The facilities maintenance industry is shifting from time-and-materials contracts to performance-based agreements. The logic is straightforward: the old model pays vendors for showing up. The new model pays them for outcomes, according to performance contracting analysis.
For multi-site operators managing hundreds of vendor relationships, this shift changes the fundamental economics of maintenance.
Why T&M Is Failing
Time-and-materials contracts create a perverse incentive: the longer the job takes, the more the vendor earns. A technician who diagnoses and fixes an HVAC issue in 30 minutes makes less than one who takes 3 hours. The contract rewards inefficiency.
At scale, this adds up. Inefficient maintenance processes consume 25-30% of facility budgets, according to BrandPoint Services. Much of that waste hides inside T&M billing that nobody audits line by line.
How Performance-Based Contracts Work
Performance-based contracts tie compensation to measurable outcomes:
- First-time fix rate targets (e.g., 80%+ required, bonuses above 90%)
- Response time SLAs (4-hour emergency, 24-hour standard, with penalties for misses)
- Rework caps (vendor covers return visits within 30 days at no charge)
- Customer satisfaction scores from location managers
The contract incorporates bonuses for exceptional performance and penalties for underperformance, shifting accountability from the operator to the provider.
Implementation Reality
The transition is not simple. Performance-based contracts require:
Baseline data. You cannot set targets without knowing current performance. Before switching contract types, measure your current first-time fix rate, response times, and rework rate by trade and market for at least 90 days.
Clear measurement systems. Both parties need to trust the data. If the operator measures SLA compliance differently than the vendor, disputes will consume more time than the old T&M model.
Graduated rollout. Start with one trade in one market. HVAC is often the best starting point because it has high volume, high cost, and the most variability in vendor performance.
Fair risk sharing. Vendors will not accept all the downside risk without upside. Build in meaningful bonuses for exceeding targets, not just penalties for missing them.
What to Do Now
- Identify your top 3 vendor relationships by spend. These are the contracts worth restructuring first.
- Pull 90 days of performance data for those vendors. First-time fix rate, response time, rework rate, invoice accuracy.
- Draft performance targets based on actual data, not aspirational goals. Set thresholds that are achievable but meaningful.
- Propose a pilot. One trade, one market, 6 months. Measure everything. Then decide whether to expand.