HOW WISE IT IS TO NEGOTIATE FEES WITH YOUR CONSULTANTS?

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In the past 35 years, we, the promoters of GEM ENGSERV, have worked on the client’s side as well as engineering consultants.  We have seen many people negotiate the fees with the engineering consultants. The word consultant in this article means an engineering consultant. When we worked on the client’s side, the people negotiating the fees were colleagues, pitted against a consultant. As a consultant, we have been in the unenviable situation facing a client who was bent on bringing the fees down.

All of us, who play a role in the negotiations, should understand that a consultant works for a client. His stakes in the project are significantly smaller than those of the client. If the consultant neglects or overlooks any vital aspect of the project, the loss to the client can be irreparable. Such a situation can only be avoided if the consultant is not made to compromise on the quality of the people he puts on the job or the time made available to him for delivery. I have listed the reasons for such misdirected negotiations under the following categories.

Ignorance about Consultant’s costs: As we all know, good people cost good money. Not only do they command good money but they require good working conditions as well. As such people become senior, they need good quality staff under them. A good staff requires computers, legal/licensed software and other facilities to turn out good work. This all costs money. On top of all this, inflation plays a significant role. Considering an average salary hike of about 10%, and that the software costs increase by 5 to 10% every year; for a given job, a cost hike of at least 5 to 10% per year is not only reasonable but imperative. During one negotiation, (I was working for the client then), I heard my negotiating colleague suggest the consultant not to give salary increments for the duration of the project!

Later, after about a couple of days, I asked the colleague whether he would forgo his yearly increment to keep our costs down.  He was incredulous. “Why should I?” he said?  I saw his updated resume on a job portal, a few days later.

If you reduce the fee of a consultant, he has to take more number of jobs in order to sustain. This he has to do with the same manpower to make it viable. The result is obvious. Your expected deliveries are delayed or are sloppy or both due to increased cognitive load on each person.

In many first world countries, where the professional bodies are strong, the fees for a particular type of job are almost uniform. The negotiations then revolve around the deliverables and the schedule.

A belief that the job in question can be done by someone else at a lower cost: This stems out of comparing fee quotes without giving any consideration to the reputation, past record or personnel of the consultant.

Statements like “Your fee quote is nearly double that of the lowest bidder” are made when comparison is made between a reputed company and a freelancer.

The question is how reliable would be the party doing the job and what would happen if the job had to be done again. Money saved during negotiations may vaporize due to delays and bad quality.  In absence of a professional indemnity policy a client would have no remedy of recovering his losses against a freelancer.

Reducing a Consultant’s Fee is a part of Key Performance Indicator (KPI):  More often than not reducing a consultant’s fee is viewed as a part of the KPI. It may have been explicitly stated as “negotiating skill” or not but it is certainly treated in all the clients organization as a desirable trait in an individual. Such an individual is generally oblivious to the efforts required to do the job or the skill level required to do it. He is only focused on the fee reduction. A wily consultant can sense this and put across certain conditions that the client may find difficult to fulfill.  These conditions might relate to deliverables, payment, and information from the client etc.

Trying to reduce Consultant’s fees without any real reason:   Sometimes, an officer of a government authority, takes upon himself, to negotiate fees with an already lowest bidder. This not only is incorrect but a breach of  guiding procedure.

Considering all of the above and if one really has to negotiate fees then it would be wise

  1. To make the consultant earn some part of his fees by delivering on time, achieving some economy etc. against pre-defined measurable goals.
  2. To incentivize the consultant if he betters the above mentioned goals.

 

Jagdish Raje

Director

GEM Engserv Pvt. Ltd.