Living wills are coming in FM – embrace them now to get ahead of the game

23 Jan 2019

Until a couple of years ago, the facilities management (FM) industry appeared to be steering a fairly steady course. True, the rising maturity of the FM outsourcing market was starting to create pressure on providers’ growth and costs. But they could count on a ready supply of existing and new customers—both public and private sector—who felt they could buy their services with confidence.

Fast-forward to today, and the formerly strong confidence among clients has been shaken to the core by two events. First, the collapse of Carillion in January 2018, impacting some 12,000 smaller suppliers and subcontractors. Second, the drip-feed of FM profit warnings and financial issues that began before the Carillion insolvency and has increased since, with concern focusing particularly on public sector contracts.

The results? On the customer side, there’s now a sense of nervousness about the outsourced FM market—leading to demands for more assurance on suppliers’ financial stability, and worries among clients about how they can transfer operations to another FM provider if the worst happens.

Correspondingly, on the supplier side, FM companies need to show that they’re financially robust, that they have plans in place to ride out adverse conditions, and that their services could be handed over easily. These requirements apply even to large FM providers who are more globally diversified and/or have operations in adjacent areas like real estate. While such players may be insulated to a degree from FM buyers’ loss of confidence, they’re not immune to it.

Recently, we’ve been talking to clients about a new solution to the crisis of confidence in the FM market: creating a “living will”. This is a concept that originated after the collapse of Lehman Brothers in 2008, when banks were forced by regulators to draw them up. Now living wills’ time has come in FM.

This shift has been underlined by developments over the past couple of months, with the government raising the possibility of mandating living wills for public sector FM contracts, and several leading suppliers agreeing to create them as part of a government pilot. Overall, it’s clear that living wills may soon become a regulatory requirement when dealing with government, with private sector customers likely to follow suit by requesting them as well.

So, what does a living will do? In simple terms, it’s a plan to deal with the aftermath of a company’s collapse, setting out how its operations can be dismantled in the event of its demise. Crucially, it defines what will happen with all four key pillars of any FM offering: assets, people, financials, and IT systems and data. So, in an environment where customers are nervous about their providers’ financial stability, a living will can help to allay their fears.

Living wills essentially fall into two types. The first is company-wide, giving confidence that the business is well prepared to respond to insolvency without causing major disruption to clients across its business. The second is contract-specific, holding all information relevant to a contract ‘in escrow’, and—in the event of collapse—enabling the client to transfer delivery of its FM contract seamlessly to other providers or take it back in-house. To build confidence both across the market in general and among specific customers, an FM provider should ideally have both types in place.

Today, as the use of living wills in the FM marketplace continues to grow, the big question facing providers is how to respond. There may be a temptation to sit back and wait until living wills become a regulatory and/or commercial requirement, and then take steps to draw them up. In our view, that approach would mean missing out on a big opportunity.

Why? Because FM companies that move proactively to create living wills now can get ahead of the market, reassure their current clients and differentiate themselves among prospective ones. Crucially, it will help them to bridge the trust gap, a move that can boost customer loyalty and reduce scepticism, support the retention and recruitment of skilled people, and ultimately, help put organisations on the front foot in times of crisis.

The bottom line is that FM providers who offer living wills will enjoy a competitive advantage over those that don’t.

The message is clear. Living wills are coming in FM. It’s time for providers to embrace them—or face searching questions from customers about why they haven’t done so.

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