Economic outsourcing of facilities management services

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Conference Proceeding

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Outsourcing, Economic forces, Sustainable management of the built environment


Economic use of resources should be considered to be the first priority in the procurement process. The process should ensure that the particular needs of the client are satisfied and that the price paid to be as low as reasonably possible. This study aims to identify the economic forces influencing the outsourcing of facilities and property management (FM) services, and investigates how these forces should be applied in order to maximize the productive efficiency and performance quality, and hence ensure the best economic benefit to the FM organizations as well as optimal use of resources for sustainable management of the built environment. Two fundamental forces, level of competition and transaction monitoring, were identified through examination of the related economic theories. Single-case study method was used to quantitatively examine the impact of these economic forces on the FM services of a major international social housing organization, namely, the Hong Kong Housing Authority. It was found that the level of competition had a significant negative impact on production cost and a significant positive relationship with service quality through competitive tendering. As such competitive tendering should be adopted for procurement of FM services to maximize production cost savings and performance quality. Performance monitoring was necessary to ensure service quality because of bounded rationality, uncertainty and opportunism. Professional maintenance services were found to be complex and associated with significant transaction costs, especially in high density developments where there was a high degree of contact with tenants. This infers that the overall transaction costs can be minimized by focusing the limited resources on monitoring the procurement and contract management stages of these services, including staff training on outsourcing procurement and communication skills. Whilst this economic outsourcing approach is verified in the context of the FM services of a representative housing organization, it forms a conceptual baseline on which further research can build to test its significance in many other settings, thus resulting in a more robust economic theory for maximizing productive efficiency and performance quality of the outsourced FM.

Source Publication

RICS Construction and Building Research Conference COBRA 2011, Sep 12-13, Manchester

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