For most professional services engagements, the client will pay the consultant their fee on an hourly rates basis.
The two parties will agree to certain rates, time required, and a particular array of deliverables as the outcome of the contract, assuming the Scope of the Service was sufficiently described in the request for proposal (or tender) documents.
Where the intended work is common or a well-known routine, it is easier for both parties to control. Its simpler to estimate the time required to complete, the level of certainty and quality of the outcome, and the summation of costs.
Where the work is less common, exploratory, or experimental, the control of the work and its outcome is less simple. Unknowns require definition or investigation. Time is much more difficult to estimate accurately, as the extent of effort to pursue an acceptable outcome is less clear.
Some companies and organisations adhere to a central procurement policy. The prime reason for this choice is to increase the efficiency of purchasing required goods and services through standardisation.
Central procurement works well when commodity items that are easily specified are involved. Where there is choice, variance, or inexact definition, the process yields lower value results.
Customers in organisations with central procurement policies implemented, face a challenge when it comes to contracting professional services. Particularly those required to conduct an investigative analysis. This type of work is much more complex to define in rigid specifications. The effort required to spell out the specified result or restrictions of the work, is a greater burden on the customer.
Central procurement drives other, less commercially attractive behaviours, too. The insistence on service providers quoting their fees in hourly rates is one such limitation. When considering routine, common, commodity type services, it is a means to compare competing providers. One may suggest that this is a ‘value’ proposition, however it is only a cost proposition.
The possibility of a service provider presenting a proposal other than a lump-sum or fixed-fee limit is actively discouraged by central procurement. There are several contributing factors for this, a prime one being the lack of trust from the procurement team in the originating customer’s ability to assess the financial value that the proposal offers. However, cost and value are not equivalent.
When engaging a professional services consultant, it can be more beneficial for you to consider the type of services you’re seeking and consider the genuine value the proposal can offer:
- Routine services, straightforward brief, common tasks – hourly rates make sense.
- Exploratory, experimental, uncommon tasks – a lump sum or fixed fee limit will often be greater value.
In either case, it is imperative to ensure that the customer’s required outcome and limitations are clearly communicated and understood by both parties.
Are you looking for better value consultancies?
Within SER Solutions, Peter Crane and the team have spent over thirty years working with Tier One operating companies. They have assisted clients deliver efficient capital investments, reduce waste, improve performance, and increase investor confidence. Armed with practical experience in engineering services, capital planning, project delivery, construction management and strategic asset management to the infrastructure and resources sectors, Peter offers a unique insight into operational roadblocks – and how to fix them.
If you are interested in learning more about effective business management and operational practices that will benefit the way you do business, why not schedule a discovery call with Peter and the team at SER Solutions today?