Negotiating service agreements with building owners

Off-site facilities can be serviced by the owner of the building, third-party service providers or the tenant’s in-house facilities maintenance team. When a health care organization is the tenant, the urge to provide its own facilities maintenance service is naturally greater than with other types of tenants, mostly because of the special requirements.

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Maintaining off-site buildings

That explains why Catholic Health Initiatives (CHI) developed detailed service agreements when it sold a large portfolio of medical office buildings (MOBs) to a public, real estate investment trust but remained as a tenant in many of them.

Kim Davis, CHI’s system director of property management, explains that one type of agreement negotiated with the new ownership was a shared-services agreement, which outlines the services that the hospital generates and continues to provide to the MOBs after the sale. In addition, for compliance reasons, the agreement states how hospital-generated services will be billed back to the new owner.

“Services like utilities, medical gases, backup generator for emergency supply, and access control or security patrols are billed back to the new ownership monthly,” Davis notes. “It is not as easy as billing back a $55 per hour flat rate for a maintenance person. You must understand their actual payroll cost, including their load factor, and then apply the recommended markup.”

Another type of agreement CHI created for the sale of some buildings was a facilities maintenance service agreement.

“In one scenario, an emergency department is located inside one of the sold buildings,” Davis says. “Hospital leadership and facilities [personnel] had concerns about relinquishing the maintenance that serviced critical systems to the new ownership. In response, we crafted a [facilities management] services agreement that allowed the hospital facilities maintenance team to service the building’s base systems and bill back to the owner.”

Both types of agreements facilitate good communication and assign responsibilities to the appropriate party, helping to ensure smooth relations among them.