Comparing the why, what and how of performance-based and Vested Outsourcing models in CRE

Article by Kate Vitasek and Michele Flynn in the latest issue of CREJ Volume 8 Number 1

The concepts of Vested outsourcing® (as developed by University of Tennessee researchers) and performance-based contracting have significantly risen in popularity as more and more corporate real estate (CRE) organizations look to increase the value of their outsourcing relationships.

A performance-based model seeks to consciously create a formal, longer-term relationship with the intent that the supplier’s compensation be linked directly to performance, and/or ability to deliver cost savings or other service improvements. Vested is a hybrid business model that combines an outcome-based economic model with a relational contracting model. Vested incorporates the Nobel Prize-winning concept of behavioural economics and the principle of shared value.

In the latest issue of Journal of Corporate Real Estate, Kate Vitasek and Michele Flynn provide a comparison of these two proven approaches. Both models share many of the same principles, such as focus on the supplier’s expertise and considering value above ‘price’. However, performance-based contracts and Vested outsourcing are distinctly different in their focus, application, methodology and resulting relationships. The paper considers the similarities and major differences between these models, whilst reflecting on the potential benefits or challenges.