Facilities management contract: what to put in it, and how to make it work

01

What a facilities management contract is, and which rules shape it

A facilities management contract, often called a facility services agreement or an FM agreement, is a service contract between two parties, a client that owns or occupies a building and a contractor that runs some or all of the building's services over a term of years. It may cover one service, such as a maintenance agreement for HVAC and building systems, or bundle multiple services, such as maintenance and repair, janitorial, security and grounds, into a comprehensive integrated facilities management (IFM) contract under one provider.

The International Facility Management Association (IFMA) describes the discipline the contract serves: IFMA's definition of facility management calls it "an organizational function which integrates people, place and process within the built environment with the purpose of improving the quality of life of people and the productivity of the core business." A good contract buys outcomes for the people in the building, not simply hours on site.

In the private sector there is no single standard form that dominates the way some construction forms do. Most owners, corporate real estate teams and property managers use their own master services agreement with a statement of work for each service, or start from the supplier's own paper and negotiate. State law governs the contract and reaches in through licensing, prevailing wage and worker retention rules.

Federal agencies buy the same services under the Federal Acquisition Regulation Part 37, Service Contracting. It defines a service contract as one that "directly engages the time and effort of a contractor whose primary purpose is to perform an identifiable task rather than to furnish an end item of supply," and lists routine recurring maintenance of real property and housekeeping among the areas where service contracts are found. State and local governments follow their own procurement codes. Private buyers are not bound by the FAR, but its approach to performance-based service contracts is a well-documented model, and this guide borrows from it.

02

What a facilities management contract covers

Whatever the form, most FM contracts contain the same parts, though the names differ from one agreement to the next:

• Scope: the buildings, the square footage, the services, and the equipment and systems included, with a clear list of what is excluded.
• Statement of work or performance work statement: what each service must achieve, for example preventive maintenance on each system at a stated frequency, janitorial work by area and frequency, security posts and post orders, and a help desk with response times for work orders.
• Code and regulatory work: which inspections, tests and certifications the provider arranges, such as fire alarm, sprinkler and elevator, and who keeps the reports.
• Price and payment: how the provider is paid for fixed work, reactive work and anything extra, invoicing, and when payment is due.
• Performance standards: key performance indicators, service level agreements, how they are measured, and what happens when they are missed.
• Governance: named account managers, a monthly report, quarterly business reviews, and an escalation path for disputes.
• People: background checks, training, licensing, and any wage or worker retention rules.
• Safety: who is responsible for which hazards, and incident reporting.
• Risk: insurance with the owner as additional insured, indemnities, limits of liability, and business continuity.
• Changes: how services are added, removed or varied during the term, and at what price.
• Term, transition and exit: the start date, the length and renewal options, termination rights, and what happens at the end.
• Data and systems: who owns the equipment inventory, the maintenance history and the data in the CMMS or other work order software, and in what form they are handed back.

The statement of work does most of the work. A contract with strong legal terms and a vague scope will produce arguments about what was included; a contract with a clear scope and ordinary legal terms usually runs well. FAR Part 37 gives the rule of thumb for writing it: describe the work "in terms of the required results rather than either 'how' the work is to be accomplished or the number of hours to be provided."

03

Pricing and payment

How the provider is paid shapes how it behaves, so choose the pricing for each part of the service rather than for the contract as a whole.

• Fixed price: a monthly fee for defined, recurring services such as janitorial, security posts or scheduled preventive maintenance. Only as good as the scope it prices.
• Unit rates or time and materials: agreed labor rates by trade and a markup on materials, used for reactive work orders and small projects. Flexible, but cost follows volume, so set approval thresholds and a not-to-exceed amount for each job.
• Cost-plus: the provider's actual costs plus a management fee, fixed or a percentage. It needs open-book accounting and audit rights.
• Guaranteed maximum or shared savings: a cap or target for the year, with savings below it shared between owner and provider. It depends on honest measurement of actual cost.
• Pass-through costs: utilities, consumables, permits or specialist subcontractors billed at cost, sometimes with a handling fee.

Most FM contracts combine these: a fixed monthly fee for routine and scheduled services, unit rates for reactive work, and pass-through costs for items the provider does not control. FAR Part 37 directs agencies to use performance-based methods "to the maximum extent practicable" and ranks a firm-fixed-price performance-based contract first, then a performance-based contract of another type, and only then a contract that is not performance-based. The lesson carries over: fix the price where the outcome can be described and checked.

Write down how the price changes over a multi-year term. Labor is usually the largest cost in soft services, so a provider will want an annual adjustment tied to wages or an index; an owner will want it capped, with a right to see the basis.

04

Performance standards, inspection and remedies

The performance section is how the contract turns a scope into consequences. The federal model is a useful checklist even for a private building. Under FAR Part 37, a performance-based contract includes a performance work statement, "measurable performance standards (i.e., in terms of quality, timeliness, quantity, etc.) and the method of assessing contractor performance against performance standards," and performance incentives where appropriate. A typical FM contract builds that out in five parts:

1. Service levels for individual tasks, such as response and completion times for work orders by priority, or preventive maintenance completed within its window.
2. KPIs that measure the service each month, such as preventive maintenance completion, code inspections current, help desk performance, inspection scores and occupant satisfaction.
3. A surveillance plan that says how the owner will check. FAR 46.401 says a quality assurance surveillance plan should be prepared alongside the statement of work and should specify "all work requiring surveillance" and "the method of surveillance." Privately, this is often joint walk-throughs and random inspections.
4. Correction and price reduction: time to fix a failure, and a price reduction when it is not fixed.
5. Persistent failure: written notice, a corrective action plan and, in the end, a right to terminate for repeated serious failure.

The federal inspection clause for fixed-price services, FAR 52.246-4, Inspection of Services, Fixed-Price, is a model many private contracts echo. The contractor must "provide and maintain an inspection system acceptable to the Government" and keep "complete records of all inspection work performed." The government may inspect "at all times and places during the term." If services do not conform, it may require the contractor "to perform the services again in conformity with contract requirements, at no increase in contract amount," and where reperformance cannot fix the defect it "may reduce the contract price to reflect the reduced value of the services performed." Reperformance first, a price reduction second, is a fair order for a private building too.

Two cautions. First, a fixed charge for a missed standard should be a genuine price adjustment, not a punishment. The federal rule on liquidated damages in FAR 11.501 puts it plainly: the rate "must be a reasonable forecast of just compensation for the harm" caused, and liquidated damages "are not punitive and are not negative performance incentives." Ask your attorney how your state treats such clauses, and cap service credits at a share of the monthly fee. Second, every KPI needs an agreed data source and a written definition. If the provider's own CMMS is the only record, the owner should have read access and a right to audit it. Many contracts allow a ramp-up period after the start date when KPIs are reported but no credits apply.

05

Workers, safety, transition and exit

Wage and worker retention rules. On federal work, the McNamara-O'Hara Service Contract Act requires contractors and subcontractors on prime service contracts over $2,500 to pay service employees no less than the wage rates and fringe benefits the Department of Labor finds prevailing in the locality, set out in a wage determination incorporated into the contract. Some states and cities have their own rules for building service workers. In California, the Displaced Janitor Opportunity Act, Labor Code section 1061, requires a successor janitorial or building maintenance contractor to retain, for a 60-day transition employment period, the terminated contractor's employees who worked at the site for the preceding four months or longer, unless it has reasonable and substantiated cause based on an employee's performance or conduct, with a written offer of employment and a written performance evaluation at the end of the period; section 1060 defines who is covered, including a minimum of 15 hours a week and contractors with 25 or more employees. Check each building's state and city before pricing a change of provider.

Safety. On a shared site, more than one employer can be responsible for the same hazard. OSHA's Multi-Employer Citation Policy, CPL 02-00-124, describes creating, exposing, correcting and controlling employers, and a controlling employer is one with "general supervisory authority over the worksite, including the power to correct safety and health violations itself or require others to correct them." An FM provider directing subcontractors, or an owner controlling the site, can be one. Write down who does what: safety programs, subcontractor vetting, and how hazards and incidents are reported. Check whether your state runs its own OSHA-approved state plan. Most state plans cover private employers in place of federal OSHA, but those in Connecticut, Illinois, Maine, Massachusetts, New Jersey and New York, and the U.S. Virgin Islands, cover only state and local government workers, so private employers there remain under federal OSHA.

Transition-in is the period between award and the service start date. A good plan covers staffing, site walks to check the equipment inventory, a baseline of code inspections so the new provider knows what it inherits, the help desk and CMMS, keys and access, and handing over logbooks and service records. Plan the first month of reporting as carefully as the first day.

Transition-out should be planned at the start. The contract should require an exit plan, cooperation with the incoming provider, and the return of the equipment inventory, maintenance history, inspection reports and any owner data in a usable format. An owner that does not hold its own FM data will find rebidding slow and expensive.

06

Where the evidence fails, and what SiteClara does about it

FM contracts are good at measuring what the provider's systems measure: work orders opened and closed, preventive maintenance tasks completed, help desk calls answered. They are weaker on the routine work that happens every day without a work order: the restroom checks, the cleaning of each floor, the security officer's rounds, the leak or the broken light noticed on a walk-through and mentioned to whoever was passing. Those are often evidenced by a sheet on the back of a janitor closet door, signed for the week in advance, and a line in the monthly report saying the service was delivered. At the quarterly review neither side can show what happened, and a provider that did the work cannot prove it.

SiteClara records those routine checks at the place they happen. A printed QR code poster at each location, with an optional NFC tag behind it, lets the provider's custodial or security staff scan the code or tap the tag with their own phone, with no app to install. They see the scheduled checks due there and mark each one done or say what stopped them, with a photo when one is asked for, and an issue reported there goes onto the team's list of jobs until someone closes it. The supervisor sees what is due, done and missed, and can record why a check was missed.

Each day the supervisor reviews and approves a report, which goes to nominated owner and management contacts at 8 a.m. the next morning, showing what was reported, completed and still open, and how the scheduled checks went, for example 12 of 12 completed. Where two companies, such as a janitorial contractor and a security contractor, work in the same building, each can run its own staff, forms and approval. That gives the surveillance plan and the monthly review something to work from.

07

Questions people ask

What are the four types of contracts?

Federal contracting does not use a list of four. FAR 16.101, on selecting contract types, says the contract types "are grouped into two broad categories: fixed-price contracts ... and cost-reimbursement contracts," ranging from firm-fixed-price, "in which the contractor has full responsibility for the performance costs and resulting profit (or loss)," to cost-plus-fixed-fee, with the various incentive contracts in between. The rest of FAR Part 16 adds indefinite-delivery contracts and time-and-materials, labor-hour and letter contracts. In a facilities management contract the two that matter most are a fixed price for scheduled services and time and materials for reactive repair, which FAR 16.601, Time-and-materials contracts, says "may be used only when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence."

Can you provide an example of a facilities management contract?

One published standard form is the NEC4 Facilities Management Contract (FMC), which its publisher says "is intended to be used for the appointment of a service provider for a period of time to manage and provide a facility management service." It offers three main pricing options: a priced contract with price list (Option A), a target contract with price list (Option C) and a cost reimbursable contract (Option E). NEC was developed in the UK and is seldom used for US buildings, where most owners work from their own master services agreement; the federal clauses in FAR Part 37 and FAR 52.246-4 are useful free US models to borrow from.

08

Further reading, and a list to take away

Read FAR Part 37 on performance-based service contracting, even if you are a private buyer: its sections on performance work statements, performance standards and surveillance plans are a clear, free guide to writing a scope that can be checked. FAR 52.246-4 is a short model inspection clause, and FAR 11.501 explains how to set a fair rate for a missed deadline. The FAR is amended often, so read the current text on acquisition.gov. For wages on federal work, start with the Department of Labor's Service Contract Act pages; for safety on shared sites, OSHA's Multi-Employer Citation Policy. Your state's labor and licensing agencies publish the rules that apply where the building is.

Before you issue an FM request for proposals or sign a facilities management contract, check that:

• the scope lists every building, service and major system, and names what is excluded;
• each service has a statement of work someone could inspect against, written as results rather than hours;
• the pricing suits each service, with not-to-exceed amounts for reactive work and capped annual adjustments;
• every KPI has a definition, a data source, a target and a consequence, and the owner can audit the data;
• service credits are a fair price adjustment, capped, with a ramp-up period after the start date;
• wage determinations, prevailing wage and any state or city worker retention rules have been checked;
• the transition-in plan and the transition-out plan are both in the contract;
• you will own the equipment inventory, inspection reports and service data at the end;
• an attorney has reviewed the terms before signature.