Inventorying Contracts on Property Can Yield Big Surprises
5/14/2018 12:29:03 PM

By Paul R. Votto

A few years back, the property management company I worked for decided to inventory all of the contracts and service agreements with third party suppliers and vendors that were active at each property. It sounded like a simple project at first. How many could there possibly be? “We’ll have this done in no time,” we thought. Wow, were we wrong. Several weeks and hundreds of hours of management time later the results were in and they were staggering – there were hundreds of contracts. Now to be fair, the company had more than three dozen properties and not all properties had every type of contract, but every property had dozens.

Here is just a partial list of items for which we had some sort of third-party contract or service agreement on at least one of the properties:

·         Fire extinguisher inspection and PM (preventive maintenance)

·         Fire sprinkler inspection and PM

·         Life safety equipment inspection and PM

·         HVAC PM

·         Elevator PM

·         Water softener equipment

·         Landscaping

·         Exterminating

·         Snow removal

·         Entry mat replacement

·         Pool service

·         Various special projects contractors and vendors

·         Copier

·         Cell phones

·         Software subscriptions

·         IT service agreements

·         Cable/Internet/Phone services

·         Rental furniture

·         Rental website site advertising

·         Equipment lease agreements

·         Vehicle leases

·         Laundry equipment

·         Management agreements

·         Asset management agreements

·         Audit engagements

·         Insurance agreements of many varieties

. . . and on and on.

We learned many things from the seemingly simple task of putting together a list. First and foremost, we realized that over the years we had lost control of the entire process of contracting out for services and products. A contract here, a service agreement there. We were so busy operating day-to-day that we didn't realize the totality of what was happening. Even during our budgeting process, the one place you would think we would see the big picture, we were too caught up in the details to realize how out of control things had become.

As a result, we set about to bring some order to the chaos and in doing so, we discovered several opportunities to streamline our contracting process and lower operating costs. The lessons we learned and how we applied them provide a good roadmap for other properties and management companies. Here are some suggestions:

Set up an on-going procedure for logging in and tracking contracts and agreements. A simple Excel spreadsheet and a responsible person is all that is needed to accomplish this task. The key to making it work is a procedure where all proposed and executed agreements are filtered through one person. Of course, if you don’t have such a list, like us, you will need to go through the effort to create it the first time.

Where possible, standardize specifications. We found that we had the same or similar vendors doing different work. For example, the preventive maintenance work on HVAC equipment was not consistent from contract to contract. By writing one general specification that can then get adapted to the unique requirements of a property, the contracting process will become easier and uniformity can be achieved across properties. Even if you manage just one property, being clear with your expectations, which is what a spec allows you to do, helps to get the most out of your money.

Ask the question: Do we really need this service? The very process of cataloging contracts led us to question why we had some of them. Some were in place simply because “that’s the way we have always done it”. Over time, your need for a particular service may have diminished or changed and yet the contract for it may have remained the same. And of course, pricing has changed over time – sometimes for the better. Tip: try calling your Internet provider and asking for higher speed at a lower price. I did that in my home office a few months ago and after the customer service representative laughed he doubled my speed and cut my monthly fee by 40%! Sometimes things do change for the better!

Where practical, bid in bulk. When multiple properties are involved, particularly in the same geographical area, getting control of contracts provides opportunities to get better pricing. Whenever possible, bid for services for as many properties as possible at one time. Manage just one property? Consider setting up a “consortium” with other friendly properties to seek bulk bids. Another advantage of moving to coordinated bidding is getting all of the service contracts in one area on the same terms and with the same expiration dates. This helps to streamline the process and reduce the time involved.

Evaluate results and share opinions. Putting together an inventory of contracts and service agreements is a good time to evaluate what you are getting for your money. Even in cases where managers work for the same company they can find themselves operating in “silos”, making independent decisions without the benefit of learning from their peers. Sharing experiences concerning the performance of vendors, scopes of services and pricing can result in better results at lower costs.

The importance of getting a handle on contracts and service agreements has never been greater. Many factors are combining to increase the number of third party contracts on properties. The general shift in our economy to out-source certain tasks and functions is one of the factors. Another is increased regulation, particularly in the life safety area. Some of this shift is beneficial; some of it is simply necessary. However, it is important that you don’t simply let it happen to you and your property or you will find yourself in the same position that we did – wondering how this happened right under our nose!

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