The Cheapest Contract in Your Portfolio Is About to Cost You the Most

For thirty years, cost per square metre has been the language of responsible FM procurement.

Two statutory wage rises have quietly turned it into the language of failure.

FM Talk · Feature · August 2026

Somewhere in your organisation there is a spreadsheet. On it, facilities contracts are ranked by unit cost pounds per square metre, pence per clean, cost per work order. The contract at the bottom of that list, the cheapest one, is the one procurement is proudest of. In 2026, it is also the one most likely to fail you.

This is not a comfortable claim, because benchmarking against unit cost is not a fringe habit it is the orthodoxy. It is how framework agreements are scored, how procurement teams justify awards to finance directors, and how “savings” are booked and celebrated. The entire apparatus rests on one assumption: that a lower price is a better outcome, and that last year’s price is a fair benchmark for this year’s.

Both halves of that assumption have just been broken by legislation, and most FM buyers have not noticed.

The arithmetic that broke the benchmark

Consider the costs that have landed on every labour-intensive contract in the country. From April 2025, employers’ National Insurance rose from 13.8% to 15%. The change that did the real damage was quieter: the threshold at which employers start paying it fell from £9,100 to £5,000. Because FM is a business of many people earning modest hourly wages, that threshold cut is punishing it drags into the tax net a slice of every worker’s pay that was previously exempt. Layer on the National Living Wage, which rose to £12.21 in April 2025 and again to £12.71 in April 2026, and the floor beneath a cleaning or security contract has risen by double digits in twenty-four months. For a 500-person cleaning operation, the National Insurance change alone can add on the order of £400,000 a year before a single pay rise is handed out.

Now watch what that does to a real contract. Take a hospital cleaning contract worth £5 million a year, run as most are on a 5% margin. That is £250,000 of profit standing between the contractor and everything that might go wrong across hundreds of thousands of labour hours. Raise the contractor’s cost base by 10%, entirely plausible given the wage and NI changes above, and the contract does not merely surrender its profit. It swings to a 3% loss the contractor is now paying for the privilege of cleaning the hospital, and a contractor losing money on your site is not a saving it is a slow-motion service failure with your name on it.

A £5m contract at a 5% margin, hit by a 10% cost rise, does not lose its profit. It moves to a 3% loss. The bargain price becomes the buyer’s problem.

This is not hypothetical distress between November 2023 and October 2024, roughly one FM company in every 186 entered insolvency a rate of around 54 per 10,000 businesses and it was driven substantially by contracts priced in a world that no longer exists. When a contractor fails mid-term, the buyer inherits the wreckage: emergency re-procurement, TUPE complications, a demoralised workforce, and a gap in service on a live estate. None of that appears on the unit-cost spreadsheet.

The public sector is the most exposed of all, and it is worth being precise about why. Government FM contracts; cleaning, catering, security, maintenance are frequently let on fixed prices over multi-year terms, with little contractual room to reopen the rate when costs move. That rigidity was sold as budget certainty in an environment where the statutory cost base is rising faster than the contract price, it becomes a trap for both parties: the contractor cannot recover the increase, and the authority cannot legally be charged for it, so the pressure comes out where the contract is silent in staffing levels, in response times, in the quiet erosion of a standard nobody formally agreed to lower. Given that the public sector accounts for roughly 68% of the tracked FM market, this is not a niche problem. It is the central procurement risk facing the largest buyer of facilities services in the country.

How benchmarking becomes the trap

Here is where benchmarking turns from prudent to dangerous. When a buyer benchmarks a new contract against the price of the old one, they are anchoring to a number set before the wage floor moved. They are, in effect, demanding that the next contractor match a price that has already bankrupted the last one. The benchmark does not protect the buyer; it lures them into repeating the mistake and because the FM market changes hands at a churn rate of 38%, buyers get to repeat it often re-tendering a contract no responsible provider can deliver at the benchmarked rate, awarding it to whichever bidder is most desperate or most naive, and then expressing surprise when service collapses eighteen months later.

The uncomfortable truth is that in a rising-cost environment, the lowest bid is not a discount. It is a deferred cost, and usually a larger one. The provider who wins on an unsustainable price has three ways to survive, and the buyer will experience all of them. First, they cut hours the same square metres cleaned by fewer people in less time, until standards visibly slip. Second, they cut wages to the statutory floor and accept the churn that follows, so the buyer’s building is staffed by a rotating cast of people who never learn the site. Third, they walk away, hand back the contract, and leave the buyer to re-procure at the very market rate they were trying to avoid. There is no fourth option in which the contractor quietly absorbs a loss for three years out of goodwill.

What disciplined buyers do instead

None of this is an argument for blank cheques. Cost discipline matters, budgets are real, and a buyer who cannot say what good value looks like is as dangerous as one who chases the lowest number. The point is not to stop caring about price it is to stop mistaking a single unit-cost figure for the cost of the outcome. Benchmarking has a place as a sanity check against outliers, not as the scoring mechanism that decides the award.

A buyer who has absorbed the lesson does a handful of things differently. They price contracts to sustain rather than to win, insisting on open-book labour models so they can see the wage assumptions underneath the headline rate. They ask the question the unit-cost spreadsheet never asks what does this contract actually pay the people delivering it, and does that survive the next uprating? They index-link labour costs to statutory changes rather than freezing a price that legislation will invalidate within a year. And they weigh the total cost of failure re-tendering, management time, reputational damage, safety risk against the modest premium of a contract that can actually be delivered.

Measured that way, the cheapest contract in the portfolio is almost never the best value. It is merely the failure that has not happened yet.

Ernie Melling – Consultant Partner – IFMA Consultants Council

 – FM Talk