Reducing the increasing 'billable hour' cost in the procurement of professional services...

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Hourglass Money (100 x 125).jpgIn the first instance, the commodity group 'professional services' nowadays encompasses an extremely broad range of technical and specialised services ranging from consultants (e.g. accounting and tax) to architectural, business communications, legal, medical, and so on. Secondly, because of the ever increasing complexity of the global economy and the processes of government, the need for outsourced expertise is rapidly on the rise.

Thirdly, with the demand for these services outpacing the expertise available, the fees being charged by the professional league are increasing at a rate well ahead of even our relatively high inflation rate. An article by John Intini, as published in the Macleans Magazine (a Canadian weekly) raised some interesting thoughts on the subject.

From the procurement point of view the critical issue with this spend group is the ‘billable hour’, which is the widely accepted standard for pricing and ultimately invoicing. By its very nature, the billable hour is extremely difficult to estimate (especially from the client’s planning point of view), and, once in the arena of say a court case, almost impossible to control and manage.

The article by Intini, ‘Time to stop the clock', focuses specifically on the legal profession where the billable hour is the pricing benchmark. The key questions raised in the article are how to manage spend, whilst limiting your liability and ensuring you get what you ultimately pay for. Given the protracted nature of litigation, one needs to ask whether you are willing to accept open-ended, indefinite and unknowable liabilities? According to Intini, some legal firms are now offering alternatives to 'charging by the hour’ by offering 'contingency fees' (payable only if the result is favourable) and fixed or flat fees.

The article further notes that with little incentive for the large firms to change this highly lucrative business model, experts say that the push will need to come from clients. Also, it goes on to highlight the ultimate irony, that “there is no other business that we do not know the price of something before we buy it. Imagine getting on an airplane and being told they are going to charge you by the minute. It's crazy. Nobody would do it".

This and other similar considerations will be in the spotlight during the next SmartProcurement "Sourcing and Contracting of Professional Services" workshops as held in Gauteng on the 11th of February 2009, in Cape Town on the 18th of February 2009, and in Durban on the 25th of February 2009. For more information, please contact Erieka Santos on 086 133 4326 or on 083 454 6915, or alternatively email admin@smartprocurement.co.za.

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