Buying Complex Services – the Pros and Cons of Frameworks (part 1)

Today we're going to pick up on one particular aspect of buying complex professional services (our “hot topic” for this month). That is the use of preferred supplier lists (PSLs), frameworks, or similar constructs, which are frequently used in these spend categories, often as part of procurement's initial forays into these spend categories.

So typically, we see the procurement head making the business case to "get involved in consulting spend". It’s hard to get your hands around the category in terms of real control, so procurement takes a look at the issue, and after some thought, comes to the conclusion that a preferred supplier list or framework is a good first step.

"We'll choose a few key suppliers, offer them the chance to get onto our list, in return for agreeing to our terms and conditions, and of course giving us some discounts on their standard rate card". Then we can claim a “saving”, thinks the CPO.

That approach can look attractive and does indeed have a number of benefits. Having a pre-approved list of suppliers, with some contract terms already negotiated, offers an obvious potential for time saving when individual assignments come along. In terms of quality, the selection process can identify a range of suppliers in whom the purchaser can have confidence; without this, users may be tempted to choose less appropriate suppliers.

We can also look to the framework to offer the buying organisation security in terms of the contractual situation. Particularly in an environment where the purchasing function is not always involved in the specific contract award process, having terms and conditions agreed in advance with suppliers who are likely to be used reduces risk to the organisation. There is also the hope that better value can be negotiated with suppliers in return for a place on the framework; and in the public sector, frameworks can offer a legally compliant route that avoids having to run a whole formal tender every time a user commissions a project .

But it is easy to overlook the issues and potential problems with frameworks. They can lead the client organisation into a situation where they are locked in, by their own processes, to a small number of professional services firms. And as we all know, reducing competition does not lead often to better value or performance. We can miss out on innovation and new market entrants; and in the consulting world, for instance, young firms are often the very people with new ideas that can bring competitive advantage to their clients.

We’ve also seen too many cases where the list of suppliers tends to gravitate to the standard, big firms. It is easy for procurement to set up a framework with the major multi-disciplinary consulting firms, or the “magic circle” London or New York law firms. But while they are excellent organisations in many ways, they will not always offer the best value for money compared to a niche player with smaller overheads, or be the most flexible or innovative.

That restriction can always be very unpopular with the key stakeholders; users of these services and budget holders within the organisation. “Why can’t I use this firm – I can show you that they are the very best at the particular work I need doing, and they’re 20% cheaper than the big firms on our framework”. I remember hearing that sort of comment from users and it is a tough argument for procurement to oppose!

Finally, we also know that buyers obtain the best prices when they have a real order to place and real money to spend. So professional services firm rarely offer their very best rates on a framework where the level and nature of the eventual business is uncertain. The best deal will be done when actual volume commitment is on offer, and that best deal will often be a fixed price or risk sharing agreement; commercial models that are hard to define up-front in the framework Ts and Cs.

So be aware that PSLs, frameworks or similar have their pros and their cons as well. In part 2, we’ll look at what you can do to ensure frameworks work as well as possible if you do choose to go down that route. (And there is more on the topic in Buying Professional Services, the 2010 book I authored with Fiona Czerniawska).

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