The buzzword in the business world today is efficiency. People are trying to squeeze additional time and money from every possible source. Some shopping center managers are tapping into a wealth of such savings by replacing multiple contractors with one vendor.
The bundled-services concept allows shopping center owners and managers to place numerous maintenance contracts with a single source. Those vendors that offer such one-stop shopping provide myriad services, from houskeep-ing and maintenance to landscaping and construction.
Companies present those bundled services through their own in-house staff or by coordinating the necessary subcontractors. Either way, the center owner or manager has one point-person who can facilitate virtually all his maintenance needs.
Turning a challenge into opportunity Indianapolis-based Simon Property Group was one of the first shopping center owners to adopt the bundled-services concept, which it now terms Total Facilities Support. "We have been unbelievably pleased with how this has worked so far," says Scott Mumphrey, a senior vice president and director of property management at the company.
Simon came upon the idea about four years ago, seeing it as a more efficient way of handling an increasingly difficult competitive bid process. Like many other shopping center owners, the company put its vendor contracts out for bid each year, typically selecting one of the low bidders.
"That got to be an extremely difficult process, because (the same companies) wanted to bid every year. It was a quandary of development relationships vs. competitive pricing," Mumphrey says. The competitive bid process also was becoming more challenging amid a growing field of contractors that had varying degrees of competencies.
"The process wasn't really efficient," Mumphrey says. "What we identified early on was a dynamic that was occurring in our business that we really turned from a challenge to an opportunity."
Simon Property Group had already been working with Nashville, Tenn.-based Southeast Service Corp. at 20 of its shopping centers. "We were impressed with the company and its attitude, so we sat down and discussed the opportunity of going to a broader relationship," Mumphrey says. Simon agreed to use Southeast Service in 70 to 80 of its centers in exchange for preferential pricing.
The arrangement was beneficial for both sides. Simon received a slight discount on price because of the bulk arrangement, and the vendor was able to accept smaller margins because it was saving money in marketing and advertising, Mumphrey says. The opportunity also allowed Southeast Service to grow its business quickly. The company now works on about 100 of Simon's properties.
The Total Facilities Support concept has been so successful that Simon has brought in three additional vendors to provide similar bundled services to its other mall properties throughout the country. Those "contractors of choice" have separate territories among Simon's approximately 160 mall properties. They also provide bundled services to some of the firm's community center properties, but in most cases that happens only when a community center is in close proximity to a regional mall where a vendor's supervisor is already on site.
Not all shopping center owners and managers, however, are buying into the bundled services concept. Many still prefer to competitively bid their work to multiple vendors.
"I think the jury is still out on how well bundled services works," says Don Sewell, director of mall operations for Chattanooga, Tenn.-based CBL & Associates Properties Inc. Some owners are concerned about "putting all of their eggs in one basket."
Thus, some malls are opting to work with more than one bundled-services provider. Working with two different bundled-services companies is becoming more common, since it allows the property owner to do some comparison shopping, says Ted Mastrucci, operations manager for National Service Corp., a Livonia, Mich.-based bundled-services vendor. Besides helping to maintain a competitive level of service and pricing, working with more than one company provides a greater comfort level for the owner in case of emergency or in case one company is unable to handle a project.
A growing trend Although the bundled-services concept dates back to the 1970s, its popularity has jumped dramatically in recent years. One reason for that spike is a shift toward outsourcing in general. Outsourcing has been recognized across industries as an efficient way to handle everything from marketing to payroll functions.
Other factors contributing to the demand for bundled services include increased time constraints as well as an emphasis on creating more economic efficiencies. Publicly traded REITs, in particular, are under more pressure to come up with financial savings wherever possible.
More shopping center owners are concentrating on putting a mall manager, marketing director and leasing director in place while outsourcing general maintenance issues, says Mike Ponds, president of Xencom Systems Inc., a Dallas-based bundled-services firm. "It takes a lot off the manager to not have to worry about a roof leak or concerns about personnel matters," he says.
"That's not to say that managers are not still involved in those operations, but it just alleviates the day-to-day aggravations. It also frees that person up to do more things," Ponds says. In addition, managers are no longer put in a position where they have to "referee" disputes between different contractors.
Dealing with one vendor also provides more consistency in the work that is being done, while establishing "working harmony," Ponds says. Oftentimes, when work is contracted out to different companies, the standard response when it comes to shared manpower or equipment is that it is "not my responsibility," he continues.
But the opposite is true with bundled services. Because the parties are technically working together, the arrangement can be more conducive to teamwork and helping each other get the job done. "It gives you some unity," Ponds says.
Vendors such as NRS Retail Construction & Facilities Management Inc., Hicksville, N.Y., have been caught up in the growing popularity of bundled services.
"We started out as a normal general contractor," says Chip Zoegall, an NRS principal. "We had 50 of our own people just working regionally in New York." But the company expanded as the demand for bundled services grew, and now it is a national firm with coverage that extends into Canada and the Caribbean.
"Right now, it looks like quite a bit of the industry is looking at (bundled services)," says Richard Vita, southwest regional vice president in the Arlington, Texas, office of Chicago-based General Growth Properties Inc. He is considering introducing the concept at some of General Growth's properties in the Southwest.
"We see it as more beneficial in smaller centers where we might not have a maintenance staff in place," he says. Vita also is attracted to the time and cost savings of dealing with one supervisor compared with five or six supervisors that represent the different vendors.
Most bundled-service providers offer a variety of services, and some also work in specific niches. NRS, for example, specializes in multiple store roll-outs and distribution logistics for retail chains, and provides a host of services from carpentry and electrical to plumbing and lot maintenance.
The appeal of bundled services
Many shopping center managers, lacking time to address maintenance issues, cite convenience as the major benefit of bundled services. Ten years ago, there were larger maintenance staffs. Now it is not unusual to find a maintenance staff of only one or two people.
"Unfortunately, maintenance is the first area to get cut," Mastrucci says.
Dallas-based Coyote Management Inc. purchased three regional malls in Mississippi last year. After evaluating the current maintenance system, the company decided it was more efficient to outsource services with a single company rather than use multiple contractors.
"We felt the best opportunity for us was to go to bundled services," says Robert Lee, president of Coyote Management. In January, the company hired Xencom to coordinate services ranging from housekeeping to landscaping. The only aspects not included are mall management and security, he says.
Many managers are attracted by cost savings. Often, the cost of bundled services is at or below the cost associated with hiring multiple contractors. Bundled-service providers can offer competitive costs because of economies of scale in negotiating fees with subcontractors.
"The initial expense is similar to what we had been paying in the past, but the efficiencies are improving," Lee says. "We've also eliminated our own personnel issues such as dealing with payroll, vacations, etc."
The flexibility of a bundled-service arrangement also can lead to cost savings. It allows the property owner to manage each individual line item vs. paying one lump sum to multiple contractors each year. In a situation where an unexpected expense arises, such as storm damage, mall managers can work with the vendor to cut maintenance costs in other areas to stay on budget.
"What we will do with (vendors) is look for savings in other places of the contract to shift money and still stay within the budget," Mumphrey says. "Getting (them) to work with us is one of the real benefits to this program."
Additional cost efficiencies result from reduced staff for the property owner. In the past, shopping center owners and managers have maintained their own extensive in-house technical support group for facilities management. By outsourcing those services, owners can eliminate those positions from the corporate payroll.
Not only does that cut back on salaries, but it also saves on time and money devoted to managing individual health insurance and retirement plans. Bundled services vendors also provide a comfort zone for owners by creating an additional layer of liability insurance.
Another attribute of outsourcing maintenance services is the ability to "streamline the paper trail," Zoegall says. For example, NRS faxes a weekly job report to the client while a project is in progress, and then a full report is issued upon completion of a job. This allows the client to focus on maintaining his budget and on everyday responsibilities.
Building long-term relationships
One of the most significant incentives to hiring a bundled-services provider is the ability to create a partnership that produces mutual benefits. Simon Property Group has recognized the added value of forging those long-term relationships.
"Historically, contractors have been somewhat outside the management family. We want that project manager to have an extremely close relationship with the management team at the property," Mumphrey says. "The goal is to develop a closer working relationship, so at the end of the day you're delivering the best product to the tenant at the lowest possible price."
Simon also is working with its bundled-services vendors to set up new programs that will lead to greater efficiencies in the future.
The potential longevity of these relationships makes it critical to select the right vendor to meet a center's needs. "Because you are bringing in someone that will work hand-in-hand with you, it is important to make sure that your philosophy is in alignment with that of the contractor you select," Mumphrey says. Having a similar viewpoint helps to avoid clashes.
"The goal is to develop a long-term relationship. It's like a marriage," he says. As a result, Simon's prospective vendors did receive considerable scrutiny. "These are guys that we're going to do a lot of properties with over the long term."
Xencom's Ponds also recognizes the importance of selecting a good vendor because he spent 15 years working as a corporate facilities manager before switching to the role of service provider. His advice to owners looking for a bundled-service provider is to find a company they can trust. That means conducting thorough interviews and checking references of each vendor. Owners also should look for companies with experience on retail properties because of their unique needs, Ponds says.
Owners, managers speak out...
"(The bidding process) got to be an extremely difficult process. ... It was a quandary of development relationships vs. competitive pricing." Scott Mumphrey, Simon Property Group
"We see (bundled services) as more beneficial in smaller centers where we might not have a maintenance staff in place." Richard Vita, General Growth Properties Inc.