Saturday, December 18, 2004

Securtas background and the reason we should go out for RFP ASAP on Security

Hello All: Securitas is the largest security company in the world. They
are publically traded on the Stockholm exchange as a Swedish company. They
will do more than six billion dollars in revenues in 2004. They have
200,000 employees world wide. Of that, $300,000,000 will be generated from
Southern California where they have 10,000 employees. CZ will pay Securitas
roughly $1.5 million dollars or more in 2005 if current trends continue.
While that is a large sum of money by any standard and probably higher than
it should be, it does not necessarily make CZ a very big fish in Securitas

To my knowledge, CZ has not formally gone out to bid for Security or any
other major services in more than four years. The last time it happened was
when I served on the Board. We should be going out to bid to test the
market for all major services at a minimum every three years. CZ expenses
are out of control largely because we have not imposed competitive pressure
on our major suppliers. It is impossible to get lower fees and charges
without competitive bidding.

I have no problem with Securitas or any of our suppliers in particular. I
was on the Boards that installed the current suppliers; but I also have no
loyalty to them. Given expenses that continue to go up and the recent
unnecessary dues increase that will hit in January, it is time to go to
formal bid for security, property management and landscaping services. This
process involves establishing a major Request For Proposal (RFP) for each
service, We probably should identify the top five players for each service
and then bid the business with them. From a weighted scoring process, we
should select the top three for presentations for each service. From that
grouping, we should enter into negotiations with the top two for each
service to get the lowest price. The presumuption is that either of the top
two suppliers can provide excellent service so at that point it really just
boils down to price. This process is the only way CZ can control expenses.

When I was first elected to the Board, our major suppliers had been in
place for 10 years or more with contracts in place that favored all of them,
not CZ. They were fat and happy. We went out to bid for all major
services, including legal, obtained lower pricing through the process and
installed all of our own contracts to favor CZ. I hope we are still using
those contracts. In any case, what should be happening is that each year
one major service should be bid to spread the work load. Since there has
been no bidding in four years, at a minimum we should bid Security and
Property Management in 2005 with Landscaping to follow in 2006. Yes, this
is a lot of hard work; but it is the key to making sure that we do not have
another dues increase in the near future. By the way, the $10 dues increase
coming in January is happening because we have not implemented competitive
bidding processes in so long. The current CZ Board has been asleep at the
wheel, or maybe driving floats in the July 4th parade.

Specific to Securitas, I am not sure that working with the largest security
firm in the world is in our interest. We have Securitas because they
acquired Burns, who we chose, not because we chose Securitas. First, we
could be a bigger fish in the Number Two or Three company's pond which might
be better. Second, Securitas has many layers of overhead that we are paying
for. Third, I own a company that regularly successfully competes with
companies that are huge like Securitas for Fortune 1000 business. Prior to
founding my firm, I have also have worked for companies as large or larger
than Securitas. I know that bigger is not always better from personal
experience. And, fourth, the profit from our business is going to Sweden
not to an American company. If it matters to red, white and blue Americans,
we are contributing to the trade deficit for whatever that is worth.

So, it is time for the Feel Good CZ Board to start minding the store and get
down to business. Current CZ Board Members took the easy road and voted for
a dues increase rather than going out to bid to find the $400,000 savings
(the amount of the dues increase) that could have been achieved through
competititve bidding. Keep in mind, this is just about 5% of our budget.
Blind, deaf and dumb CZ Board Members could have found that much just by the
threat to send out the Request For Proposals. My guess is that competitive
bidding and tough negotiations would achieve 10% savings or greater. And,
this does not necessarily mean changing suppliers. Please CZ Board Members
get serious. Pretend that all of the roughly $9,000,000 you are charged
with managing belongs to each of you, instead of all of us. Maybe then, you
will start doing the job properly in accordance with your fidiciary
Regards, Joe Morabito

P.S. Money does not grow on Oak Trees even in Coto.


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