Will You Have Your TediumRare Or Medium?

(asking the right questions in consulting)

John N. Paine, PE, PH, CFMEngineerGKY & Associates, Inc.

Ogden NashAmerican Poet

Consulting Principle No. 1

Consultants Sell Time

They Do Not (typically to any significant extent):• Charge for products• Get a cut for what they produce• Benefit financially from their recommendations

Consulting Principle No. 2

Consultants Need To Make a Profit(Or at least have a fair chance to make a profit, see Principle Number 1)(Unless they are ‘non-profit’)

That profit has to come from selling time

Consulting Principle No. 3

All Consultants Are Not The SameSome are badA few are really badSome are mediocreSome are goodA few are really good

Do you really want the cheapest consultant?Do you really want the most expensive consultant?

(Don’t you have to spread the work around?)

Fully Burdened Rates

Profit Labor Rate Charged – All Costs Below

Rent, Utilities, Property TaxesLicenses, Fees, Equipment, SoftwareMarketing, ProposalsAdministrative SalariesManagement Salaries and WagesAccounting and Legal ExpensesDepreciation, ConferencesBonuses, Training

Vacation, Holidays, Sick Leave, Insurance, Education Assistance, 401(k) Match, Payroll Taxes

Fringe

Salary

Overhead

Pre-tax wage paid to Albert

HO

UR

LY C

HA

RG

ES

($)

$149.74 / houris the rate Albert’s company will charge for his services

HO

UR

LY C

HA

RG

ES

($) Profit

Fringe

Salary

Overhead

$149.74 / houris the rate Albert’s company will charge for his services

HO

UR

LY C

HA

RG

ES

($) Profit

Fringe

Salary

Overhead

The Multiplier Is2.73

($149.74 / $55.00)

55.00 55.00 55.00 55.00

29.15 19.25 12.10 22.00

99.0099.00

52.2559.13

45.79

0.00

5.97

13.61

0.00

50.00

100.00

150.00

200.00

250.00

Wreckless Company Feckless Company Techless Company Healthy Company

$ P

er H

our

Charge for One Hour of Albert’s Time(at 4 different companies)

Al's Salary Fringe Overhead Profit

Question:Who would you rather have Albert working for?

2.73

2.28

3.15

4.16

CONTRACT TYPE

1. Lump Sum (Fixed Fee)Scope is clear (routine work)Price of Work is NegotiatedConsultant eats any overageProfit can be stronger if everything goes better than budgeted

2. Time & Materials (Unit Price)Scope is blurry (uncertainty, contingent outcomes)If uncapped client pays for uncertaintyUsually capped (“not to exceed”)

3. Cost Plus Fixed FeeFee is Negotiated and FixedConsultant is rewarded for faster performanceConsultant is penalized for slower performanceIf capped CPFF can become like over-budget Lump Sum

Question:Which type is appropriate?

BILLING

1. Percentage of CompletionRequires client’s trustCan require extra documentationCan be difficult to quantify

2. Rate Schedule Forces over/under decisions (can be good or bad)Consultant often loses margin over timeCan require excessive auditingFalse comparisons between firmsRate caps can cause problems

3. MultiplierSimple to supportGives an accurate picture of ratesTends to result in the appropriate profit

RATE SCHEDULE(Concept)

Category Hourly Rate PersonnelPrincipal $210Project Manager $180Senior Engineer $135Engineer $110GIS Analyst $95Technician $80Admin $68

RATE SCHEDULE(Reality)

Category Hourly Rate Personnel

Principal $210

Project Manager $180

Senior Engineer $135

Engineer $110

GIS Analyst $95

Technician $80

Admin $68

Project Manager Pricing Styles

PROJECT MANAGER PRICING STYLES

1. Low Fee EstimateAnticipate best case scenarioPrice work as low as possibleNegotiate change orders if needed

2. No Change OrdersAnticipate client will want or need extra workPrice work allowing flexibilityLive with negotiated fee

3. High Fee EstimateAnticipate everything that could go wrongPrice work to cover contingenciesNegotiate change orders if needed

Question:Which style works best?

How Much Does a Contract Cost?

Activity

Do Consultants Get Paid For

This?

How Long Does This

Takes?

How Much Does This

Cost?Preproposal research, meetings No 2 to 4 months $3,000

Prepare and submit a proposal Are you kidding? ¾ to 1 month $15,000

Wait for shortlist announcement No 2 to 4 months $0

Prepare for Interview No ½ to 1 month $10,000

Negotiate Contract No 2 to 3 months $8,000

Go to Scoping Meeting No 1 month $1,000

Prepare and Negotiate Scope and Fee Estimate

No 1 month $6,000

Wait for Procurement to Issue Purchase Order

No 2 to 6 months $0

Open Project in Accounting System No ½ to 1 month $4,000

Totals: 12 to 22 months

$47,000

LANDING A CONTRACT

Question:How much revenue does this contract have to generate to justify the cost of this pursuit?

Consulting Principle No. 4

Time Is No One’s Friend

Prioritize the scheduleDo not cut cornersDo it right the first time

Work from a clear, well written scopeUnmet expectations cause frustration

Communication is the key to good results“A little bit of information at frequent intervals is better than no information and a large dump at the end.”(Mark Mansfield, USACE Norfolk, RET.)

Be fair when things go wrongPlan accordingly

Are There Alternative Approaches?

CONSULTING ALTERNATIVES

1. Design-Build

(Shorten Delivery Schedule)

One Contract

One Prime

Prime Pays Subs

Engineer Directs Contractor

2. DIY

(Build Internal Strength, Gain Control)

CONSULTING ALTERNATIVES

3. Use a “Management Consultant”

(Maximize Staff Efficiency)

CONSULTING ALTERNATIVES

4. Use a ‘Non-Profit’ or Public Resource

(Minimize Cost, Minimize Risk)

CONSULTING ALTERNATIVES

Are We Done Yet?

IT AIN’T OVER ’TILL IT’S OVER1. Acceptance of Deliverables

Client acceptanceRegulatory commentsRevise, resubmit

2. InvoicingPay subconsultantsFill out client forms

3. Project CloseoutArchivingQA/QC documentationProject write-upAccounting closeoutRecords retention

4. Follow-up RequestsExtra DVDs, ReportsSubsequent inquiries from clientClient auditAddress 3rd-party inquiries

Things I Wish Everyone Would Remember

ETHICAL PREFERENCES

Clients please…

1. Be Nice2. Insist on Quality Service and Accountability3. RFP Etiquette

Thank firms for submitting proposalsDo not request a detailed work approachDo not ask for rates (use reference letters instead)Notify all respondents of selection (in a timely fashion)Do not award multiple contracts unless they will be usedDo not do “cattle call” short list interviewsDo not bid professional workDo not write draconian or uninsurable contract language

4. Treat Consultants as Part of Your Team5. Respect Intellectual Property

ETHICAL PREFERENCES

Consultants please…

1. Never Compromise EthicsAvoid the appearance of impropriety

2. Deliver Quality Service and ProductsDo not skimp on QA/QCDo it right the first time

3. Do Not Try to ‘Out-contract’ the Client4. Honor Budgets

Do not take extra bodies to a meetingAssume responsibility for cost controlEat it when it’s your fault

5. Treat Clients with RespectReally give a damn about their successSolve problems, make life easier

6. Deliver the Whole Project

CreditsUncomfortable Cartoonhttp://www.condenaststore.com/-sp/Well-right-now-I-m-feeling-a-little-uncomfortable-New-Yorker-Cartoon-Prints_i8476087_.htmMoney Videohttps://www.ksl.com/?nid=1010&sid=28185373The Gold Rush Cliphttps://www.youtube.com/watch?v=gY0DOnNK3WgEinstein at Blackboardhttp://backgroundweddingpics.blogspot.com/2013/09/background-wallpaper-albert-einstein.htmlEinstein Cliparthttp://www.clipartlord.com/wp-content/uploads/2013/02/Sample Invoicehttps://projjexblog.files.wordpress.com/2009/06/projjex20090601-08.jpgFinish Line Cliparthttp://marilynmckenna.com/wp-content/uploads/2015/04/thumbnail.jpgHandshake Imagehttps://c1.staticflickr.com/9/8165/7441550592_6b37673ef8_b.jpg

Thank You!John N. Paine, PE, PH, CFMEngineerGKY & Associates, Inc.jpaine@gky.com