How Will Facility Execs React To Minimum Wage Legislation?

The second part of this three-part article focuses on the conversation BSCs must have with their facility execs.

These proposals will also affect facility executives in several ways.

David Hewett, a former chairman of the Building Owners and Managers Association (BOMA) and now a consultant, has been in the business for 30 years, working for corporations such as Microsoft, PMC-Sierra, Pitney Bowes, California Federal Savings, Pacific Gas & Electric, United States GSA and Comerica Bank.

“The problem becomes what does the contractor do about [a wage increase]?” says Hewett. “Can they absorb anything else or can they reduce specifications — change the way things are being done? Can they create some other value equations that allow for those changes? Because there is going to be a fairly strong resistance to any of these increases.”

If contractors are forced to increase prices, it may drive some facility executives to rebid the contract.

Jeff Mabrey is a senior manager who is responsible for assets in the Dallas and Fort Worth, Texas, areas for Hines, a worldwide firm that focuses on development, investment and management of commercial real estate and Class A assets. He believes there will be a mixed reaction, dependent on the types of property owned.

“It will be based on the type of asset being managed, the market conditions, and things like tenant base within an asset, the occupancy level of an asset,” says Mabrey.

Competition within the commercial real estate market forces developers to pay for goods and services in accordance with the expectations of a building’s tenants, he says.

“If there is a (wage) increase that affects the labor and we start to see large price increases, we’re going to have to take it on a case-by-case basis,” says Mabrey. “In perhaps a single-tenant facility, where you’ve got the same tenant occupying all of the building, you might look at ways to reduce the amount of work and the amount of service you’re getting to offset the cost. But if you get into a trophy-grade asset, or something where the tenants or the people occupying expect a very high level of service and want to continue that highest level of service, you’ll probably not see a lot of change in that respect,” says Mabrey. “We have to compete, so we’re going to want to still provide that high level of service. The last thing we’ll want to do is start cutting back.”

Mabrey thinks pressure may come from facility executives pushing building service contractors to use more technology and better equipment.

“Are we using the computerized workloads for what it takes to clean the building effectively?” he says. “Do we have the right equipment in the building? Are we using the wide-area vacuum cleaners, the battery-operated vacuum cleaners? Have we looked at daytime cleaning that can use a different workforce to clean the building? There’s going to be a push to look for things like that, but I don’t see the service levels being something that can really change dramatically.”

This also could create more communication between the two parties, says Hewett.

“There is going to have to be a dialogue created between the contractor and the client, and it is going to have to be about what are the actual services being required,” he says. “What can they do to [meet] the needs they have versus the dollars available? That is going to create some interesting discussions.”

Those discussions would focus on what services can be cut and how products like chemicals and paper are priced, says Hewett.

“[Both parties] will begin to dissect the contract more thoroughly,” he says. “The facility or property manager isn’t going to just lay down and say, ‘OK, my costs went up, and there’s nothing I can do,’ because they are in a competitive industry, trying to please clients.”

Diamond finds the market to be cyclical, in which the customer will take a reduction of services to meet budget, but then if the customer starts to have health or cleanliness issues in the building, the customer will increase its specifications and the cost will rise down the road.

He gave of an example of a bank group that contracted cleaning services with AffinEco. Years ago, the bank
decided to go to cleaning three days a week — down from five days a week. That lasted for a few years.

“But then the bank finally realized that their banks didn’t look good two days a week,” he says. “So, they increased that specification back up to five days. It saved them money for a couple of years, but ultimately they realized their image was more important than the dollars they were saving.”

In another recent Contracting Profits survey, facility executives were asked the level of importance to them that janitors in their building were paid a living wage. The top vote-getter, “very important,” received 48 percent, while an additional 38 percent of those asked said it was “important.” A total of 13 percent were “neutral,” while only 1 percent said it was “not important.”

In that same survey, facility executives also were asked what would validate needing to pay a higher price for cleaning: 60 percent said they would pay a higher price for cost increases due to a minimum wage increase; 42 percent said they would pay a higher price to provide janitors with a living wage.

For Hewett, these issues are value judgments.

“They’re not two separate issues in my mind; they’re the same issue,” he says. “What is overall compensation, and what should it be? That’s a political, community issue. It impacts business issues, but that really is an ideological issue that we as a country are debating.”