Beyond Penalties: Building FM Contracts That Create Value

Beyond Penalties: Building FM Contracts That Create Value

As FM evolves from a transactional service into a strategic business function, its contracts must evolve too. A more balanced approach to accountability, incentives and shared responsibility could help clients and providers create greater long-term value

By Muhammad Irfan Khokhar, Chief Executive Officer, Muheel Facilities Management August 18, 2026

• Traditional Facilities Management (FM) contracts, heavily focused on penalties, can hinder investment, innovation, and staff morale.

• The FM industry is maturing, requiring commercial models to evolve beyond a transactional, compliance-driven mindset.

• Future FM contracts should foster strategic partnerships, balancing accountability with incentives for continuous improvement and long-term value creation.

  
  

Every successful built environment has one thing in common. Behind every asset, facility and piece of critical infrastructure is a partnership between a client and a Facilities Management (FM) provider working towards the same objective—creating safe, efficient, sustainable and exceptional environments for the people who use them every day.

Facilities Management today is far more than maintaining assets. It protects investments, enables business continuity, enhances occupant experience and supports long-term sustainability. Achieving these outcomes requires more than technical expertise; it requires trust, collaboration and shared purpose.

As the FM industry matures, its commercial models must also evolve, protecting accountability while enabling collaboration, continuous improvement and long-term value.

FM Has Outgrown the Old Contract

FM has traditionally operated through a client–supplier model in which success is measured primarily through scope compliance, contractual obligations and enforcement. While accountability remains essential, the next stage of industry maturity requires moving beyond a transactional mindset. The facility itself should become the shared objective, with clients and FM providers working together to improve performance, enhance lifecycle value and create better outcomes.

FM contracts have traditionally been built around accountability through Service Level Agreements (SLAs), Key Performance Indicators (KPIs), deductions and service credits. These mechanisms remain important in protecting client interests and maintaining service standards. However, as FM evolves from a support function into a strategic business partner, commercial models must evolve as well.

The future of FM contracting is not about reducing accountability; it is about making accountability more effective, balanced and outcome-focused. Alongside appropriate consequences for underperformance, contracts should recognise excellence through incentives, gain-share opportunities, performance recovery mechanisms and rewards for sustained improvement. Strong partnerships are built not only by correcting failures but also by encouraging teams to deliver beyond expectations.

Accountability Without the Blame Game

Given the industry’s modest margins, repeated deductions can limit a provider’s ability to invest in people, technology and innovation. They can also unintentionally affect the morale of the frontline teams. When frontline teams are measured only by the avoidance of failure, motivation and initiative may decline, encouraging minimum compliance rather than ownership, innovation and service excellence.

Muhammad Irfan Khokhar, Chief Executive Officer, Muheel Facilities Management

A predominantly punitive or penalty-led approach can also weaken the wider commercial relationship. When every challenge becomes a discussion about responsibility, deductions or contractual remedies, both parties can become focused on protecting positions rather than solving problems. The objective should be to create an environment where issues are openly discussed, root causes are addressed, and improvements are achieved together.

A strong contract does more than allocate risk; it aligns responsibilities, performance expectations, behaviors and incentives.

When clients and FM providers see each other as opposing parties, the conversation becomes, “Have we met the contract?” When they operate as partners, it becomes, “How can we create greater value together?” That shift transforms contracts from compliance documents into strategic enablers.

Rewarding Better Performance

SLAs and KPIs remain essential for transparency, accountability and governance, but not every aspect of FM can be measured through quantitative indicators alone. Effective performance management should combine reliable data with agreed standards, structured inspections, user feedback and professional judgement.

Response times, statutory compliance, preventive maintenance and asset availability can increasingly be measured through digital systems, while areas such as customer experience, cleanliness, workplace ambience and overall service quality also require qualitative assessment. The strongest performance frameworks therefore balance measurable data with professional judgement and constructive dialogue between client and provider.

Contracts have evolved over time to cover everything from ESG obligations and technology requirements to increasingly sophisticated performance metrics

Partnership requires clear accountability for both provider obligations and the client-side dependencies that influence service delivery. FM providers remain accountable for agreed outcomes, but service delivery is influenced by the wider operating environment.

Factors such as delayed approvals, restricted access, incomplete asset data and changing operational requirements should be identified transparently, governed jointly and addressed through agreed escalation mechanisms.

Contract expectations may also differ from actual site realities as assets, occupancy patterns and business needs evolve. Mature relationships allow both parties to address these realities constructively.

Creating Value Beyond the Contract

The greatest value is created when contracts encourage providers to think beyond the minimum specification. An FM team may identify opportunities to optimise energy consumption, improve sustainability, enhance asset reliability, or extend lifecycle performance. Under a traditional model, there may be limited incentives to invest the effort if all benefits are captured by one party. Partnership-based commercial models encourage both sides to pursue improvement. 

Similarly, where a provider successfully resolves recurring issues, sustains improved performance and creates measurable value, performance recovery mechanisms can recognise that progress. This does not weaken accountability; it reinforces ownership and continuous improvement.

This discussion is particularly relevant in Saudi Arabia, where the built environment is expanding in scale, complexity and ambition. As assets become smarter, more sustainable and increasingly experience-driven, FM contracts must support compliance, resilience, innovation and long-term asset value.

Organisations are more likely to commit to long-term improvement when commercial models are built on trust, fairness and shared objectives.

Facilities Management has matured into one of the most influential professions within the built environment. Our contracts should reflect that maturity. The strongest contracts are not defined solely by how much risk they transfer, but by how effectively they align risk, accountability, incentives and shared responsibility.

The next evolution of FM will not be driven by technology alone. It will also depend on how clients and providers build commercial relationships where accountability, collaboration and shared objectives reinforce one another. When both sides are aligned around the same outcomes, contracts become more than legal documents—they become enablers of sustainable value and operational excellence.