QUESTION OF THE WEEK: Service Line Contracts

This Question of the Week comes from the IFMA Group on LinkedIn.

Has the trend of rolling up functional service line contracts peaked? Cost and service improvement seekers were on the leading edge by rolling up service contracts by function (i.e. a regional or national contract for cleaning, HVAC, landscape services etc), but I’m beginning to think this trend has peaked. More and more the trend seems to be to look for ways to integrate service functions locally and across the portfolio of properties. What do you think?

Curtis Bragg
Vice President
Philadelphia, PA

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  1. While significant savings can be demonstrated on strategic sourcing initiatives, they become a law of diminishing return as new contracts drive out potential savings, often referred to as a “glide path” approach occuring over several years of a contract. This leads to commoditization of services, pressures on vendor profitability and eventually a transition to a new vendor that is better prepared to offer more aggressive pricing. The cost of transition is a real expense that is eventually paid by one or both of the parties.

    I don’t believe the trend will peak anytime soon given many corporations are still primed to enjoy the initial benefits of full or partial outsourcing of services. The key is to recognize sustainable value comes from process improvement. Corporate strategy related to real estate should explore far beyond cost controls and ensure all parties involved, both internal and third party, understand the goals and their role.

    The one element often overlooked is the role of the individual delivering the service. Outsourcing or bundling services do not go far enought to respect the human element and their ability to provide a sustainable model for process improvement. Having the trust of an employee that is empowered to improve all aspects of service delivery that aligns with corporate direction should be a common goal of our industry.

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