Procurement perspectives: justifying consultancy fees

By Stephen Bauld

One might wonder why, as a consultant for over a decade, I would write about overpriced consultants. Being in this industry, I often hear stories about the high costs incurred when securing consulting services; these stories are widespread and frequent.

Indeed, it is surprising how many consultants are so sensitive to this issue. So much so that they actually make a point of declaring in their advertising material that “we are not going to charge you outrageous fees”. Much of the adverse newspaper commentary in relation to the cost of consultants to government is exaggerated.

Firstly, the rates charged by consultants vary widely. Some consultants may charge as little as $500 to $1 000 per day. Conversely, a highly-specialised, internationally-recognised consultant may charge 10 or 20 times this amount.

On a large project, such as retaining a consultancy firm to assist with restructuring staff and salaries following an amalgamation of three cities, the consultancy costs could be well over $1 000 000. It would be hard to describe the first consultant cost as “outrageous” by any standard. Whether or not the second might seem high would depend on the range of services rendered.

Secondly, although consulting fees are relatively high compared to prevailing hourly rates for general labour, this is not a fair comparator to use when considering such rates. The high prices that consultants allegedly charge need to be considered from a proper perspective. No consultant takes home anywhere close to the hourly rate that they are likely to bill. A senior consultant with a PhD-level qualification in a scientific field, and who is recognised as a leading authority within their province of residence, is a highly-qualified professional with a great deal of specialist knowledge. At the very least, they might reasonably expect to earn an income at least on par with a senior lawyer in government practice. Even so, there is no doubt that there is a good deal of legitimacy in the widely expressed belief that payments made to consultants seem more than occasionally to be very high.

Too often the buyer responsible for a consultancy contract simply processes invoices as they are submitted, applying no further test than whether the work claimed appears to be within the scope of the contract. The review of billing (as well as the underlying work) needs to be more rigorous than this. Ideally, the payment process should involve an assessment by the ordering department as well as the purchasing department to verify whether the municipality is receiving value for money.

At one time, consultants were retained only to provide highly-specialised services. In the age of widespread downsizing, consultants are now employed to deliver many services that municipalities previously obtained on an in-house basis. Sadly, the elimination of internal expertise does not remove the need for expertise.

It would be unwise to cap rates at unrealistic (i.e. below market) levels. Generally, consultancy costs reflect market conditions. Rates of several hundreds of dollars an hour are now quite common in Ontario for consultants of all kinds. These rates should not be compared to the salaries of in-house staff.

They also include office costs, secretarial costs, telephone and office equipment-related costs and many other costs that the consultancy firm must pay. Major consulting firms almost always operate out of Class A office accommodation, which costs far more than the type of office facilities generally provided to the public service.

Another option which municipalities may wish to consider is creating a co-operative consultancy firm of some kind, owned and operated by a number of municipalities on a collective basis. This would be to perform work that is beyond the normal expertise of in-house professionals but which could be delivered through some sort of controlled arrangement across a number of municipalities.

Stephen Bauld is a government procurement expert.