"'Acceptable' is not the performance level that anyone was trying to achieve on this contract,' says George Osman, Monsanto's St. Louis director of Facilities Operations and Engineering.

The arrangement also challenges some commonly accepted premises of contemporary facilities management. For example, Monsanto recently adopted a performance metric that actually encourages WGI to spend—not save—all the money in its annual budget. Customer surveys are no longer used to measure service levels or vendor performance. Finally, Osman insists that the Monsanto-WGI affiliation is a business relationship, not a partnership.

"WGI is in business to make money," explains Osman. "They have the right to make a profit, but in a partner situation vendors could make decisions for you that augment their bottom line, and that’s not appropriate here. WGI offers services that I want to buy," he continues, "and they are here because we feel they provide a value-added service."

Despite this apparent hard-line approach, relations between the two entities are strong, trusting, and collegial. Even more, WGI's performance levels have allowed its employees to share more than $600,000 in incentive payments over the past three years.

Complex Support Needs

The outsourcing agreement, which took effect in 1997 as a cost-reimbursable contract with an incentive fee, spanned an initial term of four years with an option for five annual renewals. The facilities originally involved in the agreement were Monsanto's 288-acre Creve Coeur campus and, about 10 miles away, its Chesterfield Village facility, which is now owned by Pharmacia and operated under a separate WGI contract.

With a population of roughly 4,000, the Creve Coeur site comprises 28 buildings, the oldest of which dates from the mid-1950s. Housed here are corporate offices and non-greenhouse-based research, along with the worldwide data center, a credit union, fitness center, childcare facility, and two cafeterias. Chesterfield Village consists of nine structures totaling about 900,000 square feet, with its first building constructed 19 years ago. It accommodates approximately 2,000 employees engaged in manufacturing and pharmaceutical and agricultural research.

At the outset of the agreement, the scope of work encompassed operations and maintenance, custodial services, grounds, and the traditional facility management functions, including some research support, engineering and construction management. Over time, the contract's flexibility has allowed the engineering design functions to be taken out of the incentive mix. Nevertheless, the environment at both sites is highly complex, with support demands for sophisticated systems ranging from ultralow refrigeration to fire protection testing to high voltage switchgear maintenance.

Incentive Scheme

The basic Monsanto-WGI agreement establishes a target for annual expenses (project revenue for WGI), with an additional amount, expressed as a percentage of the budget, available as the vendor's incentive fee. Monsanto does not disclose exact figures but uses a $10 million annual spend and a two percent fee as an example, saying these are on the same order of magnitude as the actual numbers.

WGI's performance in a range of three to five categories, selected and weighted every year, determines its overall score and the incentive payout. With the goal of spurring superlative results, the contract specifies a scale of minus two to plus two, as opposed to the more conventional rating of one to five.

Zero, the midpoint or neutral position, represents superior performance—for which WGI receives no reward, just because it's what's expected. However, any score higher than zero makes WGI eligible for a portion of the incentive, up to $200,000 for a score of "+1" and $400,000 for a "+2." Half of the bonus amount is distributed among WGI site team members as a percentage of their base salaries, with enhancement according to key contributions.

The downside to the rating scheme is that WGI actually has to pay Monsanto if it turns in anything less than superior performance, defined as a score below the zero level ("-1" equals "acceptable" on the scale). The payback can be as much as $400,000 for a "-2" rating. In either case, WGI would assume full responsibility for a score venturing in negative territory.

"If we as a company have to pay Monsanto back, we don't pass the hat around to the employees," says Jeff Mervin, WGI's vice president of Facility Management Operations. "The company pays and the employees are protected."

Categories and Metrics

Although it extends over a long term, the contract does not lock owner and vendor into specific performance criteria that may become irrelevant or outdated; rather, it offers the flexibility to vary categories and their importance according to annual corporate priorities. For example, in 1999 the categories and weightings were: Safety Measures, 15 percent; O&M (operations and maintenance) Performance, 25 percent; Budget Management, 30 percent; Engineering, 25 percent; and SAP Implementation, five percent.

In 2001, the final year of the SAP rollout, that component swelled to 20 percent of the total, reflecting the emphasis on project completion. The following year, 2002, priorities shifted again. The number of categories declined to just three—Safety Measures, O&M Performance, Budget Management—and weightings were realigned to 15 percent, 65 percent, and 20 percent, respectively.

Within each category, individual metrics have been established to raise the bar regularly by encouraging continuous improvement. If a staffer is rated as outstanding one year, and performs at the same level the following year, she will simply be meeting expectations.

"You must work harder or in some way contribute more to be superior again," Osman says, adding that the system clearly works.

One metric rewards WGI for increasing the number of employees who undergo additional training in their particular field or trade. Monsanto provides the software, computers, and the time away from work (one to two hours a week per person) for the self-study programs. WGI's performance score in this area—and its earned incentive--has gone up as the target number of people passing the certification exams has risen.

"It's very gratifying to see how many have taken the training voluntarily," Osman says. "The skill level of the WGI staff has continued to improve, and we had no problem establishing an incentive for this type of accomplishment. This is an objective measurable metric with a number attached to it."

The 100 Percent Spend

Osman's "favorite" category is Budget Management, which has undergone significant change since the early days of the contract, when success in this area equated to driving overall costs down while keeping other performance measures up.

"In 1999, the motivation was to come in as far under budget as possible," recalls Mervin. "If we spent 97 percent of the budget or less, that was good. The further under budget we were, the higher the score."/p>

The problem with that orientation was a misplaced emphasis on cost over value, which encouraged a pseudo-"value-engineering" approach. In response, the global agricultural giant adopted target budgeting, and the question for WGI shifted from "How low can we push spending?" to "How closely can we hit the established budget?" In 2000 the target ranged between 97 and 102 percent, while in 2001 it tightened to just a three-percent window, with no allowance for overspending.

Osman sees multiple advantages in this "spend-all-the-money" approach.

"It makes WGI perform cost-effectively, and it makes us work together. If I have to reduce the O&M budget, we have to sit down and talk about what we're doing, what we might defer (which hasn't been necessary yet), and how to make the numbers I have to hit."

One success story he cites is the major overhaul of an electrical distribution system undertaken in late summer 2002. The project budget had been set the previous year and was subsequently adjusted for inflation. In the interval, WGI sourced less expensive generators from a new vendor and brought the job in well under budget. The savings were redirected toward other work.

"Now WGI is out saving money and performing at a higher level because they know they will get rewarded for hitting the budget number," Osman says. "We are not losing anything; it simply takes the incentive to do things cheaply out of the equation, while we actually get them done for less anyway.

"This allows the WGI technical staff to do what they do as professionals, without worrying about money," he continues, adding, "a couple of years ago we had mechanics worrying about budgets. Now we've taken away that concern and simply encourage them to do their jobs."

No Customer Surveys

WGI's scores are all numerical and objectively determined. Both companies enter data into a shared public folder, typically on a monthly basis, and Monsanto compiles the ratings.

"There is some mutual trust here," Osman admits, "The scores are based on figures given to us by WGI, but the data come out of our SAP system, so there is no possibility for manipulation. You're either on target or off."

A formal metric review is held only twice a year, but both parties talk informally all the time, says Osman.

One element that does not get factored in is customer feedback, simply because Osman's group dropped satisfaction surveys two years ago, amid growing doubt about their accuracy.

"My experience over 25 years tells me that when things go well and you give customers a survey, they tell you what is not going well in unrelated areas," he explains.

Or they can give feedback based on erroneous information. For instance, a pipe fitter repairing a leaking sink might not be seen, especially if he arrives when the requester is not present. The requester might fail to find the calling card left behind and easily think the job was never completed, thus falsely influencing the survey response.

"The time it took to generate surveys and compile the responses cost us more than what we learned from the information," Osman says, "so we fell back to one customer—me. If my phone is not ringing and my boss is not looking for me, we're doing it right. People will call, and call quickly, if there's a problem around here!"

Solid Relationship

While the original relationship between the two firms had a few hiccups, some due to the rapid transition and outsourcing of Monsanto employees, a change in the management mix has caused the association to blossom over the past three years, according to Osman.

Informal but constant communication is one of the keys to success. Osman and WGI's on-site managers stay in touch on all aspects of the operation, yet he insists the contract is not micro-managed.

"There is no tinkering," he says. "The WGI staff know what they have to do. We are just an extra set of eyes. We have the right management team at the right time on both sides of the net. That's what makes this arrangement work," he concludes.

By Nicole Zaro Stahl