The Saudi Arabia Facility Management Market is a highly competitive market due to the presence of many players and price sensitive behaviour of customers: Ken Research

16-Feb-2023   Mr. Mohamad Ali El Khayat, Designation: General Manager, Takamoul Aloula Facility Management   Author: Sarthak Kaushik and Nishika Chhawchharia

In conversation with Mr Mohamad Ali El Khayat, General Manager at Takamoul AlOula Facility Management, Penang, we tried to understand the Facility Management Market in Saudi Arabia.

Facility Management Industry in Saudi Arabia has been maturing over the last 10 years very drastically moving from operation and maintenance, typical manpower supply contracts towards the more service-oriented contract, KPIs and service level agreements

Q1. Could you give us a brief about the Facility Management Industry in Saudi Arabia? How is the market growing over the past five years?

Saudi Arabia is one of the biggest Facility management markets in the Middle East. Facility Management Industry in Saudi Arabia has been maturing over the last 10 years very drastically moving from operation and maintenance, typical manpower supply contracts towards the more service-oriented contract, key performance indicators and key results, and service level agreements.

Q2. What is the market size of the FM industry in Saudi?

No one has a clear estimate of the market size, but as per my research, it is around USD 40 Bn. This encompasses all the facility management, building operation, maintenance, cleaning and all others services. This is a conservative estimate, the market might be bigger than 40 Bn dollars

Q3. What are the major companies in the Facility Management industry in Saudi Arabia?

The services provided by different companies is similar due to similar manpower, and technology employed. Some companies try to differentiate themselves on the basis of transparency to clients, ethical project execution and other value additional factors.

Zahran operation and maintenance, Al Yamama, Initial Saudi, and Afras are the major players operating in the industry. These are mainly operation and manpower supply companies but gradually they are penetrating into the facility management services domain as well.

Q4. Could you shed some light on the value chain process of the industry?

It depends on the size of other organizations. The big organizations, with more than 7-8 contracts, have a facility management division for defining the project scopes, performance KPIs and quotation evaluation, they do not hire a consultant but smaller organizations with 1-2 contract requirements hire a consultant to meet their requirements.

Sometimes, companies hire facility management agents who manage and supervises the services provided by facility management vendor. Usually, the clients hire consultants to prepare their RFQs and shortlist prospective vendors then vendors can visit the site, estimate their costing, and analyse the RFQ requirements. Post that different vendors send their quotations to the client.

Some clients specify if they would provide high weightage to technical or financial specifics of the projects, but it is a price-sensitive market and the lowest bidders get awarded the contract.

Q5, could you give us an idea about the margin companies charges over the project cost?

It depends on the clients, the duration, the value of contact and the risk associated. For contracts worth 100 Mn SAR or more, the gross margin is not more than 12% but due to rising competition, some companies bid at lower margins. Since it is a manpower-based industry so by driving the efficiency of the manpower during the project execution, the realized profit may be a bit higher.

For smaller value projects and high-risk associated projects, gross margin can be around 20%.

Q6 What is the process of acquisition of a new facility management contract?

There are many different ways of getting a contract. One is through online platforms. There are several online platforms for submitting tenders and bidding, where vendors can participate in bidding.

The second thing is vendor registration, where vendors register with the entities and whenever the tender is floated you can get an edge over there. Most of the semi-government entities are working on government platforms, such as Arriba from SAP. One can register with Aramco, SABIC and others

The third approach is direct sales where one needs to establish a market relationship with consultants, real estate developers and prospective clients to get contacts

Q7. How do you compare the cost of FM in Saudi to other countries in the region?

The market in Saudi Arabia is very interesting in the sense that there are many companies that are coming into the market. Around 2019, many new companies were entering the FM market including us. Due to the presence of a large number of companies and new entrants, competitiveness is increasing but still the facility management cost in Saudi Arabia is considered one of the highest in the region.

The cost of cleaning per square meter in Saudi Arabia is equal to or even higher as compared to the cost of cleaning per sq metre in the US whereas the Cost in the USA should be much higher because of higher labour and power cost than Saudi Arabia.

This is because of multiple factors, one of them is the maturity of clients. Most of the clients are not mature to put in the appropriate scope of work. As a result, there is an exaggeration in the scope of work, which brings the price much higher. Also, there is some exaggeration in the expectations in terms of what to do and any inefficiencies in operating facility management contracts, which bring the cost to a higher range compared to other countries.

Q8. Which region generates the most demand for FM services?

Riyadh is the biggest market in Saudi Arabia for facility management, followed the by western region with new upcoming projects like Red Sea, Neom etc while the eastern region is the least demanding region for new facility management contracts. Demand for the facility management contracts is mostly from the existing building with very few new projects coming up.

Q9 How do different types of end users have different needs for facility management service in Saudi Arabia?

The market is divided into three segments namely –government, semi-government and private

In the Government sector, it is still a typical manpower-based contract. The contracts will mainly define the number of cleaners, the quantities of consumables, the number of technicians, equipment and others. Even the KPIs are based on manpower, availability, and attendance provided by the clients. These contracts are very challenging and competitive. Competition is very high because they are open and public tenders. Anybody can participate in these tenders. Some players in the market, smash prices by affecting the quality of the services, but the government always awards contracts to the lowest bidder.

It is one of the biggest segments with maybe half of the value of market contracts belonging to the government.

The Semi government, which comprises private entities that are owned by the PIF or PIF is a shareholder in the project, like the Red Sea, King Abdullah District and other new developments that are being managed by the PIF entities.

They demand a higher level of assessment services and more sophisticated contracts. It is a more mature industry in the implementation of contracts, which reflects a better quality of services. This segment of market is growing gradually.

Private segment. It includes building owners or real estate developers. These end users are either making up services in-house or outsourcing services to some facility management companies. Outsourcing in the private sector is much less than in the semi-government or government sector.

Around 40% of projects are outsourced in private segment while in government or semi-government it is around 100%.

Q.10 There are mainly two types of services hard services and soft services. The Soft services include housekeeping, security, landscaping and others while hard services include Electro mechanical operations, Fire Safety and Security Systems, Operation and maintenance. Which service segment generates most of the revenue in the market?

In terms of value, 60-70% of contracts are soft services and 30% are hard services. In some cases, security itself constitutes 30% of the value of the contract.

Profitability is higher in hard services but so is risk. Usually, there is more flexibility in delivering hard service.

Q11 What are the approximate prices for cleaning, housekeeping, and security services? What is the cost for the particular manpower?

There is no clearly defined Benchmark for this kind of service but the cost is higher than in the USA and other European countries

In Saudi Arabia, the challenge is that one could find two identical buildings adjacent to each other's that is

awarded by two different entities to two different contractors but the cost per square meter for each building is different. This is because the market and clients are still not mature. So clients, do not set their expectations very clearly in the contract. Due to less clarity in the scope of work, the cost is generally higher.

Q12 What are the major trends observed in the facility management industry in Saudi Arabia?

There is a rising trend in the adoption of technology in facility management projects as technology is getting cheaper compared to the past 10 years. Technologies like facility management software, internet of things are becoming more accessible and cheaper. Initially, the rate of new technology innovation and adoption was very slow but recently it has picked up the pace

In the next 5 years, such adoption would reduce the dependence on manpower. In the near future, robotics cleaning machines, and machine maintenance monitoring devices can be expected as well.

There is a growing awareness of sustainability, the economy of scale and value for money in the facility management industry as compared to earlier.

Facility management companies and experts are also included in building design and planning so they could provide their inputs which could provide more value for money in the future.

Q13 What are the challenges being faced by the facility management companies and the clients as well?

The major challenges faced by the client are as follows:

Budgeting- Setting the budget for the contract, deciding on the best price is a challenge for clients. Most of the clients only estimate the figure and when they go to subcontracting to award facility management contracts, they find the market prices are much higher than their budget.

Service delivery expectation: The second problem is what to expect from service delivery. Clients do not have the right understanding of the service. They generally have very high expectations in service delivery and it creates more confusion in further execution stages.

Defining the scope of work – Another challenge is the lack of clarity in defining the scope of work in RFQ, which leads to substantial price differences among the bidders of the contracts due to different understandings of the service delivery by clients and facility management vendors. Sometimes, the price difference is in the range of 20-30%.

Challenges faced by facility management companies are understanding the client’s RFQs and accordingly devising the right quotation for the project.

The second challenge is mobilizing manpower. Clients do not define the timeline for project execution beforehand and take too much time in finalizing the contract and very less time is remained for mobilizing the manpower for project execution. As it is a manpower-focused industry it takes time to recruit labour and technicians for the job which leads to conflicts in the further stages.

Other challenges can be the retention of employees, localization and Saudization regulation in Saudi Arabia. The government is encouraging companies to hire more Saudis in facility management jobs but Saudi nationals are not reluctant to accept these jobs which creates high turnover in the company affecting the quality and continuity of services.

Another challenge is the cash flow. Unfortunately, facility management is looked at as unnecessary or non-essential service. They are the least prioritized vendor in making payments, whenever there is a cash deficiency in the company

Q14. What is the current rate of Saudization compliance required from facility management companies?

It depends on the client and contracts. Companies like Aramco, PIF have their own standards for hiring local Saudi nationals. Generally, it is in the range of 30-35% on average. The government have defined different Saudization rate for different job positions in the regulations.

For more insights on the market intelligence, refer to the link below: -

KSA Facility Management Market

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