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INTRODUCTIONFor any organisation of scale, wherethere is an on-going flow of work thatrequires specific specialised skill sets,the optimal solution is to develop andutilise these skill sets internally.However most organisations will lackan appropriate specialised internalresource for particular “once off ”activities or projects and all will need toemploy at least some 3rd partyresources to meet a regulatory orlegislative need for example.

Such professional services can bedefined as the infrequent, technical, orspecialised functions performed by

independent contractors orconsultants or firms whose occupationis the rendering of such services(referred to in this article as a“Provider”). Examples would include:accountants, consultants, actuaries,

architects, lawyers, engineers andrecruiters. The selection of a Provider inthis area is usually based on skill,knowledge, reputation, ethics andcreativity as well as cost.

Where a procurement function existswithin the organisation (Client), theprocurement of professional servicesshould fall under the bailiwick of thatfunction. However it would not beunusual for that not to be the case. Formany organisations the purchase ofprofessional services is amongst theleast likely to be subject to theprocurement disciplines that add suchvalue elsewhere.

Buying Professional Services

Risks and Reducing RisksThe selection of a

Provider in this area isusually based on skill,

knowledge, reputation,ethics and creativity as

well as cost

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The decision that the work needs to be

done externally shouldbe separated from the

other decisions

PROFESSIONAL SERVICES

This article will make the case for theinvolvement of professionalprocurement and will show how usingprocurement methodology andthinking in buying professionalservices can reduce the risks inherent inthese procurement decisions.

While much of what is said can apply toall organisations, compliance withstatute or other regulatoryconsiderations (not dealt with here) willplay a much larger role in the publicsector.

WHAT ARE THE RISKS?The big risk is that the Client does notget what was needed and expected fromthe engagement of the Provider.

This can occur because of one or moreof the following reasons:

● The wrong Provider was chosen.● The Provider did not perform.● Inappropriate resources were

made available by the Provider.● The Provider could not perform

because of Client factors outsideits control.

● The wrong solution was chosenbecause an insufficient orinappropriate range of solutionswas made available by the Providerto the Client in the first place.

● There was a lack of progresstowards the objectives.

● The cost was too high.● The assignment took longer than

anticipated.● The assignment was bad value for

money.● There was a lack of client

stakeholder buy in to theProvider’s objectives and efforts.

● The Client was unable toappropriately support theawarding process.

WHEN DO THESERISKS ARISE? Assignments typically go wrongbecause the particular provider wasselected and the instruction to thatprovider occurred before all of thenecessary factors had been taken intoconsideration and thought through by

any possibility of an objective andpossibly necessary selection processdisappear regardless of the potentialspend. The immediacy or scale of thepotential issue and the perceivedurgency with regard to making progresson that matter can dwarf all otherconsiderations – until the invoices startarriving and someone starts askingdifficult questions.

What should be clearly remembered isthat irrespective of the service requiredor the Client’s issue, that servicerequired or the issue to be dealt with isthe Provider’s commercial opportunity.Immediately an instruction is given,most buyer leverage shifts to theprovider. It would be regarded as quiteunusual, particularly for cost reasons,to change legal or indeed any advisorspost instruction.

Provider selection is the key tool in theClient’s procurement toolbox and theremoval of competitive tension isalways to the Client /buyer’disadvantage.

LETTER OFENGAGEMENTThe vast majority of these problems canbe dealt with in advance by selecting theright Provider and constructing theengagement in a way that completelyaligns the Provider’s objectives with theClient’s from the outset.

The objectives of the buyer and theseller of all services, but particularlyprofessional services, must becompletely aligned before the workstarts. Any divergence or gap inunderstanding, deliverables, timelines,price, responsibilities or specificresources on offer should be dealt withbefore the assignment commences, orthe Client will suffer the consequenceslater. The best method of aligning theobjectives and understanding of theClient and the Provider is to lay out allpertinent matters in a letter ofengagement (LOE). This should beagreed and signed before theassignment commences. All too often aLOE emerges after the assignment hascommenced or not at all.

the Client. All too frequently seniormanagement when contactingpotential providers accelerate from abriefing to a provider into acommitment to that provider in a waythey would never do for other morefrequently purchased services or goods.What starts off as a briefing to or adiscussion with a potential providercan turn all too easily into an illdefined, open ended and very expensiveinstruction.

Very often senior management orboard approval that a piece of workmust be externally sourced triggers acommitment to a particular providerbefore sufficient effort is taken infinding out if the suggested provider,price or solution is the best available.The decision that the work needs to bedone externally should be separatedfrom the other decisions.

Entering into a commitment too earlyincreases the possibility of anunsatisfactory outcome greatly.

This can be particularly true in the caseof engaging legal services. Normallywhen a need for legal services emerges,the first firm called gets the work and

John Stephens

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PROFESSIONAL SERVICES

Client /Buyer leverage with regard toresolving any lack of alignment inthese matters is severely compromisedif the work has already commenced.

The Clients procurement team shouldfacilitate signature of the LOE by theinternal customer when agreed .As theLOE is a contract, legal oversight maybe necessary. However, what is mostimportant with regard to the LOE isthat it accurately represents what isexpected from both parties from theassignment/engagement.

HOW TO REDUCE THE RISKA Provider should be selected and itsservices procured on the basis of acompetitive and objective process.Expectations of both parties relating toparticular assignments orengagements should be laid out in asmuch detail as possible in a LOE. Theprice should be both capped from theClient /Buyer perspective anddeliverables dependent.

A Capped price means that the cappedprice is the maximum that can be paid(on the basis of pre specifiedassumptions) .The risk in relation toprice should be with the Provider andany underutilisation of resourcesshould benefit the Client /Buyer.

This is distinct from and better than afixed price arrangement where a fixedprice must be paid by the Client even ifconsiderably less or fewer resourcesthan anticipated are used.

Deliverables dependent means that amaximum of the capped price shouldonly be due and paid if the prespecified objectives as laid out in theLOE or ‘deliverables’ are met. This isdealt with in more detail below.

Payment on a ‘time and materials’basis for professional services shouldbe strenuously avoided. The focusshould always be on getting a specifiedpiece of work executed as efficiently aspossible. Paying by the time spent, evenat seemingly attractive rates, reducesboth Client and Provider efficiency.

Using normal procurement processescan of necessity take a little time. Lackof time is usually given as a reason notto use a tendering process. However theprinciples listed below can be appliedeven when as little time as a few days isavailable, by incorporating thefollowing into an abbreviatedcompetitive process The fundamental principles that apply

to all procurement decisions are:

1. Maximisation of competitivetension

2. Openness and fairness3. Objectivity

TENDERINGWhere there is a significant spend, timeavailable and some procurementsupport, TENDERING for professionalservices is regarded as the best way ofobtaining the optimum result. Mostreaders will be familiar with standardtendering processes so these are notdescribed in detail here. In general theprocesses are the same for tenderingprofessional services and as in othertendering scenarios, the procurementrole is to facilitate and/or to drive anefficient process to get the mostsuitable provider at the best possibleprice. However there are some aspects oftendering for professional services thatare slightly different from the standardprocess /norm and require a slightlydifferent focus.

1 DeliverablesThe first of these is the definition ofdeliverables between the parties .Thedescription or definition of thedeliverables and how those deliverablescan be eventually measured both in the

tender document and in the LOE isabsolutely fundamental to the successand the assessment of the success ofany assignment. Poorly expressedrequirements and the eventualdivergence of view between Client/Buyer and Provider as to what wasasked for in the first place is a hugeproblem in the procurement ofprofessional fees, which cannot be over- emphasised.

Professional procurement should beable to assist greatly in this regard

Sometimes the nature of an assignmentcan make the early definition ofdeliverables difficult. For instance, aprofessional service is required to solvea particular problem but the client doesnot know what the solution might be.In such a case accurately specifyingdeliverables up front could beextremely difficult and measuringeventual progress and success evenmore so.

The best way forward might be to splitthe opportunity into two sequentialtenders: - a planning phase and anexecution phase. This wouldconsiderably simplify how deliverablesmight be specified in any second andfrequently more expensive phase.Greater work would probably berequired up front but more ideas andpossible solutions will get on to thetable before completely committing inone direction. It could ultimatelyemerge that the Provider for theplanning phase is not the successfulbidder to provide the services in theexecution phase and that work isawarded to another bidder. Either waythe methodology of measuring thedeliverables and success for the secondphase will be much clearer, morebroadly based and suitable forincorporation into a LOE than tryingto firm up on such matters using onetender.

2 The selection panelThe successful procurement ofprofessional fees requires a greateramount of qualitative assessment bythe selection panel. For this reason

The objectives of thebuyer and the seller of

all services, butparticularly professional

services, must becompletely aligned

before the work starts

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PROFESSIONAL SERVICES

Stakeholder/internal Client involve-ment and the involvement of a crossfunctional selection panel, at all majordecision points, is even more necessaryin the procurement of professionalservices than in other significantprocurement scenarios. The panelshould include a representative of allsignificant stakeholders such as say:Operations, Finance and ProgramManagement as well as Procurement.This will help ensure the organisationgets what it needs and will greatlyincrease the organisational support as towhich provider is selected and on whatbasis. Selection panel vote weightingsshould also be agreed in advance.

As part of its function the selectionpanel should articulate, in the tenderdocument if possible but certainly inadvance of any responses, howimportant the relative attributes ofpotential providers are. This should bedone prior to provider selection andadhered to until conclusion of thetender process.

3 Assessment/evaluationcriteria

For professional services qualitativefactors in the evaluation criteria willsignificantly outweigh the quantitative.Evaluation criteria will probably besomewhat different for everyassignment and can include:

● Demonstration of understandingof the requirements.

● The Service Provider’s approach. ● The execution plan. ● A proven firm track record for

similar requirements. ● Access to and availability of

appropriately skilled resourceswith relevant experience (CVs)

The principle used in deciding whichevaluation criteria to use should be thatthe criteria used are both separatelyidentifiable from tender responses andalso assist the panel in differentiatingbetween potential providers.Weightings of criteria should reflectrelative attribute importance. Where an attribute is consideredabsolutely fundamental to the

execution of the service needed – forexample a proven firm track record forsimilar requirements, then a minimumnecessary rating of potential providersin that evaluation criterion should bespecified in advance in the tender toensure that only realistic contenderscan progress.

4 Financial criteriaThe proposed Service Provider’s priceproposition will always be part of thedecision matrix and pricing should berequested and submitted in a way thateases comparison. In general the morecommoditised the goods or services, thelarger the amount of weighting of price.However, as indicated above, forprofessional services it is usual that nonfinancial (qualitative) criteria get mostweighting.

5 Face to face Face to face contact after rating thewritten response is much more relevantand appropriate in the context of theprocurement of professional fees, thanit might be for other categories of

RiskWrong Provider was chosen

Provider did not perform

Inappropriate resources wereprovided by the provider

The provider could not performbecause of Client factors outsideits control (such as failure ofClient’s relevant employees toprovide information to Provider)

An insufficient or inappropriaterange of solutions was madeavailable by the Service Providerto the Client and the wrongsolution was chosen

There was a lack of measurableprogress towards the objectives

The cost was too high

The assignment took longer thananticipated

The assignment was bad valuefor money

There was a lack of internalstakeholder buy in to the providerobjectives and efforts

Organisation was unable tosupport awarding process

How risk was reducedEntire selection process should reducethis possibility

Deliverables based payment willminimise this possibility

Appropriately skilled resources criteriaspecified as part of the selectioncriteria (and specified in the LOE)

Mutual expectations should be set outin LOE and internal stakeholders’expectations should be aligned via theselection panel.

Suitable competition was brought intoselection process at the right time

Everyone knew what was expectedfrom the outset and how it was to bemeasured

Price capped and agreed in advance

Timing of deliverables was itself adeliverable

Price was capped and agreed inadvance

Stakeholder involvement start to finish

Tendering process auditable

However there are someaspects of tendering for

professional services thatare slightly different

from the standardprocess/norm ….

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PROFESSIONAL SERVICES

spend. An opportunity to meet theteam proposed and to re-examine thescores awarded in the light of thatmeeting or presentation can lead theClient /Buyer to change selection orindeed eventual LOE contents. How a

firm performs in a presentation itselfcan be a selection criteria.

Finally it should be mentioned that it iscritical in tenders for professionalservices, as for all tenders, that the

evaluation criteria and their relativeweightings should not change after thetender is sent. Changing the rules aftera tender is sent is unfair and changingthe rules after responses have beenreceived is even more so.

ConclusionThe outcome of the tender process andadhering to the correct proceduresshould be the selection of the bestprovider for the assignment. The risksspecified earlier should have beenreduced as shown in the panel on page28 opposite.

John Stephens FCCA, MIIPMM.Outgoing president of the IIPMMJohn is founder and principal of

Blantry Ltd., a consultancyspecialising in the procurement of

professional services. For further information contact

Tel: 01 6599431, email: js@blantry.com,

www.Blantry.com