The recent labor shortage is having a serious impact on the real estate management field. In particular, the problem of "lack of workers" in daily management tasks such as cleaning and maintenance is becoming a risk that cannot be overlooked in maintaining the quality of properties. We understand that many property owners are constantly aware of the need to reduce management costs. However, in many cases, they unintentionally select "inappropriate ordering routes" in the process, resulting in damage to their own property values.
In this article, we will explain the problem of "multiple subcontracting," which has tended to be discussed in the context of cost reduction, from a new perspective of securing human resources and maintaining quality. The purpose of this presentation is to help you understand the importance of ensuring that the price paid by the owner is appropriately delivered to the workers on site. How can "ordering through proper channels " rather than "looking for the cheapest contractor" maintain the quality of the property and lead to long-term asset protection? We will explain the specific methods and benefits of this approach in an easy-to-understand manner, while also sharing our professional knowledge.
The Reality and Problems of "Cutting Out the Middleman" in Property Management
In the property management industry, especially in cleaning and restoration work, a multiple-subcontractor structure has been the norm for many years. This refers to a system in which work is passed on through multiple layers of subcontractors, with the prime contractor management company receiving orders and then re-contracting the work to another subcontractor, who in turn passes it on to a sub-subcontractor... and so on. In this process, each contractor deducts an intermediate margin (commission), thus creating a "middleman.
This structure itself is not necessarily evil. In some aspects, it saves the owner time and effort by having the prime contractor take charge of quality control and overall coordination of the work. However, problems arise when the margins are excessive or the structure is opaque. As a result, multiple margins are deducted from the owner's consignment fee, significantly reducing the amount of money available to the workers who actually perform the work on site and to the specialist contractors at the end of the project.
The following table illustrates the cost allocation in a typical multiple subcontractor structure.
| Characters | Role | Order Amount | Margin | Amount Paid | Remarks |
|---|---|---|---|---|---|
| Property Owner | Ordering Party | -1,000 -1,000 | -$1,000,000 | 100,000 yen | - - - 100,000 yen |
| Main contractor management company | Overall management of operations | 100,000 yen | 20% (20,000 yen) | 80,000 yen | Order placed to secondary subcontractor |
| Secondary subcontractor | Area supervision, etc. | 80,000 yen | 25% (20,000 yen) | 60,000 yen | Order to 3rd subcontractor |
| 3rd subcontractor | Arrangement of on-site work | 60,000 yen | 33% (20,000 yen) | 40,000 yen | Pay to on-site worker |
| On-site workers | Actual cleaning work | 40,000 yen | -40,000 yen | - 40,000 yen | 40% of take-home pay |
The above is just an example, but out of the 100,000 yen paid by the owner, 60,000 yen is lost as an intermediate margin, leaving the on-site workers with a mere 40,000 yen in take-home pay. Under such circumstances, the motivation of the workers will naturally decline, and it will be difficult to provide high quality services.
Even more serious is the fact that this problem is compounded by the recent severe labor shortage. With minimum wages continuing to rise, it is becoming extremely difficult to find workers for janitorial services with such low take-home pay. The result is that the worst-case scenario is that no one will come to work, and the risk of not even being able to maintain the daily quality of the property is a real possibility. We must recognize that this is not just a cost issue, but a serious management issue that could shake the very foundation of rental management.
Three benefits of proper order routing
Avoiding the problems caused by multiple subcontractors and placing orders through proper channels is not just a short-term measure to reduce intermediary margins; it is also extremely important in protecting the asset value of owners in the long run. Specifically, the following three major benefits can be expected
1. improved treatment of on-site workers and securing of human resources
The greatest benefit of establishing an appropriate ordering route is that it directly improves the treatment of workers on site. More of the fees paid by the owner will reach the job site, instead of being lost in unnecessary middleman margins. This allows workers to receive fair compensation for their labor and increases their job satisfaction and sense of responsibility.
This is critically important in today's labor shortage. If you cannot offer attractive working conditions, you will not be able to secure quality personnel. Direct ordering at a fair price" is the most effective means of securing a stable workforce and eliminating the risk of "no one coming to work. Once good personnel are retained, work proficiency will increase and stable quality can be expected at all times.
2. improving cleaning and management quality
Improved treatment of field workers directly translates into improved management quality. Adequate compensation and a stable employment environment will motivate workers and foster a sense of professionalism that their work will keep properties clean. Cut corners and poor quality work often result from unreasonably low compensation.
Fair compensation allows owners to make legitimate demands of their contractors. For example, they can demand a higher level of service, such as specifying the scope and frequency of routine cleaning and the equipment and detergents to be used. This is difficult to do if the order is placed at an unreasonably low price. As a result, a clean and comfortable living environment with high tenant satisfaction will be maintained, which will directly lead to an increase in the competitiveness of the property.
3. long-term maintenance of property value
Daily cleaning and maintenance are essential not only to maintain the aesthetics of a building, but also to prolong its life and maintain its long-term property value. If poor quality management continues, dirt and deterioration will be left unchecked, hastening the aging of the building. To restore the value once damaged, major repairs and remodeling will be required, resulting in significant costs.
Maintaining high daily management quality through proper ordering can also be expected to curb the cost of future large-scale repairs. In other words, it is possible to avoid a situation in which the pursuit of immediate cost reductions of tens of thousands of yen leads to a loss of millions of yen several years later. It can be said that a wise real estate management is to build a good relationship with the consignee from a long-term perspective with the viewpoint that "proper management is the greatest asset defense measure.
Specific Steps to Achieve Proper Ordering Routes
So, what steps should be taken to actually establish a proper ordering route? For owners who outsource everything to their existing management company, this may seem like a high hurdle. However, by carefully following each step, it is possible for anyone to achieve this goal. Here we will explain the specific steps.
1. visualization of current outsourcing structure and costs
The first step is to accurately understand the current situation. Analyze in detail what kind of work is currently being paid to the management company and how much is being paid. Check the management contract and the monthly income and expenditure report, and extract items related to cleaning and maintenance in particular. If the details are unclear, ask the management company to disclose the breakdown. If, at this stage, it is unclear "which work" and "how much is being paid," there is a high possibility that there is a transparency problem in the contract at that point. 2.
2. selection of contractors with whom you can deal directly
Next, look for a contractor to whom you can directly outsource the current operations. This does not necessarily mean completely eliminating the current management company. A good option would be to separate the contracting of cleaning work directly to a specialized contractor, while leaving the management company in charge of the overall management of the property. When selecting a contractor, it is important not to base your decision on price alone, but to evaluate the following points in a comprehensive manner
- Track record and reputation: Does the company have experience managing properties of similar size and type?
- Liability insurance: Does the company have liability insurance in place in case of an accident?
- Communication with the person in charge: Is the reporting , communication, and consultation process smooth?
- Transparency of estimates: Is there a clear breakdown of work and costs? 3.
3. transparency of contract details and clarification of scope of work
When signing a contract with a new contractor, it is essential to clarify the scope and details of the work in writing and in as much detail as possible. Instead of vague contracts such as "a set of daily cleaning services," define the scope of work in a way that anyone can see, such as "twice a week, sweeping common corridors and stairs, and cleaning entrance glass. This prevents "said-or-not-said" problems later on and lays the foundation for proper quality control. 4.
4. periodic evaluation and review
Once a contract is signed, it is not the end of the process. It is important to regularly check the quality of work, communicate with the contractor, and seek improvements as necessary. Visiting the site once a month to check the cleaning status and communicating feedback from tenants to the contractor will help maintain a good sense of urgency and help maintain and improve quality.
Please use the checklist below to review your own management system.
| Check Item | Yes No | No No | Remarks |
|---|---|---|---|
| 1. understanding of current situation | |||
| Do you have a breakdown of current outsourced management costs (e.g., cleaning costs)? | Yes ☐No | Yes ☐No | If unknown, please check with the management company. |
| Do you know who (which company) is performing the work? | ☐ | ☐ ☐ ☐ | Confirm existence of subcontractors and sub-subcontractors |
| 2. vendor selection | |||
| Have you obtained quotes from multiple vendors | ☐ | ☐ ☐ | Comparison of not only price but also content is important. |
| Have you checked the vendor's track record, reputation, and insurance coverage? | ☐ ☐ ☐ ☐ ☐ ☐ ☐ | ☐ ☐ ☐ ☐ ☐ ☐ ☐ ☐ | Review sites and referrals are also helpful |
| 3. contract details | |||
| Is the scope of work and specifications clearly defined in writing? | ☐ ☐ ☐ | ☐ ☐ | Avoid "one-size-fits-all" contracts |
| Have you negotiated a fair price (not a discount request)? | ☐ ☐ ☐ ☐ ☐ ☐ ☐ | ☐ ☐ ☐ | Have a viewpoint that considers the profitability of the site |
| 4. operation and evaluation | |||
| Have you regularly checked the quality of the site with your own eyes? | Are you checking the quality of the site on a regular basis? | ☐ ☐ ☐ ☐ ☐ ☐ ☐ | At least once a month, a patrol is recommended |
| Do you have regular opportunities to communicate with vendors | ☐ ☐ ☐ ☐ | ☐ ☐ | Build good partnerships |
Cost Comparison of Different Ordering Routes and Impact on Quality
A concern of many owners when considering a change to an appropriate ordering route is the balance between cost and quality. Here, we will compare two model cases, the "multiple subcontracting route" and the "direct ordering route," and look specifically at the characteristics of each.
As a premise, we will simulate how the monthly cleaning subcontracting fee of 100,000 yen paid by the owner will ultimately be allocated to the site.
Comparative Model of Cost Allocation by Ordering Route
| Item | Multiple subcontracting route | Direct order route | Comparison and discussion |
|---|---|---|---|
| Amount paid by owner | 100,000 yen | 80,000 yen | In this case, the amount of the owner's payment itself was reduced by 20,000 yen by direct ordering. |
| Prime contractor margin | 20,000 yen (20%) | -20,000 yen (20%) | Intermediate margin is completely eliminated. |
| Secondary subcontractor margin | 20,000 yen (25%) | -2,000 (25%) | Same as above. |
| On-site arrangement margin | 20,000 yen (33%) | -3,000 yen (33%) | Ditto. |
| Total compensation for on-site workers | 40,000 yen | 80,000 yen | On-site compensation doubled. This is the source of quality and human resource retention. |
| Advantages for the Owner | Less time and effort required to place orders Management company is the point of contact |
Cost reduction (20,000 yen/month) Improved quality Transparency |
Choice between taking the hassle or the benefit. However, the risk of quality deterioration cannot be ignored. |
| Assumed quality | Tends to be minimal work Low motivation of workers Hard to retain human resources |
Careful work according to specifications Improved sense of responsibility Long-term retention of human resources |
Differences in compensation are likely to appear as differences in quality as they are. |
As is clear from this comparison, the direct ordering route is a system that is beneficial to both parties, allowing the owner to reduce expenditures while significantly improving the compensation of the on-site workers. The reduced 20,000 yen is a pure cost reduction (improved cash flow) for the owner. On the other hand, for the on-site workers, it is calculated to double their remuneration for the same work. This makes excellent personnel "want to work at this property," and as a result, the quality of service improves dramatically.
Of course, there is an aspect of direct ordering that requires more work on the part of the owner, such as vendor selection and quality control. However, we hope you understand that the benefits of direct ordering are more than worth the trouble, both in terms of cost and quality. If you view real estate management as a business, this "optimization of management costs" is an important management decision that cannot be avoided.
Conclusion: Proper ordering is the top priority in asset defense
In this article, we have explained the importance of "proper ordering channels" in real estate management from the perspective of manpower shortage and quality maintenance. The main points of the discussion so far are summarized below.
- Excessive middleman margins worsen the treatment of on-site workers, and in times of labor shortages, this leads to the management risk that "no one will come to work.
- Proper ordering is the key to quality improvement: When the owner's payment is delivered to the site properly, the motivation of workers increases, leading to improved and stabilized management quality.
- Directly linked to maintaining asset value: Continued high quality management contributes to extending the life of the building and maintaining its aesthetics, making it the most reliable investment to protect long-term asset value.
- Transparency is the first step: The first step is to understand the breakdown of current outsourced management costs and visualize the flow of money.
It is now time to shift your thinking from a short-term perspective of "finding the cheapest vendor" to a long-term, business-oriented perspective of "building a long-term relationship with a reliable partner at a fair price. In order to protect and nurture your own assets, why not start by reviewing your current management system?
If you are interested in deeper knowledge of real estate management and information exchange with other owners, please consider joining our landlord association (INA Network). At the meetings, we have more in-depth discussions and information exchanges on topics such as the one in this article. As long as you follow our rules, we will be happy to answer all of your questions.
Frequently Asked Questions
Q1. When is the best time to switch to the proper ordering route?
A1: "Right now. The labor shortage is expected to become even more serious in the future. If you wait until a problem becomes apparent before taking action, it may be too late. We strongly recommend that you check the term of your contract with your current management company and start making a concrete plan of action at the time of contract renewal or at the next budget planning opportunity.
Q2. What should I be aware of when reviewing the contract with the existing management company?
A2. First, it is important to confirm the details of the current contract and understand the cancellation conditions and notice period. Then, rather than unilaterally severing the relationship with the management company, it is realistic to arrive at the negotiation table with a request to review the specifications and costs of the cleaning services. Try to find a way to reach a point where you can ask the management company to allow separate ordering or to make the cost structure transparent, even if it is through the management company.
Q3: What are the risks associated with direct ordering?
A3: The main risks are the time and effort required to select a contractor, and the fact that the owner is responsible for quality control. If you choose an unreliable contractor or neglect to instruct or check the work, the quality may deteriorate. You should also consider the disadvantage of not having a single point of contact in the event of an emergency. It is important to understand these risks and choose a method that is appropriate for your time resources and management capabilities.
Q4. How can I determine the fair market price for cleaning services?
A4. The most reliable way to determine a fair price is to obtain quotes from multiple reliable vendors under the same conditions. In doing so, compare not only unit prices, but also detailed specifications such as work content, frequency, equipment used, and staffing. Consideration should be given to local minimum wages and social insurance coverage for workers, and it should be determined that extremely low quotes are likely to have quality and compliance issues. One way to do this is to contact the local trade association.
Q5. Is it possible for a small apartment owner to place an order directly?
A5. Yes, it is possible. In fact, owners of smaller properties are more likely to realize the cost advantages and quality improvement benefits of direct ordering. In many cases, by using a reliable local cleaning company or a silver human resource center, you can receive more flexible and higher quality service than through a major property management company. Please start by looking for a company that is active near your property.
Daisuke Inazawa
Representative Director of INA&Associates Inc. Based in Osaka, Tokyo, and Kanagawa, he is engaged in real estate sales, leasing, and management. He provides services based on his extensive experience in the real estate industry. Based on the philosophy that “human resources are a company's most important asset,” he places great importance on human resource development. He continues to take on the challenge of creating sustainable corporate value.
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