Procurement of Professional Services – a view of value drivers (part 2)

Over the next three days we’ll look at what we might define as three levels in terms of approaching professional services procurement. It doesn’t mean you can’t do level 3 before you’ve done level 1, but there probably is a logical progression for most organisations. So today we’ll start with some of the commercial tools and techniques you can use in pretty much every professional services contract.

While we pointed out last week when we introduced this series that simple price-bashing may just lead to providers giving you weaker staff, there can be opportunities to look at harmonisation of rates – in a large organisation, you may well find that a single firm is charging very different rates.  But be aware that different parts of the same firm may have different price structures; it’s not always a simple negotiation if we’re talking different divisions of a services firm.

Leveraging volume and negotiating rates based on that, is a whole topic in itself in professional services. Perhaps the key point to note is that it isn’t a simple economy of scale curve for providers. For instance, full utilisation of a single individual is almost always better for a firm than part use of several people. So a 200 day contract, formed of one consultant for a year is much more attractive (usually) than one made up of say, 10 people for 2 days a week each for 10 weeks. And if it is possible, a secondment of an individual full time can be far more cost effective than day rates – and many professional services firms are not averse to this.

Using frameworks and approved supplier lists can bring benefits, often in terms of convenience rather than price. But we strongly believe that competition at the point of awarding the work is a key driver for value.  In Jason’s Busch post here when he talked to a consultnat friend of his it was interesting that the senior guy recommended playing off two suppliers against each other in terms of their share of your total business. You may have more than 2 firms in the frame of course – the key point is competition, so if you are using frameworks or PSLs, then try and ensure there is still a competitive process for awarding specific pieces of work.

Contractual terms and conditions should be agreed for all but the smallest pieces of work – and this is something that can be effectively done as part of a framework / PSL agreement.  Issues such as ownership of intellectual property (so the client can re-use material perhaps without having to pay a further fee) are important.  And confidentiality, whilst often taken for granted, is another area that only gets noticed when something goes wrong (see the recent conviction of a McKinsey partner as an interesting example).

Some of the comments last week focused on the issue of making sure you get appropriately senior and qualified consultants, and that the provider doesn’t do the old “bait and switch” – you think you’re getting the impressive people who did the pitch, then the graduate trainees show up. Equally, watch out for staff being promoted whilst on the job as it was, and their new day rates being applied to your work. You should cover those issues in the contract

And finally, a favourite topic of mine – expenses. Jason Busch in his piece said:

However, don't cram the partner you're depending on into coach or a crappy, non-flatbed seat to China or London for the overnight flight when he needs to present to your management team or board the next morning.

Of course he is right. Equally, MOD paying Alix Partners consultants a £10 lunch allowance when they’re on £4,000 – £5,000 a day was a sign of insensitivity by the consultant (to even ask for that) and suggested MOD didn’t even read the contract. So make sure you and the consultant understand the rules on T&E.

We'll have more tomorrow on how to get the right type of professional services support.

Voices (2)

  1. Carol:

    Is the full three day publication of this topic available? I am interested.

    1. Peter Smith:

      Carol, If you put “Procurement of Professional Services – a view of value drivers Spend Matters” into Google you should get links to the whole series (4 articles) – I did anyway! Thanks, Peter

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