5 tips for outsourcing data center facilities management
By Johnson Tan, PE, Director, APAC Head of Building Operations, Barclays
Growing demands for reliable data facilities and management have made data centers an increasingly important asset class for organizations from various industry sectors. There is increasing pressure from regulators and insurance providers for companies to store and retain data for longer periods; for example, most financial institutions are now required to store data for a minimum of seven years. Unsurprisingly, the data center business is now worth billions of dollars and is set to grow exponentially.
As the CTO and CIO of your company, are your data center facilities being run in a way that is sufficiently meeting your business’ needs?
In the past 19 years, I have managed different facilities management outsourcing contracts and had the opportunity to work with vendor partners in various geographical locations.
I remember back in the early 2000s, it was a very inconceivable idea to outsource the facilities management of a firm’s data center. The data center is considered the nerve center of any business that holds much business-sensitive information and intellectual properties. Companies, therefore, preferred to manage them in-house due to its criticality and also since it was considered costly to outsource such services.
Not anymore. Today, C-Suite expectations stretch beyond just business-as-usual, keeping costs flat and the standard services to meet customer demands. More and more companies are now also seeking to outsource their data center facilities management to third-party providers in hope of acquiring consistent best-in-class services and achieving cost-savings through scale. In my opinion, I think this is a great idea – let the industry experts do what they are good at.
That being said, the major concern of such an approach will, of course, be the Service Agreement; if not designed correctly, your data center asset and business will be at risk.
Therefore, if you are considering an outsourced model for the management of your company’s data center facilities, below are some key considerations when negotiating the contract agreement with external vendors
Today, C-Suite expectations stretch beyond just business-as-usual, keeping costs flat and the standard services to meet customer demands
1. Guaranteed Maximum Price (GMP) and output-based contracts are the new trends. Guaranteed Maximum Price means the third-party provider agree to a maximum price for delivering the contract and risk of cost overrun will be borne by the provider. This price will be adjusted only on the occurrence of certain circumstances in the contract such as scope changes and service level changes. This is a good approach if you have a clear contract, definition of service expectations, and pre-defined limits on incremental cost when changes occur. As you negotiate your contract, you need to ensure the level and frequency of maintenance remains “As-Is” (assuming those are the right levels) and they are not reduced as a result of the cost savings. Having output-based contracts helps promote efficiency but this works only if the third-party vendor is 100 percent aligned with your business objectives.
2. Ensure Critical KPI and SLAs truly meet your business needs. Poorly designed SLAs result in poor customer experience and prolonged business outages. I remember seeing an SLA which specifies an on-site response time of up to 48 hours when a power outage occurs which is clearly unacceptable for the data center business. KPIs must, therefore, be carefully designed and with the intent to reward good performance such as maintaining the expected and agreed business uptime.
3. Your in-house facilities engineer must participate in contract design negotiations and operation and maintenance service level discussions. Time and time again I have seen contracts designed by consultants and/ or commercial managers who lacked operational and real-life experience, which resulted in cost reduction-focused negotiations that were not entirely holistic. While upfront cost reduction may appear to be a good initial win for a company, it may not always necessarily reduce the total cost of the contract. The in-house engineer can, therefore, contribute constructive input to include provisions to manage variation cost risk and ensure exclusions are pro-actively considered to avoid major surprises.
4. Ensure the right team structure with the relevant level of competence is clearly defined. Skilled and competent labor is an expensive and crucial cost component for third-party vendors. Thus, it is important to agree on the structure of the team (number of head-counts) and the seniority of each member to ensure that you are getting the right resources to run your data center facilities.
5. Appointing the right parties for maintenance management. Vendors will, in their proposal, suggest ways to reduce cost through the self-performing of maintenance works. While this is generally acceptable for non-critical equipment such as lighting systems, fan coils, etc., the maintenance of critical systems such as UPS and Generator systems is often best left to the Original Equipment Manufacturers (OEM) who are well-trained and more experienced with the equipment.
In my experience, I have seen many well-negotiated contracts and also not so good ones which leave businesses at great risk. I have been fortunate to have had worked with a number of good vendor partners that promote the good spirit of the outsourced contract and have built great teams that continue to be committed to delivering above and beyond what is needed from the contract.Disclaimer: This was published personally by the author. The views expressed herein reflect the author’s own personal views and do not reflect the views of Barclays.