Price Based Selection: Three Costs to the Consultant

Consulting has taken me, with some detours along the way, across the spectrum from an employee of a medium-sized firm to a sole proprietorship. At both ends of the spectrum, my principal functions have included marketing and project management, or what some call, the “seller-doer” role.

Many lessons have been learned in this “seller-doer” role, some gently and some at high cost. One lesson is not to pursue what you view as a professional assignment if price is to be the client’s primary selection factor, contrasted with qualifications-based selection (QBS). Or stated differently, if you decide to “bid,” be upfront with yourself and those who will be affected, usually adversely, about why you are doing so. Participating in price-based selection (PBS) of professional service providers can result in up to three “costs” to the consultant and often all three.

Offering Less Than We Should

The first cost occurs during the proposal and contracting phase. Because price will drive the selection, the professional must carefully and narrowly respond to the potential client’s request for proposal (RFP) or other description or knowledge of client wants and needs. The proposal preparer must “sharpen his or her pencil.” He or she may be tempted, as one consultant told me, to create the image of offering a “big box” while being sure there was as little as possible inside.

Some of the relevant and valuable knowledge gained through education and experience may not be used – the budget won’t allow it. For example, the preparing engineer may believe that a stakeholder involvement program is needed if the design is to be ultimately supported and constructed. However, stakeholder involvement is not being requested and would, therefore, add upfront costs that are likely to jeopardize selection. The type of solution that the client wants may not, in the judgment of the professional, be the most effective in the long run. If a range of options were to be explored, which would add engineering costs, a solution with a lower life-cycle cost would be likely. But, the extra engineering costs would be counterproductive in the PBS environment.

You might ask what is this first cost to the consultant? It is the frustration caused by not being able to fully share the benefit of one’s education and experience with the potential client. Even the ethically disadvantaged would seem to be affected. The foundation of our profession is its growing body of knowledge that we strive to learn, add to, and use to serve others. Under-utilizing that body of knowledge in order to win in a PBS selection process seems just plain wrong. Would we want our medical doctor, financial advisor, attorney, or child’s teacher to draw on only part of what they know about meeting needs in exchange for reduced compensation?

Reduced Profit

The second cost to the consultant, which is related to the first cost, occurs during the project. Assuming that we have been fortunate (or unfortunate?) to be selected based on our “bid,” we now begin to provide the promised scope and deliverables. Our intent is to do so in as “bare bones” a manner as possible.

As we proceed, however, those important project elements we omitted to yield the lowest bid, simply do not go away. They are now planted in our subconscious mind and keep creeping into our conscious mind. We try to clip them but many of us succumb to the temptation to put some of those elements back into the project. Maybe we are compensated for some of this consultant-driven scope creep because we are able to convince the client that the additions are warranted. In many cases, we unilaterally add services for which we are not compensated and lose monetarily. Our firm reduces its profit margin or effective multiplier on the project or our effective hourly rate declines. This is a monetary cost to us; it comes out of our pockets.

Damaged Reputation

The third consultant cost arises when our portion of the project, be it a study, a plan, a design, construction, or workshop is completed. Maybe it begins even before our work is done. This cost emanates from the client’s increasing realization that the project is deficient. Perhaps citizens and their elected representatives are expressing opposition to the project. In retrospect, stakeholder participation should have been an element of the project. Or maybe insightful decision makers are asking questions about other options considered and the real or life cycle-cost of the option that was selected from the outset. More analyses should have been conducted.

An ethical client will accept some of the blame for what are increasingly seen to be project deficiencies. Others won’t. Regardless, our engineering firm is likely to be criticized for not addressing all the issues; for not appropriately drawing on our and our professions’ body of knowledge. Increasingly, our clients and other stakeholders ask “what were we, the consultants, thinking?” Thus we arrive at the third consultant cost: Frequent and widespread allegations of deficient services. And we consultants rise or fall on our reputation.

Closing Thoughts

Do you agree with, or are you at least considering the merit of, the preceding three consultant costs of participating in PSS? If so, a logical follow-up question is: why do it, why enable ourselves and our firms to incur these costs?

One reason we do this is to survive. In the short run, little or no profit seems better than none at all. Maybe we reason, as a friend and consulting firm executive said to me with tongue-in-cheek, “we will lose a little money on each project but make it up in volume.” Another reason to engage in PBS is to “win” a project for the knowledge and/or contacts it may provide. I have done this, “lost my shirt” in the process as planned, and may do it again.

Maybe we participate in PBS because we are in the commodity business. We reason that many organizations do what we do and we all do it about the same. Price is the differentiator. If you are in that business, ignore this essay. Perhaps you can do well financially and psychologically.

For the rest of us, let’s include in our “go-no go” process careful probing of the probable bases for consultant selection. Study the RFP, question the potential client, review previous experience with the client, and ask colleagues about their experiences with the client.

If “price” is going to be a major selection factor, think of the three costs we may incur if we are “fortunate” enough to be selected. Think also of the ethical implications of participating in a process, that from the outset, is not designed to serve the long term best interest of the client and its stakeholders. Besides the three costs we are likely to incur, consider the costs that will probably be incurred by the client and stakeholder, as suggested by the English philosopher John Ruskin:

It is unwise to pay too much, but it is worse to pay too little.
When you pay too much, you lose a little money, that is all.
When you pay too little, you sometimes lose everything
because the thing you bought is not capable of doing the thing it was bought to do.
The common law of business balance prohibits paying a little and getting a lot—
it can’t be done.
If you deal with the lowest bidder,
you might as well add something for the risk you will run
and if you do that, you will have enough to pay for something better.

If you wish to discuss this article or anything else, please email me at stuwalesh@comcast.net or call me at 219-242-1704. By way of further introduction, click here to see my short biographical sketch. Or click here to learn about my managing and leading books. Finally,  information about clients and ways I have helped them is at www.helpingyouengineeryourfuture.com/clients-served.htm


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