Proposals Can Cost More Than The Project

For Immediate Release

Management Consultant Estimates $5 Billion Wasted Annually in Canada

Winnipeg, MB – March 25, 2015 – As Canadian cities and municipalities struggle to find new ways to fix their crumbling infrastructure and increase their global competitiveness, one management consultant in Winnipeg has a suggestion.

“Start hiring architects, engineers and management consultants that design and build infrastructure based on their qualifications and expertise instead of lowest price,” says Cal Harrison, Certified Management Consultant, international conference speaker, university lecturer and author of two books on the selling and buying of professional services.

“Although the public believes that low bid competitions for government (and other) contracts will result in low costs and ultimately low taxes, research confirms that buying on lowest price usually costs more in the long run. Price is the worst way to select a professional services provider.”

In a presentation he delivers at conferences and universities across North America, Harrison indicates that in many cases the cumulative proposal writing costs incurred by firms bidding against each other during a price-based competition are actually greater than the value of the project they are bidding on.

“Here’s an example. Recently 38 architecture firms were forced to spend approximately $20,000 each (mostly spent doing detailed pricing) to each write a proposal to try and win a project that would pay one winner $50,000 in fees. That meant that in total, those 38 firms spent $760,000 writing proposals so that one firm could win a $50,000 project. And over time that $760,000 is going to be billed right back to the tax payer or end user.”

Harrison adds that it’s common for architects, engineers, etc. to win about one in four projects that they write proposals for. “What that means is that the one project that they win has to cover the proposal writing expenses for the three projects they lose. So you can see how it’s to the buyer’s advantage to reduce the sellers’ proposal writing cost.”

It’s this sort of inefficiency that Harrison estimates is costing the Canadian economy $5 billion each year. He adds that these costs always get passed along to the Canadian taxpayer and end user over the long run.

“Pricing a complex project can take weeks for an architect, engineer or management consultant to figure out. Why have 30 or 40 firms do all that work when it makes much more sense to pick the one firm that you identify as most qualified to do the work and then negotiate a price with just them? The selection will be quicker, less costly, and research from the American Public Works Association indicates the final price will be three times more accurate meaning fewer unexpected cost overruns especially in construction related projects,” he adds.

“Whenever you see a large construction project going way over budget it’s likely that they did not use Qualifications Based Selection to select the vendors.”

Harrison said the US federal government introduced the Brooks Act in 1972 that mandates that architecture or engineering firms cannot be hired based on price. This has reduced the waste in public sector procurement and ensures that only the most qualified firms design the roads, bridges and buildings in the US instead of the cheapest.

Harrison wonders why Canada is still 43 years behind our neighbours to the south.

“Even a small professional services firm can be forced to spend hundreds of thousands of dollars each year writing proposals – so reducing that burden even just ten or twenty percent could be a big thing for our economy,” Harrison said. “Imagine what our roads and communities would look like if we could take all $5 billion dollars and shift them from writing proposals that end up in the shredder to doing things that actually add value to our communities – like investing in jobs, new research, selling into new geographic markets or reducing the cost of government?”

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Contacts: Cal Harrison
Beyond Referrals
Winnipeg, MB
(204) 293-2411
Cal@BeyondReferrals.com
www.BeyondReferrals.com
For more information watch Cal Harrison’s Professional Services RFP Reform 3.5 Minute Video

 

Sidebar A:

While most Requests for Proposals weight a bidders price at around 25% of the total evaluation, Harrison says that the other 75% of the evaluation (supposedly evaluating expertise and qualifications) is usually so poorly structured that many firms wrongly end up with the same or very similar scores on that 75%. So price becomes the differentiator meaning price effectively becomes worth 100% of the decision even though it was only 25% of the evaluation.

Sidebar B:

Expertise is hard to fake because it takes years to accumulate. It’s easy however to fake a low price and then use change-orders to increase the project price later. That’s why selecting the most qualified and then negotiating a price provides better protection against cost-increases and procurement corruption than buying on low price.

 

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The Consultant with Pink Hair

"This should be required reading for consultants AND their clients - especially the part about RFPs." - Blair Enns, Win Without Pitching

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