Longer tenures promote Capex investments

In a freewheeling chat, Angad Rajain, Global CSO & IFM Head, Tenon Group made the case for how the duration of a manufacturing FM contract determines investment readiness, reduces Opex costs, promotes digital initiatives and more.

Why does the magnitude of Capex investments required to provide FM services at a manufacturing facility necessitate a longer term contract?

The capital expenditure on machinery, which is borne by the service partner, is very substantial. Imported machines, in particular, can be very expensive; their return on useful life can be more than 3-4 years. When a client signs a shorter term contract, it does not allow the service partner to offer the advantage of spreading that cost over a longer period.

By going in for long term contracts, the client can spread these costs across years, and the service partner can maximise the utility of the machine that’s been purchased. The longer the tenure of the contract, the better the value that can be derived from a machine, and more is the investment possible in terms of maintenance training, which ultimately maximises the utility derived from that machine.

Mobilisation costs are also substantial. Neither service partners nor clients would want to, or should have to spend on this every year, or every other year.