The Real Estate industry is no longer to be considered in isolation. These days, it is usually paired with the project and facility management industries. Thus, owners of properties may get into agreements as regards real estate purchases at the same time they obtain facility and project management services for their buildings.
Real Estate Agreements and Facility Managements usually go hand in hand. Real Estate agreements include agreements which relate to leasing/letting buildings, while Facility Management Agreements relate to agreements that one enters into with service providers to ensure that such facilities are properly maintained. These agreements/contracts could cater to services like cleaning, running electricity and plumbing, and the general management of the property to ensure that the owner is able to obtain maximum benefit from it.
Facility Management is divided into two sides: ‘Space & Infrastructure’ (which includes planning, design, workplace, construction, lease, occupancy, maintenance and furniture) and ‘People & Organisation’ (which may include catering, cleaning, ICT, HR, accounting, marketing, hospitality, security and so forth), depending on the preferences of the owner of the property. These two broad categories could also be called hard and soft FM.
Of course, it goes without saying that in order to have an enforceable Facility Management contract, it should be in writing. However, because the services in such contract may be broad and at the same time dynamic or flexible, owners and intending owners of property need to take certain things into consideration as regards specific clauses in such contracts.
- 1. WARRANTIES
There should be some properly defined warranties to ensure that the facility manager has carried out the all reasonable investigations and inspections of the asset and that the asset is capable of being managed to the standards prescribed in the facility management contract. It is also important to ensure that the service provider inspects and carries out any tests on completion under the construction contract.
2. KEY POINT INDICATORS
The key point indicators (kpi’s), which would define optimum service for each of the different services to be provided for must be spelt out. This is especially important because the facility manager and the owner of the property may have different conceptions of this. These can be measured using SMART goals. It is important that any vagueness between both parties is eliminated.
Ensure that there are specified breaches of the aforementioned kpi’s, stating which breach would be material. Make sure that as a property owner, you put in financial penalties for breach, and bonuses if the kpi’s are exceeded. However, the penalties should not be unduely onerous, as it could damage the service provider’s cash flow. It should not be punitive or merely token either.
It would also be a good idea to provide that monetary penalties for breach of clauses may be set off from the fees paid to the facility manager.
Clearly specify what breach would result in the termination of the facility management contract, e.g. when the supplier does not deliver as regards its core promises.
Also state other grounds for the termination of the facility management contract, including customary ones, such as insolvency, breach of anti- corruption laws, etc.
If the parties want the right to terminate at convenience may be limited to set times. A good practice would be to update the exit schedule annually.
Disclaimer: This article is intended to provide a general guide on the subject matter. Specialist advice should be sought about your specific circumstances.
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