The shift to outsourcing key facilities functions came in 1985 when Conoco moved its headquarters from a leased building to its own campus. It had always outsourced landscaping and building engineering.

Then in the early 1990s, there was a trend in major companies to look at outsourcing as a way to focus more on core competencies. The first to be outsourced was mail shipping and receiving because a number of companies were outsourcing that function successfully.

"We are an oil and gas company," says Pat Walters, manager of facilities operations. "Processing mail is not our core business."

Before Conoco began outsourcing, the facilities staff included a director of facilities operations with three employees; a manager of facilities operations with 40 employees (primarily mail shipping and receiving, plus minor maintenance and utility shop); an architectural operations manager with five employees (a designer, draftsmen, and construction project manager); and a manager of administrative services who was in charge of budgets, company cars, and document services.

The current staff includes a director of facilities operations with an administrative assistant; a manager of architectural operations with an interior designer and a designer/architect; a coordinator of safety, health, and environment; and a manager of facility operations (Walters).

Conoco has four outsourcing relationships: Cushman and Wakefield for property management; Kellogg Brown & Root for construction management; Sodexho for food services; and Pitney Bowes Management Services for mail shipping and receiving. Those companies manage dozens of smaller contracts for functions that used to be Conoco's direct responsibility, obviating the need for Conoco to have a manager of administration for budgeting, hiring and resolving employee actions. The result is a net reduction of 15 positions, including contractors and Conoco employees.

"We are a highly outsourced organization, and this is the way I want to run my business," says Walters. "It is gratifying and fun to work with other organizations that have great ideas and great expertise."

Selection is the Key to Success

The relationship between a company and its outsource partners is as complicated and important as a marriage, Walters says, so the selection process must be taken seriously. That process starts with a detailed RFP that will determine, among other things, whether the company is financially stable enough and big enough to handle Conoco's needs; has worked with similar companies before; and shares Conoco's management style and core values.

The size of the outsource partner is significant because the contract needs to be honored seamlessly, even if that partner loses employees. The company needs to have a deep well of talent familiar enough with the Conoco contract to step in and take over if necessary. In addition, Walters asks the outsource partner to make regular staff changes.

"We like to switch their managers at least every five years," says Walters. "They need to be big enough to do that and take care of a facility this size. We believe that bringing in new blood helps us take a look at our facility and our operations in a whole new way."

Conoco also looks at the management tools and processes an outsource partner brings to the table. For example, Conoco uses Pitney Bowes Management Services' inbound package tracking system as an add-on to its contract.

"We have worked with these companies for more than 10 years, so it makes sense to tap into their expertise. There's no need to spend time and money to support your own computer system," he says. "If you plan to switch vendors often, it makes more sense to keep it in house."

Perhaps the most important characteristics in an outsource partner are compatible management styles and core values. The core values at Conoco are business ethics; safety, health, and environment; and valuing all people.

"If they don't value their employees the same as we do, the contract employees will feel separate rather than part of the same team."

Safety records, for instance, can be checked through OSHA, and by asking how often they hold safety inspections and tool box meetings, sometimes called tailgate meetings. These are five- to 10-minute weekly sessions that address a specific safety issue.

Conoco also asks to see the company's safety policy, but the best way to determine whether a potential contractor shares Conoco's values is to not rely solely on documentation. Instead, Walters visited their local and district offices; talked with their operations managers; and visited their clients to get a feel for how they do business.

Constant Communication

Communication between Conoco and its outsource partners begins during the selection process and continues throughout the life of the contract. It is important not only to gather as much information as possible about the contractor, but also to be straightforward about Conoco, Walters says. He distributes copies of Conoco's policy manuals so contractors know that Conoco expects the same from them as from its own employees.

"You must understand your own company and communicate the culture clearly to your outsource provider," he continues. "You begin with the end in mind and fully define performance expectations. Then you must understand their business to fully grasp their core values. You must understand what drives cost and quality and what is the key to success to their performance and to your performance."

For example, it is important to hire a property manager who is accustomed to facilities work. Property managers typically are autonomous, Walters explains. They manage multiple leases for an absentee landowner. The owner-occupied facility gives them more oversight and supervision than they may be accustomed to.

"This is a different paradigm," says Walters. "They need to understand that they have to conform to Conoco's core values. These aren't tenants occupying this building; they are our employees.

"Once you make your core values clear, continue to hit on that in daily, weekly and yearly communications to them," he emphasizes.

"The way to do that is to establish relationships at all levels of the company," he says. "I have working relationships with the vice presidents of the region to the district manager, down to the site manager. So if I have a problem, I can escalate it up the chain of command. I communicate with all the contractors' organizations so they understand our core values."

Walters maintains daily contact with his outsource partners, and conducts weekly meetings with site managers and monthly meetings with district managers. The monthly meetings are more formal, with a Microsoft PowerPoint presentation that reviews the financial status of a contract, the level of customer satisfaction, the status of jointly established goals, and staffing levels.

Conoco also conducts quarterly reviews of contracts to examine in detail how the terms are being satisfied. A review of the Cushman and Wakefield contract, for example, looks at the safety program, recycling, staffing, emergency contacts, and utility consumption and costs.

"This is an opportunity for us to look at the contract, and for the contractors to tell us what they may need," says Walters. "It provides an open forum.

"Keep the contract as a living document," he advises. "Don't put it in a filing cabinet. Understand what you have asked them to do, and if you have something else that you want them to do, go back and revise the contract."

Shared Goals

Another key to Conoco's relationship with its outsource partners is the establishment of goals that are clear, measurable, and shared by Conoco and the four contractors. A "champion" is assigned to each goal, someone who is responsible for making sure the goal is met.

One goal the companies are pursuing is establishing a team made up of Conoco employees and administrators from the four contractors who will audit each other's performance in areas such as invoice processing, safety, permitting, inspections—everything except salaries and fees.

"We all bring our financial controls to the table and learn from each other's best practices," says Walters. "A good example is one company that had a great audit trail for invoicing. The tracking process was shared, and now it's being used across the board."

Another goal is to establish incentive contracts that will allow contractors to reap the financial rewards when their best practices save money. This will expand an existing program that offers financial rewards for outstanding performance by both Conoco employees and its contractors.

"Probably the most interesting thing about the open communication among our outsource partners is that they are sharing pricing information, allowing ConocoPhillips to find the best price for generic items such as light bulbs," says Walters.

The merger between Conoco Inc. and Phillips Petroleum Company was recently approved by the U.S. Federal Trade Commission. The new company name is ConocoPhillips.

By Lisa Wesel