Sunday, November 3, 2013

Professional Fees - Cheapest price very rarely represent best value!

Suicidal fee bidding does not do Clients or Consultants any favours and in fact serves just to undermine the credibility of the built environment professions

We live in a very competitive world and in recent years due to the global economic downturn it is fair to say that businesses have had to adapt, diversify, and often downsize just to survive.  A successful business will also adopt a similar approach on an on-going basis, as a growing business will face similar challenges, all be it from a more positive perspective.  Gaining new and regular business is the key to the success of any business no matter where we are in the economic cycle and a key part of this is trying balance our professional fees so that they are competitive enough to attract new business and at the same time make a profit.

Businesses may be in a position to offer very competitive fees if they can tailor their services to be ‘lean and mean’, however, like myself, I am sure many reading this will have come across examples where they have submitted what they feel is a very competitive fee proposal only to find out that the Client has selected an alternative bid, for a fee that seems ridiculously unsustainable.  There comes a point where a Consultant has to question why they are doing certain things and working for ridiculously tight margins is not good for the long term viability of a business as well as undermining the value of good professional work and advice generally.  Clients should however be vary wary of selecting Consultants on the basis of lowest fee as they will often find that cheapest price very rarely represents best value.

Clients are perfectly entitled to expect as much as they can for their money, but Consultants do not do themselves, their Clients or indeed their professions generally, any favours by trying to undercut their competitors by submitting unsustainable fees.  One may argue that the sustainability of a fee will vary from business to business as overheads will also vary depending upon the size of a particular business.  A Client will therefore be well advised to carefully scrutinise all fees, particularly the lower fees, to establish precisely that their brief will be met, within the timescales provided with the resources needed including the level of personnel necessary. The adage, ‘you get what you pay for’ comes to mind.  A Client who selects a Consultant’s fee without suitable analysis, particularly a fee which is considerable lower than other bids, may be faced with a Consultant who is continually struggling to make the fee work for them, possibly resulting in a poor quality service, missed deadlines and disputes. 

There are a number of ways in which a fee can be calculated, from a percentage fee based upon the projected cost of the project to a lump sum fee which will be calculated based upon the amount of time likely to be spent on the project and the level of personnel and resources needed.  Either way carries an element of risk to the Client and to the Consultant. This emphasises why fee calculation and fee bidding is such an important part of a business. 

Arguably the success of any project can be measured by time, cost and quality, none of which are mutually exclusive.  By selecting a Consultant based upon cost alone (lowest fee), no account may be taken of the impact of time or quality.  So for example lowest fee (cost) may impact on the level of personnel that will be allocated by a Consultant to the project, which could be inexperienced/junior member of staff, which can effect (quality) and deadlines (time). Nowadays, savvy and may I suggest sensible Clients do not rely on fee value alone for selection of their Consultants but adopt a much more robust method of cost AND quality. 

A cost and quality approach to procurement of Consultant services provides a Client with a much more thorough way of ensuring that the selected Consultant helps them to achieve value for money.  Granted, this approach is more time consuming than inviting fee bids alone, as it often requires a quality submission and interviews as well as assessment of fees. The advantage however is that through the quality assessment and interview, the Client can review the Consultant’s track record of similar projects, discuss and meet key personnel, discuss deadlines, establish how best value will be provided and so on.  This will enable to Client to understand exactly what each Consultant will provide and give them the opportunity assess which Consultant they feel will give them best value.  Therefore a Consultant who submits a fee which may be higher than other fee bids, still has the opportunity of being selected as the Client, through the cost and quality procurement procedure may decide that the higher bid represents better value than a lower bid.

To conclude, Clients need to take time when procuring the services of Consultants to understand what the Consultant will provide for their fee and to establish whether they are getting best value.  Consultants on the other hand will always remain competitive with their fees however this should not be at the detriment of their bottom line.  Suicidal fee bidding does not do Clients or Consultants any favours and in fact serves just to undermine the credibility of the built environment professions.  If the general public want and expect high quality Professional Consultancy services then we should not give the impression through the fees we charge that they can buy these services from a high street discount store.  There is nothing wrong with healthy competition, however if Consultants continue to undercut each other and submit unsustainable fees, then this is not healthy competition but professional suicide, which is not in the interests of the general public because as we have seen, lowest price very rarely represents best value.

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  1. Interestingly it is not just the independent firms who are undercutting each other, some of the large multi diciplinary firms are charging their surveyors out at significantly less than mechanics at many garages. But then I suppose you can't get better than a Quick Fit Fitter!

  2. unrealistic fees induce poor quality services, clients ought to understand this.