Most of your FM cost is decided before a supplier prices the contract

Most of your FM cost is decided before a supplier ever prices the contract. That matters, because the usual response to rising cost is to look at the supplier.

In my last piece I wrote that one sign trust has gone is when costs keep rising and you no longer believe you are getting a fair deal. Sometimes that is exactly what is happening. But before you reach that conclusion, it is worth knowing what is really driving the number. Rising cost is not always a sign of an unfair deal.

The Invoice Is an Output

The number you see on the invoice is the output of five sets of decisions. Some are made years before a contract is tendered. Some are made in the specification. Some are made by the labour market and the regulator and you can't influence them. Only some of them belong to the supplier.

Most cost conversations never get past the headline number. They compare one total with another and ask why it went up. The more useful question is which of the five is actually moving.

The Five Drivers of FM Cost

1. Structural

The portfolio mix, building age and condition, backlog maintenance, asset type, geography and distribution. A 1980s regional estate and a modern city centre estate will never cost the same, even when the sq ft and the specification are identical.

Older buildings carry more reactive work, more plant at the end of its life and more compliance risk. A dispersed estate costs more to cover than a concentrated one, because travel time and minimum staffing do not scale down with size. Backlog maintenance sits here too. Deferring capital investment does not remove the cost. It just moves Capex to Opex as reactive repairs increase.

2. Demand

Occupancy patterns, opening hours, customer footfall, and whether the estate is growing or shrinking. Opening buildings 24/7 can significantly change the cost base on its own, through shift premiums, extra cover and more wear.

Demand has become harder to read since hybrid working. Many estates are specified for full occupancy but used far less, and some are now being asked to deliver more to draw people back. Either way, the service is often designed for am occupancy pattern that no longer exists.

3. Scope

What is actually in the specification versus what is assumed. What will be self-delivered or subcontracted. Whether services are integrated, bundled or single service. How tightly the specification is written, and which SLAs and KPIs are measured and how.

This is where much of the cost is fixed without anyone noticing. A loose specification is priced with contingency. Gaps get filled by variations at a higher rate. KPIs that measure activity rather than outcomes drive activity, and activity costs money.

4. Operating

Statutory compliance, systems and, above all, labour. Labour is typically the largest single component of an FM contract.

The National Living Wage rose to £12.71 in April 2026, on top of higher employer National Insurance and pension costs. Even where most of your workforce is paid above it, the effect spreads. Staff already above the minimum get pulled up too, so that supervisors and skilled roles keep their differentials. Compliance obligations in areas such as fire safety, electrical testing and water hygiene only move one way.

5. Commercial

The contract model, risk allocation, term, volume and indexation. Fixed price, cost plus, guaranteed maximum price and Vested do not just price differently. They allocate risk differently, and that is usually the bigger decision.

Under a fixed price, the supplier prices in the risk you have handed over. Under cost plus, you keep the risk and see the cost. A short term or a small volume gives a supplier less room to invest and recover. And the indexation mechanism decides how much of next year's increase is already locked in.

Who Owns Each Driver

Now look at who owns each one. Structure, demand and scope sit with you. Operating costs are largely set by the market and regulation. Commercial is shared.

Three of the five are decisions you make, often long before procurement starts. A supplier inherits them and prices them.

What the Supplier Actually Controls

The supplier controls a narrower slice: how efficiently they deliver, how well they manage, and their overheads and margin.

That slice is real. A well-run supplier plans labour better, manages subcontractors harder and catches problems earlier. A poorly run one does the opposite, and you pay for it. But it is a slice, not the whole.

How visible it is depends on the contract model. On cost plus, margin is usually stated, often somewhere between 8 and 15 percent. On fixed price, it is built into the rates and far harder to see. Either way, the part you can win back by changing supplier is usually smaller than the part that stays with the estate, the scope and the contract.

Why a New Supplier Often Lands at a Similar Number

That is why a new supplier on the same estate, the same scope and the same contract model so often lands back at a similar number. The bids may come in lower. The first year may look better. But the drivers have not changed, so the cost returns, usually through variations, reactive work or the next indexation round. And you have paid the cost and disruption of a re-tender to find that out.

Before Your Next Budget or Renewal

Before you go to market, work out which of the five is actually moving. Five questions will tell you most of what you need.

1. Structural. Has the estate changed, or has it aged? Is deferred capital work now showing up as reactive repair?

2. Demand. Does the service still match how your buildings are used, or the way they were used when the contract was let?

3. Scope. Is the specification clear about what is in and what is out? How much of last year's cost came through variations?

4. Operating. How much of the increase is wages, National Insurance, pension and compliance, which any supplier would face?

5. Commercial. Is the contract model allocating risk where it can best be managed? What does the indexation mechanism lock in for next year?

If the answers point to the supplier, change may be the right call. If they point to the estate, the scope or the contract, a cheaper contract will not be a better one.

Rising cost is not always a sign of an unfair deal. Sometimes it is the estate, the scope or the contract you chose.