Editor’s Note: This is the third installment of a four-part series that will explore 80 ways to reduce operating expenses. In these difficult economic times, these ways could be the difference between having a profitable year and one of significant financial loss. After all, every dollar of reduced operating expense goes straight to the bottom line of an annual profit-and-loss statement. Take these suggestions at face value, or modify them for your agency. Either way, please take a look. Shaving a few dollars here and there might just save a job.
Although contracts are meant to lock you into a fair market price for a service, they can also have the opposite effect if no one is minding them.
For example, prices may balloon while the services provided become sub-standard or non-existent. Although it may make sense to approve the same contract year after year, take a closer look before signing on the dotted line. Don’t assume the price is fair or the promises in the contract will come to fruition.
Here are 20 strategies to reduce the cost of contractual services and some of their ancillary costs:
1. Analyze insurance. Review the existing insurance policy and determine whether it “over-covers” current needs. When was the last time the policy was updated? Can you secure a “best-fit” policy with another provider for a lower fee or reduced deductible? Would a higher deductible be a better option? This strategy can be an incentive for management to annually review and update insurance coverage.
One word of caution: Some professionals may become overwhelmed or not allocate enough time to fully investigate the true needs and comparable insurance options, or worse, drop necessary coverage.
2. Improve safety records to reduce insurance rates. Training staff members, volunteers, and other stakeholders in the best practices of risk-management is important, but thoroughly documenting such trainings and incident/safety reports is essential. As such, reducing the number of incidents should show just cause to reduce policy rates. Instead of merely stating safety is of the utmost importance, show it via documented trainings and a chronological listing of all safety records.
The downside is there is an increase in time and allocation of resources for trainings and a safety-records database. Also, a chronological history might reveal an increase of incidents.
3. Contract accountant services quarterly only. Instead of monthly or bi-monthly assistance, contract this specialty quarterly to cut down on redundant costs.
This may not always be possible because some ownership structures or governance boards demand, at a minimum, a profit-and-loss statement on a monthly basis, and need more frequent reports for budgetary balance and financial oversight.
4. “Contract out” if a task is less expensive than producing in-house. Analyze project or program personnel cost patterns carefully, and track whether they can be completed at a reduced rate by an outside provider. Is the task weekly (e.g., landscape maintenance)? Event specific (e.g., catering or other food and beverage service)? Semi-annual (e.g., competitor rate study)? Is the task-completion rate comparable to a contracted regional provider?
Keep in mind, however, if you “contract out” and use patterns change, you may be caught paying more for additional contract staff, when the option of utilizing additional part-time employees may have been the rational choice.
5. Complete tasks “in-house” instead of contracting out for a specialist. This can work as an alternative to #4 or at least in a preliminary comparison with that strategy. Depending upon the task, at a minimum one must ask: What level of expertise is required? Is qualified staff available to complete the task? What is the timeline? The alternative is to pay higher rates for a specialist.
Be advised that staffing balance can change (e.g., approved vacations, government-mandated holidays, etc.), so the strategy can backfire. Also, some administrators may prefer contracting out for guaranteed quality and warranty.
6. Evaluate long-term vs. short-term contracts. Would long-term contracts save money? Everything is negotiable! Investigate, communicate, and negotiate new long-term agreements with current and future clients. Longer deals may lead to lower management fees (e.g., private venue management), increased revenue-sharing via long-term partnerships (e.g., concessionaire or parking provider), reduction of capital outlays funds (e.g., commissary area), and increased morale for impacted personnel.
However, don’t become stuck in a bias-laden agreement that does not allow a broader diversity of stakeholders for many years. Politicians or governance boards also might favor a certain provider for various self-advocacy reasons.
7. Review maintenance-contract services to determine whether supplies are included. Regardless if the service is for landscaping, parking-lot upkeep, aquatic-center filtration, general building maintenance, etc., management must review and potentially reevaluate all contracts. Was the contract signed prior to your arrival? Do you know what “extras” are being billed? If supplies are not included, this may be an area of concern and lead to a re-negotiation. The additional cost of fertilizer (landscape), snow/ice removal (parking lot), chlorine (aquatic center), etc., can rapidly deplete the operating budget.
Before committing to this permanently, make sure the process will translate into significant cost savings because it can become a challenge for management to allocate time to review contracts and to negotiate changes.
8. Request a provision for maintenance service in the building lease. If leasing a building, ask the lessor to maintain and repair/replace the personal property, equipment, and furnishings at his or her own cost. Building systems, although not limited to mechanical, plumbing, heating, air-conditioning, and electrical, could be covered. Negotiate for cleaning and janitorial services, supplies, and equipment.
Keep in mind some lessors may resent this effort and claim that too much is included in the rental agreement, but authorities looking to fill public and privately owned buildings may be more apt to negotiate.
9. Have employees pay more of their healthcare costs. In difficult economic times, many public- and private-sector employees have been asked to absorb some of the increasing cost of healthcare. A collaborative approach might include a set percentage increase (not to extend beyond five years). Additionally, since management understands the necessity of a healthy workforce, negotiate for a group discount rate at a local fitness center on behalf of employees.
Some employees may complain of hardship caused by increased healthcare costs, so be prepared to communicate the rationale for the increase (alternative is layoffs), and encourage use of the fitness center.
10. Consider a co-op plan for an employee benefit/healthcare package. Seeking to compromise while trying to obtain the broadest coverage and best rate has transposed the concept of “co-op” into the realm of benefits and healthcare. As with other co-op arrangements, seeking costs savings by teaming up with other agencies that previously might not have desired such business dealings is now an option and area for potential leverage.
However, be aware that similar to #9, any change to benefits and healthcare coverage will require rationale and negotiation. When additional agencies are involved in a co-op arrangement, you must be prepared to present best-case and worst-case scenarios depicting the respective plans and the new co-op package.
11. Create competitive bids for major contract services. Healthy competition among prospective bidders and consultants can bring forth efficiency in proposed services and sought-after problem resolution. For example, consider the ever-changing telephone and data-transmittal services, providers, and plethora of technological advances and products. What is best for you? Think creatively about what services, providers, and current technological products can assist in completing tasks and saving money. Competitive and unbiased bids will assist.
Keep in mind there may be fewer local proposals, or you may be eliminating family businesses from the process. Also, some companies still want and need personal contact as compared to a sealed-bid process.
12. Check references to obtain reliable services. The need to research and follow up on references listed in bidder proposals is of the utmost importance when trying to determine authenticity claims for the type and level of services provided. For instance, an RFP is issued seeking providers of vehicle fuel (unleaded and diesel), and numerous bidders submit proposals. Give attention to determining not only the completeness of the proposal but also the references using similar services as per the RFP.
Although some supervisors may not authorize the time to check references, others may take on the burden singlehandedly. Be sure to have identical (approved) questions to ask each reference.
13. Consider alternate food and beverage services. Reduce food and beverage service-related costs by first determining whether to self-operate, or outsource (professional or volunteer). Then determine what type and length of agreement is best for the operation (flat-rate, per person, percentage, etc., and/or a five-, 10-, or 15-year contract). Many questions arise (hot and cold storage, permanent concessions or mobile, client and community wishes, vending or not, etc.).
Consider a farmer’s market area, and whether a local restaurateur is the best choice. Determining whether to repair or replace kitchen equipment, or reconfigure areas to accommodate new or expanded services can become overwhelming for those who decide to do it “in-house.”
14. Analyze water costs and efficiencies. Limit unnecessary charges or incorrectly applied charging structures by analyzing costs and identifying areas for potential savings. Many agencies, businesses, and individuals merely pay the water bill “as is” without investigating usage patterns, or if the correct rate is being applied. If overpayment has occurred, seek credit towards future bills. When striving for savings look for efficiencies in water management, infrastructure, usage, and landscape conservation.
An analysis, however, may not be possible in-house due to lack of expertise, so you will have to consider hiring a consultant.
15. Analyze electric costs and efficiencies. As with #14, without regular analysis you may be overpaying for certain utilities. Monitor electric-use patterns carefully, and analyze each bill for accuracy and for potential savings. Be proactive in seeking efficiencies via infrastructure upgrades (seek grant assistance), the use of current building operating-management software, and alternatives to avoid peak billing rates, etc. For example, using energy-efficient light bulbs can reduce electric usage, and installing high-level insulation will reduce heating and cooling costs.
Again, some will not be able to analyze in-house due to lack of expertise, and you will have to consider hiring a consultant.
16. Consider safety and security-operations services. Researching the various safety and security options (foot/vehicle patrol, video, etc.) is important when trying to protect assets and deal with rising insurance premiums. Outsourcing will allow “soft-cost” savings to your bottom line by eliminating the costs of hiring, training, benefits/healthcare, etc. Another consideration is utilizing open-source video security, allowing for real-time surveillance, thus minimizing the threat of loss or breach of secure/sensitive areas.
But remember: Video surveillance has a cost too (purchase, installation, IT, monitoring, etc.); time and resources expended might be better utilized in upgrading the existing program.
17. Barter for some contracted services. Again, think creatively about what you might be able to barter for some contracted services, for example, seasonal-employee housing, storage units, landscaping, carpentry in return for seasonal aquatic-center passes, VIP or show tickets, etc.
As with any trade-out agreement, though, get it in writing with terms, conditions, parties, etc., and be aware bartering has received increased IRS scrutiny, so check with a tax accountant. Additionally, be sure insurance will cover any potential damage caused by a service provider “rendering services.”
18. Adopt a “leave-it-better-than-you-found-it” policy to reduce custodial costs. Be appreciative and clear when requesting all employees to do basic housekeeping/clean-up instead of hiring out for custodial services. For example, reduce individual office-wastebasket retrieval and cleaning from a daily basis to weekly (or discontinue). Ask employees to bring food waste and other recyclables to a central office or designated location.
Be aware that soliciting employees to keep respective areas clean might create resentment by some who may feel above such tasks. A potential for accumulation of food waste exists among the nonconformists, thus creating a smell and attracting insects, vermin, etc.
19. Hire and train your own sports officials. “Grow your own” sports officials for multiple sports. For example, rather than contract with a higher-priced “official’s association,” train, certify, and utilize your own. Controlling the process and database will allow flexibility, and eliminate the need for contracts with multiple associations.
Pay attention to whether bylaws of some sport-governing bodies stipulate use of officials from sanctioned associations for championship competition.
20. Monitor transportation systems. Will one-year contracts save money? Transportation concerns vary according to the scope of your business. For instance, do you provide mobility assistance to patrons, clients, and employees? Do you have a mandated agreement with a vehicle-rental agency or other transport authority? In either case, what are the terms of the contract (exclusivity, guarantees, number of vehicles per event, etc.)? Investigate whether one-year contracts will reduce costs associated with the above-stated guarantees, etc. Will you save money (and mitigate liability) with a motor-carrier provider as compared to renting three 15-passenger vans?
Keep in mind motor-carrier drivers have limited duty hours of service. Additional concern may include an adequate number of accessible transports depending upon the event, service, etc.
Next Month: Reducing costs for facilities and capital equipment.
Dr. Michael Mahoney is the coordinator of the Sports & Entertainment Facility Management emphasis in the Department of Recreation Administration at California State University in Fresno.
Dr. John Crossley is the coordinator of the Recreation and Leisure Services Administration program at Florida State University in Panama City. Both individuals have significant managerial experience in recreation and event management prior to their academic positions.