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How to Conduct an Environmental Services Contract Review

Your first question is probably Why conduct a contract review?  When we are invited into a hospital to complete an analysis of an existing contract(s), we find many of the contracts and follow-up amendments (if they can be located) sitting on a shelf, not looked at or understood.  They are often not reviewed or even thought about until another amendment for an annual CPI increase is received from the Regional Manager for the Contract Company.

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Time after time, Soriant sees examples of Performance Indicators and Financial Guarantees not reconciled or taken advantage of. In one example we were working with a small hospital system last year that was a Full Service Fixed Contract Price (all hourly staff on contractor payroll and one fixed monthly bill each month).  When reviewing the contracts and amendments for our assessment, we found a three-year-old amendment that included language that stated the contractor was to supply hourly labor hours monthly to the hospital and reconcile (give a credit) if labor fell below a predetermined FTE level.  I questioned the Regional Manager for the Contract Company and he stated that “it has never come up.”  There was new leadership in the Hospital Administration and they were not aware of the language.  We requested three years of labor records from the contractor and completed an analysis.  The result was nearly a $400,000 credit to the Hospital System!

So how often should you review them and with whom:

Once a year is my recommendation.  The Hospital Liaison, onsite Director, and Regional Manager for the Contract Company should all be in attendance.   Also consider including key users such as the DON, Facilities Director, Patient Advocate and Finance as they can each provide beneficial insight.  Everyone should be aware of the guarantees included, the Scope of Work (SOW) and quality indicators.  Key Users may have suggestions for changes to the guarantees or recommend changes in the SOW.

Discussion Points:

  1. If the contract is more than five years old, you should request a new contract incorporating all the amendments and have it reviewed with the hospital legal department. As a prior Regional Manager for large Contract Company, our legal department insisted on this.  In one situation, when I received the contract back from legal with all the language from the follow-up amendments added, the new contract stated there was a labor guarantee.  Do you know if your contract has a labor guarantee?  It can be real dollars to your bottom line.
  2. Review the contract page by page making sure everyone understands the intent of the language in the contract and “what if” scenarios. We have been involved in many disputes over language.

Areas to focus on:

  • In fixed-price contract agreements, what is included in “housekeeping supplies?”contract services
  • If productive labor is guaranteed, define productive labor. Does this include training, orientation, and projects outside the scope?
  • Review the SOW. Each contract should have a detailed SOW that clearly defines responsibly and frequencies for cleaning.
    • Has then been “scope creep?” This happens when departments request additional cleaning responsibilities or frequencies outside scope and EVS complies.
  • Has there been any hospital employees moved to the contractor payroll and how does this impact the no-hire clause?
  • Has any capital supplied by the contractor been fully depreciated?
  • New requirement for equipment investment(s)
  • Hospital changes such as new units opening (or closing) in the next contract period with will impact guarantees? If so, how will contractual guarantees be reconciled?

If the contract does not seem favorable to the Hospital, then reach out to the Regional Manager for the Contract Company.  The agreement should be a win/win.  Most Regional Managers will work with you to achieve that goal.  But also recognize that the Regional Manager’s overall goal is the profitability that they are required to maintain.  If all fails, all contracts should have a 30/60/90 termination without cause.  It may be time to go to an RFP!

Soriant Solutions is here to help you assess your needs.  We can manage your contract renegotiation or RFP to ensure the terms are a true win.  Any contract over 5 years old is worth evaluating.  Please call us at 770-777-6633 or check out our savings calculator that helps you quickly assess your support services budget savings opportunities.

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