Employing professional advisers in the public sector is akin to having the builders in. You need to negotiate a fixed price, take up references and not be bamboozled by technical terms
I have recently had a lot of burly chaps fixing my house, and this has created the awkward situation of me having to talk to tradesmen. As with most middle-class men I am very bad at this and tend to either brush off my long lost ‘Sarf’ London accent and bluff knowingly about power tools or I become unbearably posh and speak like a character from Downtown Abbey chastising a miscreant gardener. Sometimes I veer between the two personas in the same conversation causing much hilarity to my wife and no doubt bemusement to my plumber.
I was reminded of my inability to engage normally with tradesmen when I read that my local council has been caught up in a minor scandal involving the use of external lawyers. The narrative of this affair is depressingly familiar – good intentions meant they went around procurement regulations to directly engage a single firm, the project dragged on for much longer than anybody anticipated before eventually falling over. There were tearful recriminations and the public sector ended up with a chunky bill for apparently little value.
Unfortunately, this sorry tale is not an uncommon occurrence. Despite the government’s best effort to rein it back, spending on lawyers, accountants and technical consultants by the public sector is still in the hundreds of millions of pounds per annum. So how does the public sector get better at buying professional services?
Having spent 15 years selling services to public sector organisations, this is one of the rare subjects I am reasonably well qualified to comment on. So here are my insider tips to get better value for money from your average designer-suited, BMW-driving public sector advisor. Oh, and by the way, that’s not me. I buy Autograph suits from Marks & Spencer and drive a five-year-old Toyota that my darling wife has scratched and dented beyond recognition.
Firstly, start by recognising that you probably buy professional services for three or four different reasons and you should pay for them in different ways. The first reason is economic-based. It’s the professional services equivalent of getting your car washed by those Eastern European chaps in the station car park whilst you go to work. You pay these people to do things you could easily do yourself but are too busy. The people doing this work are rarely retired rocket scientists, so you should pay them by the day, have a very fixed timetable for what they need to do by when and buy the cheapest.
The most common mistake you can make here is to take on somebody to do a fixed task, think they are a nice guy who could do lots of other useful things around the office and, before you realise it, you have paid tens of thousands of pounds for something you could have got a graduate trainee to do for about a fifth of the cost.
The second reason you probably use professional services is expertise. You could work out how to do the required task yourself given the time and the inclination, but it is easier to buy somebody in who has done it before. This is the consultancy equivalent of bringing in an electrician. You want somebody who has seen it, done it and got the T-shirt. You must always take up references and insist they work to a fixed price. This type of work is very common for legal services, procurement advice and implementing IT systems.
As with tradesmen, try to avoid people who suck their teeth when you first describe the problem, won’t give you a fixed price or cannot point to the exact same job that they have just completed for somebody else. Although organisations like to think they are unique, most of their solvable problems are pretty generic and you should be able to draw upon the well of other people’s experiences. Ask them in just what way your problem looks like the last job they did. Do not be fobbed off by phrases like ‘every client is different’ or ‘we develop ground-up solutions’. This is their code for ‘we are just going to wing it at your expense’.
The third reason is creativity. You face a problem that does not have a ready-made solution and you need somebody external to help you solve it. This is the high-end strategy stuff where good consultants truly earn their BMW and you are going to write painfully big cheques to pay for it. Unless you are working for the BBC, the number of times your organisation buys this sort of advice in your lifetime should be measured on the fingers of one hand. A common mistake is to think that buying strategy advice is a substitute for management competence. It’s not and unless you actually implement strategy and take difficult decisions you are going to waste a lot of taxpayers’ money paying for other people’s German cars.
The final and potentially most interesting reason is outcome-based. Your organisation wants to achieve desired and measurable outcomes, so you engage people who are experts in their field to help you get there. These outcomes will be varied, but typically encompass cost savings, debt raising or improvements in service delivery such as reducing processing times for benefits claims. Where you can be clever is to link the achievement of your outcome to the payment to the consultant ie if you save £x within a specified period of time, the consultant gets paid a single-figure percentage of the saving.
Outcome or contingent-based fee structures are so common in the private sector they are almost the norm. I have 15 fund-raising projects on the go at the moment and all of my clients only intend to pay me if we actually raise the cash or sell their business. Traditionally, the public sector has shied away from this approach much to the relief no doubt of many of the advisors they employ. For some lazy people, guaranteed day rates, whatever the outcome for their client, are always going to be preferable to a contingent fee.
Your existing advisors may kick and scream at this point and insist that, honestly, no really, your project is not suitable for contingent fees. Or put it another way, they want you to pay them many thousands of pounds, but they won’t take any risks that their efforts actually lead to a measurable benefit for your organisation. This does, of course, beg the question of why you are using taxpayers’ money to pay them at all, so I strongly suggest you dig in at this point. The private sector has been paying contingent fees for years and often on transactions where the public sector is paying the equivalent lawyers and accountants on their side of the fence fixed day rates.
Overall, fee levels from public sector work are much lower than they used to be in the heady days of the Labour government so you can take afford to take a tough line. Those BMW leases are not cheap, so any fee income however risky is better than nothing.
Finally, never engage any form of professional service without agreeing a budget or fee cap in advance. We expect you to do this. We won’t be insulted or put off. We will be amazed if you don’t. Clients who pay by the day and don’t fix fee caps are almost mythical beings who unscrupulous advisors dream about meeting and talk about in hushed reverent terms. Don’t be this person.
So, in conclusion, there is not really much difference between engaging a professional service firm and a plumber. You pay them both to resolve specific problems that either you don’t want to deal with or don’t have the experience/expertise. Both may try to bamboozle you with technical terms or apocalyptic diagnosis of your problems but never forget you are the client and they really really want the work. Repeat after me, fixed prices or fee caps, demonstrable track record and, ideally, contingent fees.
Michael Ware is corporate finance partner at BDO
