Negotiating with consultants - the insider perspective

| 0 Comments

 

BillMichels.jpgIn the indirect category one of the tricky negotiations is consultants. In many cases, they are brought in at high levels of the organization for their specific expertise. Often they have already been awarded the contract and are ready to start the assignment with the contract being the clean-up details. Has this ever happened to you? Bill Michels, CEO and founder of Aripart Consulting, gives some hints to improve negotiations with consultants.

The types of consultants will vary by specialty and market. It is important to understand that not all consultants are strategic. Below is a way to determine types of consultants.Pillars_of_consultants.pngIn pillars 1 and 2, the power rests with the hiring company and can be tactical in nature. For pillars 3 and 4 the consultants often have the power and the negotiations must be more strategic, outlining the principles around the engagement and the relationship.

The larger firms relate fees to the value perception of the customer, rather than a cost-based formula. The consulting firm typically deals with the prospective customer’s senior management and provides several options for solving business issues. Many of these options will be conceptual, leaving the project details open to be negotiated. The key cost drivers for the consulting firm are margin goals, staff utilisation and opportunity cost, which are presented to the prospective customer as staffing for the project and timeline.

PRICING METHODS

The decision on pricing methods depends on the nature of the agreement and whether a performance element is involved. This can also be tackled on an assignment-by-assignment basis. The options for pricing are to develop a structure not linked to performance; or link consultant performance to milestones and deliverables.

Options include:

1) Pricing not linked to performance
• Hourly rates, daily rates, weekly rates, monthly rates
• Differential rates: partners, seniors, juniors
• Fixed fees: annual, monthly, weekly, project [turnkey contract]
• Retainer fees

2) Pricing linked to performance

• Performance lump sum pricing - the parties agree a charge for work that will achieve a specified target. The service provider works whatever hours are necessary to meet the target.
• Target pricing - the parties agree a price for performing a task or for meeting a target based upon estimated days at a nominal daily rate. A sliding scale may be applied if the actual days are more or less than estimated days: Fewer days warrant a higher per diem rate and more days warrant a lower per diem rate
• Performance fee - the partners agree a mix of charges between daily/project rates, retainer fees and a performance fee based on an agreed quantum, linked to specified deliverables.
• Milestone-based fee - A fixed fee (based on a retainer with milestone payments) and performance payments (based on deliverables is achievable), although the consulting firm may resist this option.

The consultant may offer a performance-only fee since some managers prefer the consultant to have skin in the game, but there is usually a dispute at the end of the assignments about who had the idea, when was the idea generated, the ideas the company does not want to implement and who ultimately has accountability for either product or supplier failure.

One of my assignments generated over $400,000,000 in savings; if there had been a 30-40% gain share (the typical rate), the client would have been unhappy with the payment even though the value was achieved.

KEY NEGOTIATION TACTICS

Staffing the project

The first consideration is to understand who is staffing the project.

The negotiator must dig into the background of each consultant and understand their capabilities, roles, accountability and responsibilities. It is essential at the start of the project to define what work will be assigned to each level of consultant.

It is also important to negotiate the role of the managing consultant and the time that will be spent on the project.

Beware the ‘bait and switch’… One thing that some larger consultants do is start the project with a top-class team then remove the team and replace it with lower-level people once the project has started. It is essential that the negotiator insists and documents that the players that start the project will remain until the completion of the project.

Pay for performance

The key part of the programme revolves around the project scope, milestones, deliverables and time line. All of these must be detailed in the Scope of Work (SOW).

The negotiator should develop a series of progress payments and incentives for meeting the project deliverable rather than a time and materials contract. The goal of any successful consulting assignment is one where the deliverables are met and the company succeeds based on the work done. The negotiation is all about achieving value for money and performance.

Caution: resistance to performance payments… Many consultants are not held accountable for meeting all of the project deliverables and will extend timelines with scope creep as a way of increasing revenue and finding other areas to extend their longevity in the business. Milestone and performance payments keep the consultants efficient and focused on the task and deliverables at hand.

While we focus on fees, it is much more important to quantify the objectives and deliverables at the front-end of any assignment. Unfortunately, the stakeholders are trying to quickly address a business issue and are unlikely to want to dig into the detail. As procurement professionals, it is our job to educate and influence stakeholders to ensure that the service being provided meets the expectations of the company at the agreed fee rates.

Performance payments and a team that remains with the assignment from the start will take you far.

https://www.linkedin.com/in/wlmaripart

 

Leave a comment


SmartProcurement Newsletter
X

Please enter your details below to receive the SmartProcurement Newsletter for FREE on a regular basis.

As part of the SmartProcurement Newsletter you will be receiving World Class Procurement News, Tools, Tips, Tactics, Procurement Training updates, Upcoming Events, and the latest Procurement Career Openings.

* Email Address:
* Title:
* First Name:
* Surname:
* Company:
  Position:
* Country:
* Public / Private:

 

 

Career opportunites

Supply Chain Analyst

  • <500 000 Analyst Gauteng Permanent Supply Chain
Salary: R600 000 - R700 000 CTC per ...More

Supply Chain Manager

  • <500 000 Gauteng Permanent Supplier / Business Development Supply Chain
Salary: R600 000 - R700 000 per annum,Location: ...More

Demand Planner

  • <500 000 Gauteng Logistics & Warehousing Permanent Projects / Category Management
Salary: R450 000 - R550 000 per annum,Location: ...More

Demand Planner

  • <500 000 Gauteng Logistics & Warehousing Operations, Planning & Inventory Permanent
Salary: R500 000 - R500 000 per annum,Location: ...More

Warehouse and Distribution Manager

  • <500 000 Logistics & Warehousing Permanent Procurement Management
Salary: R650 000.00 - R850 000.00 CTC pa,Location: ...More

National Supply Chain Manager

  • <500 000 Gauteng Permanent Procurement Management Supply Chain
Salary: R900 000 - R1 000 000 per ...More

Procurement Specialist

  • <500 000 Gauteng Permanent Procurement Management Procurement Officer / Specialist
Salary: R380 000 - R420 000 per annum,Location: ...More

Supply Chain Analyst Lead

  • <500 000 Analyst Gauteng Permanent Supply Chain
Salary: R1 000 000 - R1 100 000 ...More

CIPS Tutor and Coordinator

  • Gauteng Permanent Projects / Category Management Supply Chain
Commerce Edge South Africa,Division: Commerce Edge Academy,Location: Johannesburg, ...More

Warehouse Manager

  • <500 000 Gauteng Industrial Engineer Logistics & Warehousing Permanent
Salary: R480 000 - R600 000 per annum.Location: ...More

Senior Buyer

  • <500 000 Buyer Gauteng Permanent Procurement Consultant
Salary: R600 000 - R650 000 per annum.Location: ...More

Operations Manager

  • <500 000 Gauteng Operations, Planning & Inventory Permanent Supply Chain
Salary: R700 000 - R800 000 CTC per ...More

Warehouse Manager

  • <500 000 Gauteng Logistics & Warehousing Operations, Planning & Inventory Permanent
R400 000 - R480 000 CTC per annum.Location: ...More

Supply Chain Analyst

  • <500 000 Analyst Permanent Supply Chain Western Cape
R400 000 - R500 000 per annum.Location: Cape ...More

Commodity Manager

  • <500 000 Commodities Gauteng Permanent Procurement Consultant
R650 000 - R750 000 per annumLocation: Cape ...More

Logistics Manager

  • <500 000 Gauteng Logistics & Warehousing Operations, Planning & Inventory Permanent
Salary: R 800 000 - R 900 000 ...More

Demand Planner

  • <500 000 Gauteng Operations, Planning & Inventory Permanent Projects / Category Management
Salary: R 600 000 - R 650 000 ...More

Supply Chain Analyst

  • <500 000 Analyst Gauteng Permanent Supply Chain
R600 000 - R700 000 per annum Location: ...More

Commodity Manager

  • <500 000 Commodities Gauteng Permanent Procurement Management
R850 000 - R1 000 000 per annumLocation: ...More

Commodity Manager

  • <500 000 Commodities Permanent Procurement Management Western Cape
R700 000 - R850 000 per annum,Location: Western ...More