By Ranjana Konatt | Editor
Within the UAE especially, cashflow issues are a key concern of FM companies, asserted Prabhu Ramachandran, CEO, Facilio. FM is still typically seen as a commoditized industry in the Middle East and therefore has a high sensitivity to price while the length of contracts is usually short. As per a MEFMA 2018 research on Performance Benchmarking in the FM Industry, 60% of the participants reported that the average contract length in the Middle East is two years and above, which is lower than the average five years in developed countries, even though government and bigger corporates were cited as preferring longer contracts. Growing competition, especially in the UAE means more choice for building owners, but lower success rates for winning new contracts for FM companies. While a large majority of companies in the survey did confirm growth rates of over 6% in the last 3 years, they admit to growing pressures of liquidity, working capital and profitability margins.
In addition, he said, project delays are fairly a commonplace around the world and in the UAE. As a market, it has performed better in specific segments as compared to competitors – but also not so in many others. “I think it can be reasonably argued that one of the most significant issues facing the UAE’s FM industry is delayed projects that then result in cash flow constraints,” he added. Elaborating, he said that delays also mean an added cost of workforce, which remains idle till the launch of the project. From the supply chain angle, Ramachandran added – including procurement, storage, change in the pricing of consumables, wastage etc – all of this can impact the profitability of an FM company.
“Technologies like Building Information Modelling (BIM) and ERP-led construction planning is considerably helping developers stay on course and project their costings better,” said Ramachandran. With nearly 80% of a building lifecycle cost spent on its post-construction maintenance phase – there is a dire need for industry stakeholders to begin collaborating earlier in the construction phase. For instance, the introduction of VAT as a new regulatory requirement has had an impact on cashflows within FM companies until an accepted pricing structure for absorbing/incorporating these costs into contracts is reached. Additionally, the growing competition also means that some contracts are being negotiated downwards, or the frequency and value of contracts reduced, or sometimes contracts swapped with providers offering lower pricing & costs.
Traditionally, facilities management entails capital intensive operating expenditure, he added. Legacy automation systems and BMS have added to expenses, even though they enhance assets up to a point. The fact of the matter is that most of the operations involved in building and maintaining built spaces rely on the input of several other tertiary players and can also inherently involve time delays, in achieving outcomes, he said. And not being able to generate business models that are predictable and agile enough to absorb a change, of course, is at the core of cashflow issues.
