As facilities managers we are often asked to prepare service charge cost models for clients. These cost models enable the client to pass service costs through to the end-user while ensuring all their own costs are adequately covered.
End-users pay their service charges and expect a certain level, or quality, of service.
We know only too well from the media that service charges have become a cause for complaint by many residents in Dubai. With service charges spiraling and end-users crying foul, the service level delivered by FM providers is also under closer scrutiny.
What were once end-user expectations have now become demands. Residents who were once happy to wait patiently for a response from their service provider are now less tolerant, and have grown impatient. They want quality service and they want it now, after all they are paying a premium for it.
So where does the problem lie? Why are residents facing increasing charges for what they perceive to be decreasing service levels?
At the recent ‘Building Sustainability into the Middle East’ conference I was impressed by the level of interest in district cooling charging mechanisms. As an element of service charges, district cooling is clearly a topic that needs more open discussion, so let’s revisit it.
If we consider the provision of district cooling as a service charge element, with the charge levied on floor area rather than consumption, who are we really paying? The master developer charges the resident/owner of a new property at handover and I have recently seen an example of a district cooling (DC) service charge element in excess of AED13.00 per square foot per year for a small apartment.
The average charge, according to district cooling industry insiders, is around AED6.00 per square foot per year, with residential units at the lower end of the price range. It would seem in this case that end-users are effectively paying twice for their cooling. Who’s fleecing the owner?
So who is fleecing the property owner/resident? Is it the district cooling provider, trying to get a speedy return on investment, or is it the developer, trying to make a quick buck by overcharging the residents and owners?
Note that whoever is the profit-taker, no one is really winning anything here. The end-user is considerably out of pocket, dissatisfied and demanding premium quality service. The master developer and the district cooling provider are both under fire for overcharging and their reputations are suffering, regardless of which party is profiteering. The FM is, as usual, stuck in the middle.
Who is taking the profit?
The developer will probably say that the DC provider is to blame, while the DC provider will say their charges are standard and that the developer is marking their prices up.
Is it surprising then that customer expectations have now become demands? As consumers, the more we are expected to pay, the more we will demand in return.
Perhaps what is missing here is our old friend transparency. End-users want to know exactly what they are paying for and exactly where their money is going. If the master developer is charging for landscaping or district cooling etc. they should have visibility on those payments and the contract management and administration charges.
It would be refreshing to see the DC providers publish their rates on their corporate websites. We know, of course, that different DC plants on a single development may have different costs which might result in different selling rates per plant but, whatever the reason for differences, those costs can be leveled/optimised across a development as a whole. Any difference in selling rates on different developments should also be very easy to justify.
Not only would we have transparency across the DC industry, which is getting something of a bad press on this issue these days, the customer would also be able to see the developer’s mark-up.
The DC fraternity might question the need for transparency, citing Dubai Electricity and Water Authority (DEWA) as an example of how a utility charges customers without exposing its business model. Let’s put this into perspective though. The utilities provider also gives consumers the option to consume electricity and water as they wish, so payment is dependant on lifestyle.
District cooling consumers billed on a floor area basis are denied this basic facility, so service providers should be required to expose business models to justify rates. Dubai Electricity and Water Authority also charges uniform rates to its users, rather than charging a higher or lower tariff depending on where one lives or works.
Step in the right direction
As for those DC providers that bill end-users on consumption, this is certainly a step in the right direction. If they publish their rates we will also be able to see how they stack up against their industry norms.
DC providers often refer to themselves as utilities. But to become accepted as such they need to put their rates in the public domain, just as the real utility providers do.
Until we have transparency customers will expect and demand more. The ability to manage customer expectations is therefore an essential FM skill to be mastered.
Alan Millin is the director of consultancy at Imdaad.
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