to be attached. Besides the usual people on-costs and overheads, there will be a specific headcount cost for office accommodation, workstations, computers and ongoing support. This can range somewhere between $10,000 and in excess of $15,000 per person per annum.
Alternatively, the client will need to ensure that there is accommodation available and that the required information technology support for the contractor team can be provided. In the financial analysis of the service options, these expenses will need to be budgeted for as part of the overall outsourcing costs.
If the contractor provides their own accommodation, expect these costs to be incorporated into the overall fee structure. It is likely that the provision of the accommodation by the client will be cheaper without the contractor mark-up. But, it may not be that simple. With many variables such as grade of accommodation, efficiency of the space allocation, and the quality and format of information technology support, actual costs can vary significantly.
Will the space be available in the client offices? It is likely that, if outsourcing for the first time, workstations left by the internal team members may not have any alternative use. This may be a driver for the co-location decision. But cost is unlikely to be the key input in the optimal operational outcome.

Another key assessment in the co-location decision is about the skills and functions to be provided and undertaken by the contractor. Strategic planning and face-to-face client service functions should arguably be co-located with the client business units to be in touch and to able to understand any changing needs. This proximity may also be beneficial in gaining the client team’s confidence in these key planning tasks.
Generally, it is also expected that services related to technical maintenance activities in supporting assets and facilities will require the contractor team to be close at hand to respond to operational needs. However, this requirement does not necessarily extend to the supervisory skills and technical expertise not dedicated to the contract. These team members may be located elsewhere, visiting and inspecting client locations on an as-needed basis.
Contractor team members performing business processing and contact centre services do not generally need to be located in close proximity to the client. These team members are likely to be part of a larger shared services arrangement located remotely from any clients, possibly in another country, albeit notionally dedicated to the service contract.
Similarly, it is debatable whether transaction team members are best located at the client site. Based on the nature of transactions and negotiations, it is likely that it will be more beneficial for them to be co-located with their fellow negotiators working for other clients on numerous property deals. The team will benefit from greater market knowledge and negotiating know-how. In support property analysts reviewing and capturing key lease data and critical terms similarly may have the advantage of being exposed to the supervisory skills of lease specialist.

Although costs, skills and key functions may be good pointers in the location decision, the biggest debating point probably relates to how the co-location decision may or may not impact the effective performance of the contractor team.
Key questions need to be considered. Is a service team embedded at a client site likely to become isolated and succumb to bad work habits? Will they adopt the possibly more ‘laid back’ style of their client and not function as a high performance team as planned?
Some outsource models require that the contractor team be fully integrated into the client’s operations. In this model, they assume the client identity in the form of titles, business cards and uniforms. It is not difficult to understand why corporate loyalties start to transfer to the client. This may be good for service delivery standards, but less positive for the profitability of the contract as ‘over-servicing’ becomes the norm.
The contractor will likely need to have specific management strategies to ensure that remote team members located with a client ‘feel’ part of the larger service organisation. Activities such as training workshops, career development and choreographing team functions on a regular basis become a necessity.
Corporate loyalty and a sense of belonging is one of the primary contributors to personal and work satisfaction. A feeling of isolation and being ‘cut off’ from the service organisation can lead to negative perceptions of the employer and poor performance – aspects that should not be neglected in the co-location decision.

Generally, when an outsourcing contract is awarded, the make-up of the service team comprises key employees from within the contractor, new recruits from the industry and potentially former employees of the client or the prior service provider. The biggest challenge for the contractor is getting these team members from various backgrounds to assimilate the contractor’s business culture in the approach to service delivery.
This is a challenge if they are co-located with the client and have little contact with the contractor ‘mothership’. With a team primarily comprising new employees, significant efforts will need to be made to avoid the team feeling and acting as if they are isolated. A particular danger is when in-house team members transition to become employees of the contractor and remain co-located with the client. In this scenario, it is likely that they will quickly fall back into bad habits.

With activity-based working and accommodation design in corporate offices, there may be a natural extension of the concept and move to activity-based co-location. If co-location is desirable, surely it does not need to be all the time by all team members. As with activity-based working, the contractor should only be expected to be at the client locations when the activities being undertaken justify such co-location. The rest of their time can be at the contractor offices interacting with their team and leadership, undertaking professional development, completing administrative tasks and such like.
As with many parts of the outsourcing solution, co-location decisions need multiple considerations to arrive at the most appropriate outcome for both parties – the client and the contractor. In making this decision, it is best not to neglect consideration of the options until transition commences. This will likely result in a default outcome as an expedient and not provide an optimal solution.

Rodney Timm is the director of Property Beyond.

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