Purchasing Practices are Forcing Contractor Changes
 
We have seen a significant number of national procurement contracts for janitorial services in Canada in the past few years, particularly in the public sector market. Price is always important, but has not been the major component of the decision in the private sector where much of the purchase decision is based on the proposal itself and the value it brings in areas such as quality programs, management and training. The public sector has also gone into national or regional contractors, and most of these are driven by a desire for quality first and price second. The very nature of some of these contracts, however, makes prices the deciding factor when everything else looks acceptable. The cleaning business is often sold on presentation as it is an intangible making the decision tougher for the purchaser. 

Also, there are very few national contractors and these contracts are forcing some of the successful contractors to move into new markets. My next series of articles will cover how these national contracts are changing the industry in Canada from the elimination of many small contractors to how other companies are growing and expanding into new markets. 

Profit margins have reached the point in the janitorial industry – five to 10 per cent on major contracts – that the smart owner or manager knows that lower price is just going to mean lower quality and more problems with the tenant. A significant change has occurred in how landlords think about their tenants in the last few years as they now focus on tenant satisfaction as an important part of tenant retention. For this reason, they are looking to obtain the best acceptable quality for their budget dollars. With these low margins they look more for satisfaction that the contractor can perform the work at the price quoted. The amount of labour being provided is critical in this evaluation as the labour component is over 80 per cent of the contractor’s cost. 

My experience in the past has been that large professional contractors will use a standard bidding system throughout their company. This makes sense, as the time to buff a floor or empty a wastebasket is the same, whether you’re in Vancouver or Halifax. 

Historically, however, rates of production have varied across Canada as the competitiveness of different markets dictated different productivities. In the past we have seen a national contractor’s production rates vary by as much as 200 per cent between cities when bidding to roughly the same specification. Production rates do vary according to the size of the building and its physical characteristics, however this variation is far too large. These large variances mean that either a company does not have national standards or techniques or that gross profits vary significantly from market to market. These gross profit variances are about to change as a result of national contracts as regional variances are no longer justifiable. 
Because of variances in building size and characteristics we should find differing productivity levels in different buildings. One productivity level fits all does not work and they should vary between 4500 and 6500 sq. feet. per hour in a large – over 500,000 sq. foot – building. Contractors using one level for all buildings do not demonstrate that they have taken the specifications into account or the differences in the building itself.

 

As mentioned above, the client looks for the following additional values from the contractor: 

1. Organization structure showing who the client will work with and the reporting structure to senior management.
2. Quality programs are critical today. A good quality program is a management tool and must go beyond just a regular inspection. They must also include process improvement and perhaps employee rewards for meeting targets. Clients like to see some form of computerization to track performance and score the program quantitatively.
3. Training programs are always talked about but concrete evidence of training is important, and a few points on why training is important and how it helps the client achieve his/her goals will show that training is taken seriously.
4. Demonstrate competence in the new technologies such as computerized payroll, financial reporting, the Internet, and electronic funds transfer. A tool that many companies are now using is electronic sign in through telephone or computer on the job site. This can reduce supervision time in payroll preparation and allow them more time to spend with the client.
5. Supply Chain Management is also very important as it shows the contractor is getting the best products at the best price. We even see large contractors retaining professional purchasing consultants to perform this task for them. These consultants bring professional expertise to not only purchasing the cleaning products and equipment but also in other areas such as cell phones; vehicle purchases and leases; insurance; and other areas which are significantly increasing the cost of doing business. This allows the contractor to spend most of their time on the most important component of their business which is labour.