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Home » Blogs » SCQ Forum » Find Future Cost Savings through a Facilities Management Contract Audit

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James Albrecht is a vice president of audit operations at PRGX.

Jon Daniells is a vice president of audit operations at PRGX.

Find Future Cost Savings through a Facilities Management Contract Audit

If your company has yet to engage in a facilities management contract audit, perhaps it’s time to give it some thought.

June 11, 2021
James Albrecht and Jon Daniells
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Far too often enterprises fail to invest in facilities management contract audits because they don’t think they have the time or doubt they’re worth their while.

Perhaps that’s because Internal Audit teams often lack the bandwidth or expertise to comb through complex facilities management contracts. After all, this type of work is complex, time-consuming, nuanced and tedious – yet worth considering as they usually save time and money in the long run.

Therefore, if your company has yet to engage in a facilities management contract audit, perhaps it’s time to give it some thought. 

What do these audits find?

By looking under the hood at contractual terms and project scope, contract compliance auditors can unearth some big-ticket items. If you choose to go that route, you’ll likely identify billing errors, improper spend on facility care, contract noncompliance or variances in vendor compensation. Uncovering and rectifying these situations results in recouping lost profit, improving processes and ensuring similar mistakes are avoided in the future.

Just think about all the outside contractors or vendors you deal with – parties ranging from maintenance to security, grounds to storefronts. Don’t forget about leasing, real estate management, remodel and new construction companies, too. There’s a lot for facilities managers to juggle, particularly with everything else piled up on your plate. Errors, variances and improper spend are real risks. If they aren’t uncovered, the risks they pose will remain and could grow worse. 

Why consider a facilities management contract audit?

Key audit benefits include ensuring that contracts are making good on their terms and conditions and identifying any wording that is ambiguous or noncompliant with your company policies and regulations. 

Historically, these types of audits seem daunting to perform in-house, however with help from seasoned professionals they are easily achievable. Did you know that roughly 95% of contract terms are usually unmet? Missing out on 5% could equate to thousands if not millions of dollars left sitting on the table.

Contracts are complex, so a review, at the very least, provides enterprises with assurance that their vendor relationships are working well – or sheds light on where adjustments are needed. During a review, gaps will be identified. Addressing these errors, oversights or ambiguities in a timely manner ultimately improves the relationship between you and your third-party providers. 

Our world is constantly evolving – and that’s true of our businesses, too. As organizations grow and change, new complications arise that must be considered. If you have international operations or are considering expanding overseas, local customs, regulations and currency differences can introduce an additional layer of complexity. Or what about transitioning from one service provider to another? A new vendor might fix some issues but create new, unanticipated (and unintentional) ones that need to be considered.

A contract compliance audit brings to light changes or adjustments that need to be made as soon as possible. Improperly set baseline budgets can lead to cost overruns, change orders, delays and other difficulties for both parties.

How transparent are your facilities management contracts?

As the old saying goes, you don’t know what you don’t know. Contract transparency is important because without it you’re flying blind. Do your suppliers provide the clarity you expect? Do you have visibility into all contract-associated costs? If so, are those costs in line with your budget and was that budget correct from the get-go?

Companies should also be able to track preventive maintenance schedules to ensure service calls are completed in a timely manner and costs are in line with expectations. You should be able to easily determine whether these are included in your contract and budget. If not, that might represent a red flag. 

Contract transparency is an important pulse check that assesses the health of the relationship with your suppliers. Taking corrective action where needed ensures you’re realizing the full value from your contracts. Further, determining has gone well and what needs adjustment provides a clear roadmap for future improvements.

What are key factors to success?

A successful facilities management contract compliance audit strengthens the relationship between both parties – and ensures that mutual trust is maintained. Crucial factors include: 

  • Governance – checking to ensure audit clauses in the contract are met – if such clauses exist. If so, ask yourself if the audits are being conducted in line with the terms of the contract. Also, are those conducting the audit qualified to perform this type of work? 
  • Execution strategy – during COVID-19, an audit team might be working remotely, but don’t forget the benefits of having auditors on-site. These include, but are not limited to making personal connections, not only with you but your suppliers, picking up on non-verbal cues from employees, and more.
  • Timing – this varies on your situation and can be determined with your audit partner’s advice.

What should you look for in a third-party auditing firm? 

Internal Auditors tend to be generalists – they’re good at reviewing a mile wide and an inch deep. However, they’re not typically equipped for this specialized and nuanced work. On top of that, you and your team are probably juggling enough work as it is. An outside vendor with experience in facilities management contract audits is often the best solution. Experts in this field know how to provide a sound plan for issue mitigation, uncover lost profit, and improve vendor relationships and contract execution.

Since contract complexities run deep, look for seasoned audit firms specializing in facilities management contracts. They know how to dig deep to uncover pitfalls and ensure you realize the full value from your third-party vendor contracts. They can also drive value by helping. you plug leaks while avoiding friction with your suppliers.

Also make sure the firm you select has a wide variety of experience in key industries, including: 

  • Manufacturing – industrial, pharmaceutical and food and beverage
  • Services – office space, service centers and other commercial facilities
  • Retail – storefront, distribution centers and corporate offices

If you’re considering taking a second look at your contracts – you should – it never hurts. More times than not you’ll find benefits that ultimately have a positive impact on your bottom line.

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