Professional services is a category of spend that is sometimes poorly understood and often not addressed when searching for cost saving opportunities, says Elaine Porteous, an independent procurement advisor. “If any area within the broad category of professional services has never been sourced or has not been addressed within the last three years, your company is paying 10% – 20% too much! ”
This category encompasses all strategy, I.T., finance and management consulting engagements, both general and specific, long- and short-term, as well as legal, HR and other specialized services. The overall spend in an organization in these areas may not be immediately visible as engagements are often not entered into through regular procurement channels. “Can your organisation identify your main spend areas in this category? is actually a more complex question than it seems, ” she says
How can we manage our consultants better?
“The process starts when the right consultant for the right job is found by by asking the consulting firms for reference sites and testimonials relating to the issue that requires their attention.”
“Here are some pointers to use when sourcing or negotiating with management consultants on a new engagement :”
• Have a firm contract or Terms of Engagement that includes:
o A clearly defined outcome and transfer of knowledge to the client
o Basis of payment – either lump-sum or “daily rate”
o Progress payments based on deliverables or milestones
o Incentives for early completion/ Penalties if late delivery
o Extra discounts for early payment and for multiple engagements
• Ensure that you secure your intellectual property and guard against any conflict of interest
• Limit your financial exposure by capping their fees AND expenses upfront. A big expense that is often overlooked is that of travel and accomodation. Be sure that these costs are understood upfront.
• Get the consultants to obtain approval from you for any advertising or publicity resulting from the engagement. Your brand is valuable!
Many of the consulting firms will include value-added services such as research reports, summaries of their completed projects and international best practice information but you have to ask! But beware of scope creep…
What about legal fees ?
Legal services is just another professional services commodity and can be actively managed although not many companies do tackle this area. It can be done successfully with the full commitment and sponsorship from top management and active participation from the in-house legal team. What can be done?
• Hourly charge-out rates can be fixed with each firm for one year for each type of specialist service
• Spend can be aggregated across less firms providing good cost savings
• Many additional free services can be extracted from the firms, e.g. updates on new legislation in your industry
• Routine expenses can be controlled if included in the charge-out rates.
Some ideas on managing recruitment expenses:
One of the biggest external spend areas in Human Resources is recruitment, both temporary and permanent. Do you have clear visibility on how you pay for these services?
Ideally temporary recruitment, a repetitive activity, should be formally contracted with one or two companies to aggregate spend and reduce the costs. A recent sourcing activity at one multi-national highlighted that the mark-up charged by temporary recruitment firms can vary between 20% and 50% of the amount they pay over to the temporary employee!
The Author of the article, Elaine Porteous can be contacted on 082 412 5831