Innovation isn’t failing in FM... Procurement practices & contracts are

Facilities Management has long faced an innovation problem: everyone talks about it, but very few procurement practices or contract structures genuinely enable it. When I was solutioning FM contracts, I often wanted to embed technology that would enhance performance, transparency, energy efficiency, and decision-making. Yet with price weightings often sitting at 70% of the total score, innovation often became a luxury rather than a core component.

This isn’t because clients don’t value innovation, it’s because procurement consultants and commercial teams are often stepping into unfamiliar territory, without a clear benchmark for good or bad practice, and are reluctant to take the required risk.

Upfront capex makes bids look uncompetitive, and although the right technology will likely deliver multiples of ROI over the contract term, that upside isn’t guaranteed. On top of that, traditional input-based specifications restrict innovation by prescribing how the service must be delivered rather than what outcomes are required. The result is a system that unintentionally discourages smarter, more efficient, and more digital approaches.

So how do we fix this? How do we embed innovation and technology into FM outsourced contracts from day one, not as an optional add-on, but as a fundamental part of the solution?

Shift from Input Specifications to Output Specifications

One of the most promising breakthroughs I’ve seen was a contract built fundamentally on an output specification. Instead of prescribing staffing levels, task frequencies, or rigid workflows, it set out the outcomes the client wanted: asset uptime, compliance assurance with maintenance efficiency, and an enhanced customer experience that encouraged repeat visits.

Output specifications give bidders the freedom to propose better ways of working, including digital workflows, remote monitoring, smart analytics, IoT, and integrated platforms. They’re evaluated on their ability to deliver outcomes, not match a predefined list of inputs.

But output specs alone are not a silver bullet, especially when price still dominates tender scoring. In some cases, they can even encourage bidders to trim service levels to reduce costs while compromising on the less valued score criteria.

To make output specifications work, they must be paired with scoring models that elevate value over cost, such as:

• Weighted value-for-money assessments
• Life-cycle cost modelling
• Scoring frameworks that reward ROI, carbon reduction, maintenance efficiency
• Contractually mandated innovation pathways
• “Tech readiness” scoring for bidders

These structures shift the conversation from “How cheap is Year 1?” to “What value does this deliver over five years?”

Allowing Compliant and Non-Compliant Bid Submissions

A former colleague, who now works in the public sector, highlighted an interesting approach: allowing two bid submissions.

1. A fully compliant bid that aligns with the client’s specification.
2. A non-compliant, innovation-led bid that represents what the bidder believes is the best, most value-driven solution.

This dual-submission model removes the fear factor. Bidders can stay competitive on price while demonstrating what’s possible. If the non-compliant bid proves to deliver greater value, the client can select it without penalising innovation.

But this approach is not without challenges. Tendering requires significant investment, and bidders already risk substantial cost with no guarantee of return. Producing two submissions doubles that burden. I would also be interested to see data on how often non-compliant bids actually win; I suspect it’s a small minority.

Innovation Funds or Risk Pools

Some organisations introduce an innovation fund that is a ring-fenced budget jointly governed by both client and supplier. By agreeing upfront how the fund is allocated and what criteria determine investment, both parties can explore new ideas without impacting contractual baselines or core service pricing. This creates a protected environment where experimentation is not only allowed but encouraged. It becomes far easier to run pilots, test technologies, or validate ‘proof of concepts’ because the financial risk is deliberately separated from business-as-usual delivery. The result is a structured, low-risk pipeline for innovation, enabling teams to trial solutions that might otherwise be too costly or uncertain to pursue.

Others establish risk-sharing pools, where each party contributes resources into a common pot to pursue innovative solutions. In this model, upfront costs and delivery risks are shared, but so is the upside. If a pilot delivers measurable savings, efficiency gains, or value improvements, both client and supplier benefit proportionately. This aligns incentives more tightly and fosters true partnership, making innovation a joint venture rather than a supplier-led or client-driven initiative. Risk pools create a disciplined, mutually accountable framework for adopting new technologies, ensuring that promising ideas are systematically supported without placing disproportionate burden on any one side.

Gainshare

One challenge is that FM service providers don’t typically get a return on the savings generated by the technology they implement. While I believe this is short-sighted, since helping clients achieve savings can be a powerful way to win and retain contracts, I also understand the hesitation, given that it’s not as simple as implementation; there’s a challenging, time-consuming change-management effort that goes with it.

Gainshare, where client and provider split verified savings, is an appealing concept in theory but notoriously difficult to implement in practice. Common challenges include:

• Baseline accuracy
• Attribution of savings
• Disputed measurement methodologies
• Slow-delivering benefits
• Perceived inequity

When gainshare is co-designed before the tender is finalised, it becomes far more effective. For example:

• Joint baselining during pre-tender pilots
• Agreed measurement frameworks
• Shared dashboards tracking savings
• Clear definitions of innovation-driven value
• Caps and floors to manage risk

With these elements in place, gainshare becomes a meaningful incentive rather than a contractual friction point.

Tech Providers Must Evolve Too

I don’t believe all the responsibility should fall on procurement methods or inflexible, prescribed contract terms. A Sales Director I spoke to, eager to incorporate technology into his tenders, made a valuable observation: technology providers also play a role in limiting innovation. The typical commercial model often looks like this:

• Year 1: Highest cost – hardware deployment, onboarding, training, licensing
• Years 2–5: Lower cost – primarily subscription/licensing

This creates a paradox: FM providers face high upfront costs before any value is proven while trying to win tenders dominated by price scoring. Some tech providers seem to protect their margins in Year 1, precisely when FM bidders need to be cost-competitive.

If solution providers truly believe in their product, commercial models should reflect that confidence. For example:

• Reduced margins or deferred mobilisation fees in Year 1
• Performance-linked pricing (shared savings, uptime incentives, ROI triggers)
• Margin recovery in Years 2–3, once value is proven
• Longer contract terms to align incentives

While this is a valid point it is complicated by the fact that many technology providers are small, cashflow-dependent businesses. Without multi-year client commitments, and with success often reliant on site teams actually using the technology, the risk can become disproportionately high for them. One way to address this is for the FM provider to absorb some of that burden, as they don’t need to adopt the same commercial structure with the tech provider as they do with the client. This approach works particularly well when the FM provider has a strong, collaborative relationship with their technology partner.

Early Engagement, Discovery Phases, and Smarter, More Flexible Commercial Models

Early engagement is the real differentiator.

Many industries have long adopted structured pre-tender discovery phases. Facilities Management, despite its complexity and scale, has been slow to follow. That’s a missed opportunity because FM arguably stands to gain more than most.

Pre-tender discovery creates a low-risk environment where clients and suppliers can explore options before costs, specifications, and commercial models become fixed. It allows clients to:

• Understand the art of the possible
• Learn what technology can genuinely deliver before locking in requirements
• Test concepts or pilots early, so tenders are shaped by data rather than assumptions
• Develop mature, outcome-based scopes with fewer gaps and contradictions

In this model, scoring criteria should place far greater weight on the quality of engagement during the discovery phase. The tender response then becomes confirmation: proof that the bidder has listened, understood the challenges, and translated insight into a coherent solution.

The result? Better tenders. More effective solutions. More accurate pricing. And partnerships built on understanding rather than interpretation.

However, early engagement only delivers its full value if the contracts are also designed to ‘flex’ with what is learned. Introducing technology often exposes inefficiencies, latent demand, or entirely new improvement opportunities. By definition, this means the operating conditions at contract award are not the same as those uncovered through insight and data over time. Contracts therefore need built-in mechanisms to accommodate change, whether through agreed adjustment frameworks, change control thresholds, or shared value models, so that improvements can be implemented rather than constrained by rigid commercial structures.

Contracts That Incentivise Continuous Improvement

Innovation isn’t something that starts strong on day one and slowly fades; it should progress and mature throughout the lifecycle of a contract. To embed continuous improvement into the fabric of an agreement, contracts should be structured to include:

• Annual innovation reviews that formally assess progress, recalibrate priorities, and ensure both client and provider remain aligned on value creation.
• Bonus incentives for validated improvements, rewarding providers when innovations deliver measurable operational, financial, or sustainability gains.
• Structured innovation pipelines that move ideas from concept to pilot to full-scale deployment, ensuring innovations don’t stall due to lack of governance or ownership.
• KPIs tied to digital maturity to drive meaningful adoption of data-led solutions, analytics, automation, and smart technologies over the life of the contract.
• Governance that rewards creativity, not just compliance, creating a culture where FM providers are encouraged and expected to challenge the status quo.
• Flexible commercial mechanisms that allow contracts to evolve as insight and data reveal inefficiencies or new opportunities, ensuring changes identified through technology adoption can be implemented through agreed adjustment frameworks, change thresholds, or shared value models rather than being constrained by fixed scopes and rigid pricing.

By building these mechanisms into the contract itself, FM providers remain motivated to bring forward new thinking and fresh ideas long after mobilisation, ensuring innovation becomes a sustained and measurable outcome rather than a launch-phase promise.

Conclusion

Innovation in FM has never been a question of intent. FM service providers and their clients genuinely want technology at the core of their solutions. FM providers don’t aspire to sell labour hours or rigid, prescribed services; they want to combine their expertise with modern tools to deliver smarter, more efficient outcomes for their clients.

Yet much of the industry continues to operate within procurement models, specifications, and commercial frameworks that, often unintentionally, penalise innovation instead of enabling it. The result is that even when providers are ready to innovate, the structure of the deal holds them back.

By shifting to output-based specifications, modernising scoring models, restructuring technology pricing, embracing early engagement, introducing flexible contracts, and building in incentives for continuous improvement, FM can finally dismantle the structural barriers that limit progress.

If we want technology and innovation to be embedded from day one, then the way we design contracts must evolve from day one as well.