The Fundamentals of FM Contract Costing

How contract costing affects Business Profitability

Since I was involved in FM Bidding, Costing and Contract Reviews, there are lots of factual practical realization that I learned. I found out that most contracts were not profitable for numerous factors that can be avoided but where not considered during the tendering process. For hundreds of existing contracts that I reviewed and analyzed throughout these years in UAE, the following are common failures:

1. Deficiency of manpower calculations for PPM

2. Non-viable projection of manhour allocations for Reactive Maintenance (or Corrective Maintenance, in other technical consideration) on a daily/weekly/monthly basis, 

3. Conflict on the understanding of the threshold value and miscalculation of threshold cost

Most of the spending increase tremendously on reactive responses and non-compliance of PPM schedules that push the Service Provider to increase the allocated manpower and in the budget allocations for threshold materials and works. Technical site surveyors play the vital part of the bidding process since their task should be to thoroughly evaluate the infrastructure to be costed. Another factor of failure is that the bidding team has little-to-none exposure to the Field Operations. Even during contract negotiations, these operations issues are neglected. The point of winning the contract is just the tip of the iceberg on the actual exercise of the work. Once costing is not properly done, this will lead to much larger and complex management that may end up incurring deficits, non-renewal or much worst cancellation of contract due to poor performance.