November 2013
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The Contractor Convergence

Merging providers & reducing overhead costs

Zach Denning
Zach Denning
Engineering Sales
Western Allied Mechanical

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Figure 2How many contractors currently provide service within your building? If you occupy or own multiple buildings you could be looking at several contractors that maintain different and often unique aspects of your facility. So what if you could combine their services into single contracts? Would it be easier to call one contractor in the case of an emergency instead of three? If it’s easy for larger contractors to offer an array of solutions, why haven’t more capitalized on the market. The commercial market has seen the convergence of major solution providers into corporate giants, although who can attest to their success? Although many companies claim to house the answer to your every need, there are few that succeed in delivering large, packaged solutions. Yet, what drives these companies to flourish in so many different markets? Establishing complex, global solutions within a facility is a unique process that could prove extremely beneficial in reducing operating costs for building owners and tenants.

So what does each of your providers cost you in operating expense? How does that cost evolve with the introduction of complexity and ultimately investment risk? Establishing positive, result driven relationships with each unique vendor can be a daunting task. The average commercial building requires at least $0.45/sq. ft. per year to maintain its existing equipment; a number void of system upgrades, emergency repairs and contractor management. That expense can cover the support of up to six different contractors after the completion of a building, with the highest going to your HVAC contractor. So what does that mean for your building? If your building is 150,000 sq ft. you can expect to roughly pay $68,000.00 in general maintenance over the course of a year. Management of separate facility vendors (includes site access, maintenance directions, negotiating contracts, etc.) can add up to $14,000.00 per year in lost overhead expenses for an owner or tenant. Add in the potential risk factor of losing a contractor (an overall increase of 10-20% in overhead losses due to site integration) and you could be looking at unexpected overhead expenditures of $15,000.00 - $16,000.00, simply for managing separate vendors; an increase of your basic facility maintenance up to 25%.
 
Facility solutions continue to increase in size and complexity as they continue to adapt to the drastic changes in technology. Mechanical improvements to your site now incorporate not only the mechanical contractor, but also an electrician and building automation contractor; in some rare cases it might even include your fire alarm and security contractors for more robust projects. Solution complexity and contractor co-dependence for key upgrades often creates the need for 3rd party management of each project. Although outsourcing construction management allows for reduction of in-house resources, building owners can expect up to a 20% cost increase for projects. Not to mention, the profitability of the construction manager is not impacted by the potential poor performance of the other contractors. Construction management is simply there to use their expertise of the other trades to provide a solid, single interface to the end user.

So what does this all mean to a facility manager or owner? How can you reduce the overhead costs of managing the many different vendors associated with your building? Many major corporations have begun to expand their capabilities by acquiring new companies to add to their existing portfolio. Although this strategy can be potentially beneficial to a customer, often the disjointed efforts between subsidiaries (accounting, strategies, etc.) within these companies lead to owner confusion and ultimately operational losses. So which trades can work successfully in the same industry to reduce customer cost while delivering the most value?

Reliable Controls Finding similar traits between vendors is the key to interpreting which “Global Solution Provider” is going to fit best in your operational environment. Facility owners and tenants are ultimately putting multiple scopes under one vendor; a process that requires substantial initial planning and involvement to fully interpret the deliverable value from a contractor. For example, when considering facility HVAC systems, mechanical contractors must work closely with building automation vendors to ensure that the equipment they install and maintain functions as expected. Abnormally equipment functioning can drastically affect energy costs within a facility as well as ruin the expected equipment life; both of which can significantly alter expected ROI (Return of Investment) projected from new construction.

Operational overhead is typically overlooked when determining outside contractor involvement in a building. For example, a typical facilities cycle for failed equipment is outlined in Figure: 1 below when relying on 3rd party contractor support. Although contractor and facilities maintenance pricing differs across region, we can still deduce from the chart that overall contractor time is cut by almost 75%. Facilities maintenance utilizes 50% less time and frees up vital facility resources pivotal to tenant satisfaction. Through further inspection of Figure:1, most facility managers can confirm that the process can in some cases, cycle from steps 5-7 repeatedly in the chart; all at the expense of the property owner or tenant. This example orchestrates how the air handler problem was originally deduced as a DDC failure from the mechanical technician. Upon inspection, the DDC vendor related it back to the mechanical equipment operation forcing the facility manager to ask for the return of the mechanical technician to re-confirm his apprehensions. Repeated cycling through these steps causes relationship instability between facility staff and contractors as well as tenant disturbance due to the unsolved problem. Keep in mind though, that replacing either contractoras described above, also comes with a 10-20% increase in integrating a new contractor to the site.

Figure 1

Figure 1: Comparison of combined mechanical and DDC contractors to different contractors for both trades.

Combining certain trades within a facility can be a difficult task as property managers and owners must be insured that their prospective company is proficient in both fields. DDC vendors often work as sub-contractors to larger mechanical contractors due to the correlation of the mechanical equipment to the sequencing it follows found in the controls automation. In retrospect, attempting to pool security and building automation into one source is more likely to fail due to the differences in the two industries. Typically within a building the facility maintenance team supports the HVAC while building security is concerned about intrusion detection and staff safety. Merging these systems could lead to staff induced errors and miscommunications that could easily put a facility at risk. Successful, multi-trade solution providers typically revolve around the similar industries as proficiencies across related systems lead to reduction in overall facilities costs.


About the Author

I currently maintain an engineering sales position at Western Allied Mechanical. Our business is consulting customers onenergy consumption and reducing costs through a joint mechanical and automation venture. I’m an avid follower of the industry and am always open to new opportunities and approaches. You can reach me at zdenning@westernallied.com or my cell at 650-798-4154.


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