Sending PwC to Coventry….

Supply Management reports that Coventry City Council is spending £3.4 million on consultancy, of which £1.2 million is going to PwC to "idenitfy and help the authority to save £4.5 million by 2012-13".

Doesn't sound like a very good rate of return to me (given we all know how difficult it is to make sure savings are 'real') although it is not clear if this is a total cumulative figure or an annual saving.  Coventry also say that part of the fees will depend on the level of savings.

I am a firm believer in an element of risk / reward in consulting contracts where it is feasible.  However, I have also seen some disasters where consultants were engaged on a pure contingency (success fee) basis.  They would claim big savings, put in their invoice for  50%  of the 'saving', and then disappear with their dosh.  Some months later it would become clear that the 'savings' came from a reduced specification or an unreliable supplier who could not actually deliver consistently at the new lower price.  In other cases, the client did not even know what their starting prices were so the baseline was whatever the consultant told them!

I've twice done a consulting assignment where part of our role was to clean up the mess left behind by a contingent fee savings exercise (just to be clear, neither involved PwC).  In one case, the client and the consultant were still locked in mutual legal action about the level of fees owing.

As we get into difficult times for the public sector, I can see a lot more cost saving consulting work being done on a contingent fee basis. That's fine, as long as people know what they're doing.  It is a key role for the internal procurement people to make sure such engagements are based on rigourous baselining, measurement, and verification.  I would also suggest an element of success fees are retained for, say, 3 to 6 months to ensure 'cost savings' are sustainable.

So, do be careful Coventry.  Get those baselines really well tied down, documented and signed off - in PwC partner blood.

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  1. Paul Seddon:

    “Admin” is quite right to warn against pitfalls involved in contingency fee arrangements for cost saving projects. It is vital to establish an objective benchmark for costs – be they actual costs recently experienced or otherwise the costs that would be projected without the consultants’ intervention, e.g. a renewal premium for an insurance project. It is also important to agree a fee structure which rewards actual savings, not projected savings. Fees, or the major part of them, should be paid in arrear on the basis of demonstrated actual savings against the agreed benchmark costs.

    If those principles are adhered to, then contingency fees – where appropriate – can provide both an incentive for the consultants to deliver what is required and a de-risking of the project for the client. There are more horror stories around of cases where consultants have been paid large fixed or day-rate fees for projects which have resulted in no real savings. These sorts of fee structure are inevitable where objective cost benchmarks cannot be established, but care must be taken to tie fees to deliverables that can be objectively demonstrated and, where possible, quantified.

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