11 August 2011
When UBS looked for suppliers to maintain its new office space, it tore up the rule book and went for a different approach to tendering
New projects are a great opportunity to start from scratch and examine different ways of doing things – and so it was for UBS last year. When it decided to build a 700,000 square foot office space at 5 Broadgate in London, it gave the team in supply and demand management (SDM) the chance to think strategically about its long-term needs and supply costs.
Together with colleagues from corporate real estate and administrative services (CREAS), it agreed a strategy to review the capabilities and unique selling points of a large group of property maintenance and facilities management suppliers. The result was a decision to source a new partner in mechanical and electrical engineering (M&E) maintenance services and award a 10-year contract worth around £60 million.
The 12 offices in London have to operate 24 hours a day, seven days a week, 365 days a year, so the maintenance of power and safety systems, such as fire alarms, chillers and boilers, is critical to avoid any revenue loss or reputation-damaging closures.
The team faced a number of challenges when setting out to find a new M&E vendor:
• To redefine business requirements in M&E over an extended 15-to-20-year period.
• Solicit demonstrable evidence that a new vendor could significantly enhance standards of a critical service to UBS.
• Manage the tender in a short time frame to reduce business impact and concern.
• Encourage suppliers to be entrepreneurial and share operating risk.
• Achieve a transparent, results-based commercial model entirely linked to performance.
Rashmi Parmar from the sourcing real estate team at UBS says: “A traditional tender process can often be laborious, dependent on RFIs, RFQs and RFPs. We wanted to look beyond this ‘read and write’ approach and adopt a more interactive way to manage the sourcing and selection process. The results have been significant.”
Market analysis
The initial challenge for the purchasing team (SDM) was to help CREAS define the long-term requirements. As Andrew Owen, CREAS managing director for North East Europe & MEA, explained, the task “was not to review the market for M&E services and appoint the best supplier. It was to redefine what UBS understood its M&E requirements to be. Not for today, but over a 20-year period.”
Needing to gain a rapid understanding of current best practice and future M&E service trends, the joint team decided to approach it from two angles.First, they hosted meetings with 11 suppliers. Rather than issue an RFI, or complete a market study, each supplier was asked to attend an hour-long meeting with the cross-functional working group. This taught them who they were, what they did and how they provided M&E services. Some were niche providers, others included the service as part of a bundle, so it showed the variety of options on offer.
They also met with two international peer organisations. This enabled the group to gain insight into these businesses’ recent M&E tender process, the suppliers involved, the operating and commercial models agreed, and the chosen supplier’s performance six months into the contract.
This style of market analysis enabled all key stakeholders to gain a rapid understanding of the opportunities in the marketplace. It also enabled them to define the critical requirements to create a succinct tender document that focused the responses of vendors on its precise needs.
These included the need for a long-term relationship, transferring risk management from UBS to the supplier, mechanisms to incentivise and reward the supplier, more sophisticated control and management techniques, more comprehensive management information, more supplier involvement in CREAS strategy, and building a mutually beneficial culture between them and the supplier.
Tender innovation
Instead of holding a traditional RFP process, which the stakeholders believed would be time-consuming and resource intensive, the team asked five of the 11 suppliers to prepare for a three-hour technical workshop called ‘approach to asset management’.
The vendors were asked to facilitate a workshop either at their office, or preferably, at an existing client location. “We didn’t request any written materials, but vendors were asked to demonstrate the right resource, processes and systems to address UBS’s needs,” says Parmar. “In addition – and this was critical – the short-listed suppliers had to use the team that would be deployed to UBS as their lead representatives.”
These workshops proved invaluable. “We were able to target our discussions to issues of specific interest and to focus on the vendor case studies,” says Parmar. “It was also fascinating to observe the suppliers’ non-verbal communication, organisational skills and their ability to think on their feet. It was easy to evaluate which vendors were a cohesive unit that performed as a strong, effective team, and to assess the strengths and benefits to be achieved through a potential association with UBS.”
Visiting client sites was also valuable. “It gave us the opportunity to extract more information about the true capabilities of the vendor, more than we ever could from an RFP,” says Nick Garniss, head of property services, design and construction. “Crucially, we were able to see the vendors operate at client premises and gauge the strength of their relationship.”
The involvement of the eight-person UBS selection team, made up of senior representatives from CREAS and SDM, was essential all the way through, but particularly useful here. “Our effort to note all vendor comments and explain to suppliers that their verbal commitments would be documented in any future contract was also vital,” says Parmar.
The group held an objective scoring process following the first workshops and reduced the supplier shortlist from five to three.
Risk and reward
The three short-listed suppliers were then invited to a second and final workshop on commercial modelling. It highlighted the different approaches, such as fixed price, guaranteed maximum price and cost plus models. The team provided commercial data, which enabled the supplier to present the most cost-effective option.
Following the workshops and internal discussions, Norland Managed Services was selected as the preferred partner for a 10-year term.
In negotiating commercial terms with Norland, the focus was to establish a guaranteed maximum price model to achieve cost certainty (as far as possible) and to establish a risk and reward model that encouraged the supplier to both make cost savings and drive operational standards.
UBS agreed to cover Norland’s cost base and to a variable profit margin according to its ability to meet both financial and operational performance thresholds. “We don’t have to compensate for any overruns and any cost savings are returned to UBS. The supplier is rewarded proportionally, so the more they save (with no detriment to service), the more they earn,” says Parmar.
As such, Norland has the incentive to reduce the total cost of maintenance service provision and to achieve key operational performance indicators to maximise its profit.
“The best outcomes happen when the client is innovative, detailed and thorough,” says Paul Saville-King, Norland’s managing director.
Parmar adds: “Not only has our different approach to tendering set up a long-term partnership, but we have also cut the time it takes to select one from 12 to eight weeks, built confidence in our choice among key stakeholders and encouraged the supplier to make savings, while not allowing for a price increase.”
It has made UBS determined to replicate the process and continue this innovation with future tenders.
Dos and don'ts
• Do consider workshops because they can significantly speed up the sourcing process.
• Only invite suppliers to the workshop stage if you are certain they have the capabilities and competencies you require. You should undertake preliminary interviews.
• Insist suppliers bring the correct people to the workshops. You want to test the calibre of individuals that will run and manage the account if they are successful.
• Ensure suppliers are under no illusion of what is required of them within the workshop. Be absolutely clear of your requirements.
• Ensure you have the right working group. Get the right people involved.
• Emotional intelligence is invaluable. Watch how supplier teams interact because that’s how they’ll behave when they’ve been selected.
• Don’t enter the workshop process if you haven’t meticulously planned every step, including the specification of requirements, the working group, the meetings, the venues, managing actions arising and follow-ups.
• Be very clear about the timings and don’t allow the supplier to overrun the allotted time. It is easy to go off on a tangent and quickly run out of time. If this happens you both lose out.
• Don’t forget to capture the minutes from the meetings. Suppliers can over-promise, but then fail
to deliver. Challenge what they say and then hold them to it. Take a minute-taker to all the meetings
and reconfirm the minutes with the supplier. You can then use this information when negotiating.
• The workshop process is dynamic and fluid, so make sure you don’t forget to capture the working group’s feedback and evaluations from the meetings. You will need this data to validate your decisions.
