By: Cal Harrison and Ben Shelton
How can a buyer of management consulting services find the best consultant when they are not themselves a subject matter or consulting expert? When buying commodity goods or services, it is easy to select between vendors as the price is often the only factor differentiating factor.
However, when low-price is a selection criteria (even if only weighted at 10%) when hiring professional services firms such as those in management consulting, the research clearly illustrates that buyers pay more by forcing proponents to focus on reducing the initial price at the expense of long-term value, user satisfaction, safety and innovation.
The solution to this problem is Qualifications-Based Selection (QBS), a procurement method that focuses only on a firm's metrics, such as expertise and past performance. This system was first introduced for architects and engineers in the United States in 1972 via the Brooks Act; it has since had much success and has resulted in 47 states introducing forms of QBS legislation. It is interesting to note that in almost 50 years none of these states have abandoned QBS to go back to traditional price-based Requests for Proposal processes.
Although it is most commonly used for AEC procurement, QBS is directly applicable to all professional services including management consulting.
With QBS, a budget or budget range is often identified by the client or buying agency, as this info provides professionals with the info they need to opt into or out of the project. The price is only negotiated with the most qualified proponent, ensuring that the project will have a high degree of quality and that project scope can be discussed in a joint capacity.
Unfortunately, clients often deem bids necessary as they act as a method of price discovery; when buyers of management consulting services, especially buyers who are not themselves consulting professionals want to contract a management consultant, they often use bids as a method to discover what their budget should be. However, it should not be the responsibility of consultants to invest tens of thousands of dollars in writing proposals and estimating costs for a buyer who may not even be able to afford the project once they do determine the price. This behaviour is not only inefficient, but it is also unethical; a buyer should use conversations with credible consultants to discover their budget, instead of compelling consulting firms to contribute speculative work by providing plans and price breakdowns without any guarantee the buyer can even afford to proceed with the project.
As a management consulting provider, you understand the high costs of developing a proposal, and the waste generated by those costs when your firm isn’t awarded the contract. With QBS, interested professionals at first need only to respond to a request for qualifications (RFQ) with a brief document containing qualifications that are pertinent to the project. If your firm is deemed to be the most qualified, clients will begin scope and budget negotiations with only your firm. An interview is sometimes used to select between the top competing firms. Sound familiar? It should. It’s how most of the western world hires their staff.
A study by the American Institute of Architects found that QBS drastically reduces costs for both the buyer and the seller of professional services and is less time consuming from the approval of funds to the commencement of the project compared to a best-value system (read: a typical Request for Proposal process), which awards based on a combination of expertise and price. The study noted for firms using a best-value system, the “requirement that competing firms submit elaborate technical proposals accompanied by fixed prices, also results in an extraordinary cost to the A/E firms that compete but are not awarded contracts.”
QBS proposals are more affordable than their best-value counterparts, as they do not require pricing analysis, which can often be the most expensive component of a proposal.
With QBS, firms are awarded contracts by merit, not by participation in a bidding war. QBS can save firms money both in the number of proposals they write, and the cost of a given proposal. So, you may ask, what can you do to advance the movement towards QBS in Canada?
Canada is undergoing a movement towards QBS via a pilot program run by the federal government that will trial its use for the procurement of architects and engineers. QBS is also being used provincially in Quebec as well as in several municipalities including the city of Calgary and the city of Nanaimo. Education and awareness about the benefits of QBS especially beyond the architecture, engineering and construction sectors is crucial to its expansion to the rest of Canada and into other sectors.
One of the most significant influences you have as a provider of management consulting services is the connection you have with your clients and colleagues. By conveying to clients and other professionals that everyone saves money when selection is based on merit, you are advancing the QBS cause.
About the Authors
Cal Harrison inspires change in buyers and sellers of professional services. He is the author of The Consultant with Pink Hair as well as Buying Professional Services: Replacing the Price-Based Request for Proposal with Qualifications Based Selection.
Cal is the President at Beyond Referrals - anti-RFP sales advice for the consulting professions. He is a Certified Management Consultant (CMC) and a graduate of The University of Manitoba (MBA, BA). For more info, visit: http://beyondreferrals.com/
Ben is a part-time researcher with QBS and a full-time university student.
A free report detailing the various benefits of QBS and its implementation in Canada can be found at QBSCanada.ca - feel free to download and share it with your colleagues to advance the use of QBS and reduce the billions of dollars wasted every year in Canada by the use of the price-based Request for Proposal process.