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KPIs for M&E contractors - results for 2008October 2008

Good news: The 2008 key performance indicators show that the performance of the M&E contracting industry is improving across the board. The bad news: profitability is still not good enough. What's going on? Gerry Samuelsson-Brown studies the 2008 figures to find out.

Data for key performance indicators (KPI) on the M&E contracting industry has been collected by BSRIA for eight years - long enough to show some interesting trends.

Figure 1: Satisfaction with M&E service by lients' experiences of mechanical and electrical contractors

Table 1 shows the trend for the past five years for the 14 headline Key Performance Indicators. Over this period all measures have improved, which is really encouraging news, except in one area: profitability. This has swung between a median (profit on turnover) of 3.9 percent and 4.3 percent, for 2007-08 falling midway at 4.1 percent - so no significant change.

Further analysis shows that smaller firms with fewer than 60 staff (and lower overheads) have always shown an overall better margin. This year this was 4.3 percent compared with a median profitability in larger firms (with 60 or more staff) of 3.8 percent. With payment terms also being a problem, particularly the issue of outstanding retentions and agreement and timely payment of final account, there is still room for considerable improvement.

Client satisfaction

But what about client satisfaction? Are clients receiving an improved service from the industry's service providers?

The answer to that would appear to depend on the relationship between M&E contractors and clients and the approach to procurement. There is clear evidence that relationships are moving forward. In the first collection of KPIs, 36 percent of clients had never worked before with the M&E contractor being appraised on the particular completed project, while 34 percent worked together regularly. This year clients with no such prior knowledge of the M&E contractor fell to 25 percent while those working often together increased to 42 percent.

Table 1 shows that overall client satisfaction with service was 68 percent in the latest collection. The 68 percent reflects the percentage of projects where clients scored eight, nine or a perfect 10. In the world of KPIs, a score of eight out of 10 is considered a good outcome.

Headline Key Performance Indicators (KPIs) for the building services industry, showing the trend in performance over the past five years

Using this as the industry standard for this KPI year, client satisfaction increases to an impressive 86 percent in cases where the M&E contractor and client have often worked together, compared with 40 percent where there is no prior working knowledge or relationship. It should also be highlighted that this is no isolated scenario. This gap has been seen in each of the previous seven years of KPI collection. More important, the gap is widening.

The procurement issue

This relationship argument is further advanced when looking at shifts in procurement. Over time, procuring on a lowest-fee basis has declined by half as negotiated work has doubled. Even so, one could play devil's advocate and suggest that price is still the over-riding factor in 56 percent of cases.

When comparing this against the 68 percent service yardstick, clients are highly delighted (77 percent) with service provided on a negotiated basis, but significantly less so (30 percent) where selection has been based on a price-only basis. The figures say it all: collaboration works.
Ten years after the Egan Report, some changes are evident, including improved client satisfaction, greater efficiency (both in extent of defects on handover and M&E productivity) and evidence of greater take-up of collaborative practices. All good news.

New initiatives such as abolishing retentions and engaging in project banking will help. Another observation is that M&E contractors are still not engaged early enough in the project.
Given that the building services content can be around 33 percent of the total project spend and 70 percent in major refurbishment situations, then this could be a missing key to help design and install the correct solution to everyone's mutual benefit.

The full KPI collection for M&E contractors covers a wide range of secondary KPIs and correlations. For more information contact Gerry Samuelsson-Brown at BSRIA on or visit BSRIA's KPI web page.