Procurement of Professional Services – getting the most out of consulting spend

Several separate conversations - and some reading -  about consultancy recently got me thinking again about how procurement can best manage this category, and the pitfalls and opportunities therein.

Spend Matters US published a relevant post recently based on Jason’s conversations with a senior consulting partner. It’s well worth a read – there's a lot of good content in there, but one point is around how pure price negotiation can often lead you to merely getting the “b-team” from the consultants rather than the “a-team”.  And, "it would also be likely the partner, who would be actively involved in the initiative per the firm's client engagement approach, would also scope in less of their time."

So the inside track suggests that beating the providers around the head doesn’t work too well in this category - I'd agree, particularly when firms are pretty busy. And, perhaps surprisingly, my conversations recently have suggested that the major consulting firms are indeed busy – very much so in some cases.

Despite the reductions in public sector business, other sectors, including financial services, energy and natural resources have been very strong. Many of the firms re-structured after the 2008/9 recession so they’ve got a sound cost base and are reaping the benefits.  It’s different of course for some smaller firms, particularly any that were over-reliant on the public sector. But that high utilisation in many of the blue-chip firms does mean that buyers’ leverage is reduced in terms of pure price negotiation.

Another conversation was with a procurement outsourced services provider, who felt that there was still tactical leverage work they can do to provide benefits to their clients in the professional services categories. Indeed, many clients still wanted them to show clear negotiated day-rate savings on consulting fees, rather than any more complex success measures.  I raised my objections, saying I thought you had to be more subtle and look at value, not day-rate, and choosing the best firm, risk sharing and so on.

“Yes”, he said ”I don’t disagree, but when you find major discrepancies between the day rates charged by the same consulting firm into different parts of the same client organisation, there’ s a pretty obvious quick win there!”

It was hard to disagree with him, and that points out the difficulty of generalising about appropriate procurement and negotiation strategies in any category. Of course, if there is obvious price leverage like this, you should attack it. We might consider that the low hanging fruit – not that it is always easy to pick!

But I’ll stick with my original hypothesis – when dealing with professional services providers, particularly when the market is buoyant, you’re going to need more subtle approaches.  So in the rest of this series (starting next Monday), we’ll look at what we might consider three types of  procurement approaches that can help get better value in this spend area, particularly if you are working in a buoyant market with suppliers who are not desperate for your business at the moment.

And if you can't wait for that - here's the book I co-authored (with Fiona Czerniawska) on this topic!

Voices (14)

  1. Dan:

    We just used the available OGC guidance…. Shame that Government departments seem to think that what they do must automatically be best practice…

  2. marketdojo:

    Sounds perfect Dan, glad to see it can be done in practice. If only you were in the Cabinet Office…!

  3. Dan:

    We recently appointed a consultant (it was an OJEU procurement). We gave them the maximum budget (to prevent them giving us a gold-plated service that we didn’t need) and required them to name their team members that would be appointed to the contract, with their knowledge and expertise part of the evaluation criteria. We also had contract clauses that prevent them changing team members without our consent, and a requirement that any replacement would be of a similar level.

    We didn’t end up with the cheapest one (second most expensive, as it happens), but everyone has been very impressed with them, and there has been no doubt that we appointed the right people.

  4. life:

    What, irony?

  5. marketdojo:

    Perhaps I am being a little naive here, but I don’t understand why you couldn’t specify exactly the skill-set and prior experience of the people within the consultancy team before going on to competitively negotiate them. Surely you can define the minimum number of hours/days that a partner must spend on the project, the minimum number of years experience each of the consultants must have, the explicit prior experience by the personnel of doing a similar-natured project before and so on. In other words, you can list your ‘A team’ and if they provide you with anything less, then as with any other contract management piece, get the matter resolved.

    If you don’t specify this and yet feel too cautious to negotiate, then you’ll simply end up with yet another MOD Alix Partners situation.

    1. life:

      I’m trying the same approach to specifying clients. Still under evaluation, and I may yet revert to an output based method… :o)

    2. RJ:

      Hmmmm, wonder if Man United took this approach when appointing Sir Alex 25 years ago?

      1. marketdojo:

        In essence this is what Sir Alex would do prior to every game and I’m sure that Man Utd. weighed up all the skills and experience of Sir Alex before tabling discussions. However, I’m also sure that Man Utd. would not have held back on negotiations during those discussions, which seems to be the general fear in the above article.

        I can’t imagine that Sir Alex would have said to Man Utd. “OK, I can accept that weekly renumeration, however I am only going to turn up 3 days a week, I shall only stick around for 75 minutes of play on match day and I will only bring along my second-best coaching staff.”

        Sir Alex would carry out the job to the best of his ability for the pride and the glory, once he has established a mutually acceptable rate of pay. A consultancy should be the same. Afterall, we all know how pay alone is a poor motivator , e.g. salary increases.

        1. RJ:

          Think you might have just made my point for me: “Man Utd weighted up all the skills and experience of Sir Alex” – they didn’t say “we want a manager with 10 years’ experience of managing a club in the English First Division, who has won x trophies and has a degree in Psychology”, which is what you seemed to describe in your first post. The process for appointing professional advisers is closer to a recruitment process and, as Dan neatly points out below, it needn’t be totally subjective but it will take into account more conceptual issues than just plain facts. If Dan had simply e-auctioned his requirement after filtering CVs then I can almost guarantee his users wouldn’t be as happy as it sounds they are.

          1. marketdojo:

            Yep, completely agree and apologies if my original comment didn’t come across as a more conceptual thought – I’ve never sourced consultancy before (have been on the receiving end a few times), hence my opening declaration of naivety. Man Utd. might have taken a bit of a gamble by not specifying such attributes but no one can argue that it didn’t pay off.

            I don’t recall e-auctions as being mentioned before and certainly I wouldn’t make that call, as with any spend category, until all factors have been weighed up.

  6. Paul Vincent:

    Hi Peter. As you know I am passionate about what I think ‘good procurement’ looks like in the consultancy category and a regular blog/article contributor on the subject. I look forward to reading the rest of the series but I also know you like a ‘scoop’. So for you and your wider readership here on Spend Matters UK I am delighted to publically announce that I shall shortly be launching a new, exciting and ‘very different’ (trust me it will be very different) networking forum for consulting clients/procurement professionals and consulting firms. The initiative will put the principle of ‘value’ rather than ‘price’ at the epicentre and we will be creating an environment where consulting clients/procurement professionals and consulting firms can have a much more grown up dialogue about how they practically interact with each other and collectively deliver best value for money within their organisations. I cannot say any more at this stage because I am finalising the details with my collaborators – but I hope to make the detailed announcement by the end of November.

  7. RJ:

    I also look forward to this series but let’s not just focus on the strategy consultancy sector. Although there are similarities in looking for value, rather than price, and relationships have a key role to play in driving this, there are subtly different dynamics afoot in dealing with, for example, the audit and investment banking markets, where effective monopolies are often a key factor, or more technical niche consulting firms where sourcing the right individual or leveraging your own brand (or even the “interest level” of the project you’re leading) can drive costs down or up.

  8. James Crawley:

    I look forward to reading this series, particularly to see if/how you have defined “professional services”. This year has seen the first two contracts be awarded by the UK Public Sector to manage “consultancy spend” through a neutral vendor/managed service approach and the Local Authorities who have adopted the model have reaped the benefits of a new approach so far.

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